Simple & Compound Interest

Front

What is simple interest?

Back

Simple interest is calculated using the formula: I = PRT, where I is the interest, P is the principal amount, R is the rate of interest per year, and T is the time in years.

Front

What is compound interest?

Back

Compound interest is calculated on the initial principal and also on the accumulated interest from previous periods. The formula is A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, including interest, P is the principal, r is the annual interest rate, n is the number of times that interest is compounded per year, and t is the time in years.

Front

How do you convert an interest rate from a percentage to a decimal?

Back

To convert a percentage to a decimal, divide the percentage by 100. For example, 6.75% becomes 0.0675.

Front

How do you find the time in years if given time in months?

Back

To convert months to years, divide the number of months by 12.

Front

What is the formula for calculating total amount with simple interest?

Back

The total amount A can be calculated using the formula: A = P + I, where I is the simple interest calculated using I = PRT.

Front

What is the difference between simple and compound interest?

Back

Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal plus any interest that has already been added.

Front

If you invest $1,000 at a 6.75% annual interest rate compounded semi-annually, how much will you have after 15 years?

Back

You will have $1,706.86 after 15 years.

Front

What is the total amount to be repaid on a loan of $18,000 at 7% simple interest over 4 years?

Back

The total amount to be repaid is $23,040.

Front

What type of interest should you seek to maximize earnings?

Back

You should seek compound interest with the highest interest rate.

Front

What is the principal in the context of interest calculations?

Back

The principal is the initial amount of money that is either invested or borrowed.