Simple and Compound Interest

Front

What is Simple Interest?

Back

Simple Interest is the interest calculated only on the principal amount, or the original amount of money borrowed or invested.

Front

What is Compound Interest?

Back

Compound Interest is the interest calculated on the initial principal and also on the accumulated interest from previous periods.

Front

What is the formula for Compound Interest?

Back

A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, including interest.

Front

What does 'P' stand for in the interest formulas?

Back

'P' stands for the principal amount, which is the initial sum of money.

Front

What does 'r' represent in the interest formulas?

Back

'r' represents the annual interest rate (in decimal form).

Front

What does 't' represent in the interest formulas?

Back

't' represents the time the money is invested or borrowed for, in years.

Front

How do you convert a percentage to a decimal?

Back

To convert a percentage to a decimal, divide the percentage by 100.

Front

What is the relationship between Simple Interest and time?

Back

Simple Interest increases linearly with time; the longer the time, the more interest is earned.

Front

What is the difference between Simple Interest and Compound Interest?

Back

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

Front

If you invest $1000 at a 5% annual interest rate for 3 years, what is the Simple Interest earned?

Back

I = Prt = 1000 * 0.05 * 3 = $150.