Compound Interest

Front

What is Compound Interest?

Back

Compound interest is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods.

Front

What does the variable 'A' represent in the formula A=P(1+r)^t?

Back

In the formula A=P(1+r)^t, 'A' represents the total amount of money accumulated after n years, including interest.

Front

What does the variable 'P' stand for in the compound interest formula?

Back

In the formula A=P(1+r)^t, 'P' stands for the principal amount, which is the original amount of money deposited or invested.

Front

What does the variable 'r' represent in the compound interest formula?

Back

In the formula A=P(1+r)^t, 'r' represents the annual interest rate (in decimal form).

Front

What does the variable 't' represent in the compound interest formula?

Back

In the formula A=P(1+r)^t, 't' represents the number of years the money is invested or borrowed.

Front

How do you calculate the interest earned from compound interest?

Back

To calculate the interest earned, subtract the principal amount (P) from the total amount (A): Interest = A - P.

Front

If you invest $1000 at an interest rate of 5% compounded annually for 3 years, what is the total amount?

Back

Total amount A = 1000(1+0.05)^3 = $1157.63.

Front

If you want to find out how much you will have after 5 years with a principal of $750 at an interest rate of 8.5%, what formula would you use?

Back

You would use the formula A = P(1+r)^t, where P = 750, r = 0.085, and t = 5.

Front

What is the difference between simple interest and compound interest?

Back

Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal plus any accumulated interest.

Front

If you want to save $4000 in 3 years and you invest $1500 at 12% interest compounded annually, will you reach your goal?

Back

No, you will not reach your goal of $4000 in 3 years with that investment.