Simple and 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, which also includes all of 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.

Front

How do you calculate the total amount with Simple Interest?

Back

Total Amount = Principal + Simple Interest = P + (P * R * T).

Front

What is the formula to find the interest rate in Simple Interest problems?

Back

Interest Rate (R) = (I / (P * T)) * 100.

Front

If Mr. Johnson borrowed $8000 for 4 years and repaid $10,320, what is the interest earned?

Back

Interest Earned = Total Repayment - Principal = $10,320 - $8,000 = $2,320.

Front

What is the formula for Compound Interest?

Back

A = P(1 + r/n)^(nt), where A is the total amount, P is the principal, r is the annual interest rate, n is the number of times interest is compounded per year, and t is the number of years.

Front

How do you find the total return on an investment with Compound Interest?

Back

Total Return = Principal + Compound Interest = A - P.

Front

What does it mean for interest to be compounded annually?

Back

It means that the interest is calculated and added to the principal once every year.

Front

If Caiden deposited $475 at an interest rate of 3.8% compounded annually for 15 years, how do you calculate his balance?

Back

Use the formula A = P(1 + r/n)^(nt) with P = 475, r = 0.038, n = 1, and t = 15.

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 interest that has already been added.