Interest Review

Front

What is the formula for calculating simple interest?

Back

Simple Interest = Principal × Rate × Time

Front

What does the term 'Principal' mean in finance?

Back

Principal refers to the initial amount of money deposited or invested before interest.

Front

How do you calculate the total balance after interest is applied?

Back

Total Balance = Principal + Interest

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.

Front

If you invest $1,000 at a 5% interest rate for 3 years, how much interest will you earn using simple interest?

Back

Interest = $1,000 × 0.05 × 3 = $150

Front

What does the 'Rate' represent in the interest formula?

Back

The 'Rate' represents the percentage of interest earned or paid on the principal.

Front

If you have $500 and earn $25 in interest, what is the interest rate?

Back

Interest Rate = (Interest / Principal) × 100 = ($25 / $500) × 100 = 5%.

Front

What is the total amount after 2 years if $1,200 is invested at 4% compounded annually?

Back

Total Amount = $1,200 × (1 + 0.04)^2 = $1,200 × 1.0816 = $1,297.92.

Front

What does 'compounded annually' mean?

Back

Compounded annually means that the interest is calculated and added to the principal once a year.

Front

If you invest $2,000 at an interest rate of 6% compounded annually for 5 years, what will be the total balance?

Back

Total Balance = $2,000 × (1 + 0.06)^5 = $2,000 × 1.338225 = $2,676.45.