Compound Interest

Front

What is Compound Interest?

Back

Compound Interest is the interest calculated on the initial principal, which also includes all the accumulated interest from previous periods on a deposit or loan.

Front

What is the formula for calculating Compound Interest?

Back

A = P(1 + r)^t, where A is the total amount, P is the principal amount, r is the interest rate, and t is the time in years.

Front

If you invest $1,000 at an interest rate of 5% compounded annually for 3 years, how much will you have?

Back

$1,157.63

Front

What does 'compounded quarterly' mean?

Back

It means that the interest is calculated and added to the principal four times a year.

Front

In the formula A = P(1 + r)^t, what does 'r' represent?

Back

'r' represents the annual interest rate expressed as a decimal.

Front

What is the difference between Compound Interest and Simple Interest?

Back

Compound Interest is calculated on the initial principal and also on the accumulated interest, while Simple Interest is calculated only on the principal amount.

Front

If you borrow $5,000 at an interest rate of 6% compounded annually for 4 years, what is the total amount to be paid back?

Back

$6,360.00

Front

What does 'P' stand for in the compound interest formula A = P(1 + r)^t?

Back

'P' stands for the principal amount, which is the original amount of money invested or borrowed.

Front

How does the frequency of compounding affect the total amount of interest earned?

Back

The more frequently interest is compounded, the more interest will be earned, leading to a higher total amount.

Front

If you invest $2,000 at an interest rate of 4% compounded semi-annually for 5 years, how much will you have?

Back

$2,480.24