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 is the formula for calculating compound interest?

Back

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

Front

What does 'Principal' mean in the context of compound interest?

Back

Principal refers to the initial amount of money that is invested or loaned.

Front

What does 'Rate of Interest' represent?

Back

The rate of interest is the percentage at which interest is calculated on the principal amount.

Front

What does 'Time' refer to in compound interest calculations?

Back

Time refers to the duration for which the money is invested or borrowed, usually measured in years.

Front

What does 'Compounding Frequency' mean?

Back

Compounding frequency is the number of times interest is calculated and added to the principal within a year.

Front

If interest is compounded annually, how many times is it compounded in a year?

Back

1 time.

Front

If interest is compounded semi-annually, how many times is it compounded in a year?

Back

2 times.

Front

If interest is compounded quarterly, how many times is it compounded in a year?

Back

4 times.

Front

What is the effect of compounding more frequently on the total amount of interest earned?

Back

The more frequently interest is compounded, the more interest will be earned on the initial principal and accumulated interest.