Simple and Compound Interest

Front

What is Simple Interest?

Back

Simple Interest is calculated using the formula I = P * r * t, 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 and also on 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

What does the variable 'P' represent in the simple interest formula I = P * r * t?

Back

'P' represents the principal amount, which is the initial sum of money invested or borrowed.

Front

What does the variable 'r' represent in the simple interest formula I = P * r * t?

Back

'r' represents the rate of interest, expressed as a decimal.

Front

What does the variable 't' represent in the simple interest formula I = P * r * t?

Back

't' represents the time the money is invested or borrowed for, in years.

Front

How do you convert a percentage to a decimal?

Back

To convert a percentage to a decimal, divide the percentage by 100. For example, 4.3% becomes 0.043.

Front

If $1,000 is invested at 16% interest compounded annually for 5 years, what is the ending balance?

Back

The ending balance is $2,100.34.

Front

What is the formula for calculating the total amount with compound interest?

Back

The formula is 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

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

How much interest will Jerry pay if he borrows $4,000 for 5 years at a 6% simple interest rate?

Back

Jerry will pay $1,200 in interest.