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

How is Compound Interest calculated?

Back

Compound Interest = P(1 + r/n)^(nt), where P = principal amount, r = annual interest rate (decimal), n = number of times interest applied per time period, t = number of time periods.

Front

What does 'Compounded Quarterly' mean?

Back

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

Front

What does 'Compounded Daily' mean?

Back

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

Front

What is the formula for calculating the future value with compound interest?

Back

Future Value = P(1 + r/n)^(nt) where 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

Convert 5.45% to a decimal.

Back

0.0545

Front

If you invest $1,000 at an interest rate of 5% compounded annually, what will be the amount after 3 years?

Back

$1,157.63

Front

What does 'Semi-Annually' mean?

Back

It means that something occurs twice a year.

Front

How many times a year is interest compounded if it is compounded monthly?

Back

12 times a year.

Front

What is the principal in the context of compound interest?

Back

The principal is the initial amount of money that is invested or loaned.