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, 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 formula for calculating the total amount with Simple Interest?

Back

The formula is A = P + I, where A is the total amount, P is the principal, and I is the interest calculated using I = P * r * t.

Front

How do you calculate the interest earned on a CD?

Back

Use the formula for Compound Interest: A = P(1 + r/n)^(nt). Subtract the principal from the total amount to find the interest earned.

Front

If you invest $3,500 at an interest rate of 4.2% compounded annually for 7 years, how much interest will you earn?

Back

$1,168.12.

Front

What is the formula for calculating Compound Interest?

Back

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 does 'compounded annually' mean?

Back

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

Front

If Sue took an $8000 loan at 16.8% interest for 60 months, how much did she pay in total?

Back

$14,720.

Front

How do you find the total amount paid on a loan?

Back

Add the principal amount to the total interest paid over the loan period.

Front

What is the interest rate if Mr. Johnson borrowed $8000 and repaid $10,320 over 4 years?

Back

7.25%.