Understanding Simple and Compound interest

Front

What type of interest allows you to earn interest on both the principal and the accumulated interest?

Back

Compound interest.

Front

What type of interest is calculated only on the principal amount?

Back

Simple interest.

Front

In the formula for interest, what does 'P' stand for?

Back

Principal amount.

Front

In the formula for interest, what does 'I' represent?

Back

Interest earned.

Front

In the interest formula, what does 't' stand for?

Back

Time (in years).

Front

What is the formula for calculating simple interest?

Back

I = P * r * t.

Front

What is the formula for calculating compound interest?

Back

A = P (1 + r/n)^(nt), where A is the amount, P is the principal, r is the rate, n is the number of times interest is compounded per year, and t is the time in years.

Front

If you invest $1000 at a simple interest rate of 5% for 3 years, how much interest will you earn?

Back

$150.

Front

If you invest $1000 at a compound interest rate of 5% compounded annually for 3 years, how much will you have at the end?

Back

$1157.63.

Front

What is the difference between simple and compound interest?

Back

Simple interest is calculated only on the principal, while compound interest is calculated on the principal plus any accumulated interest.