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)^t, 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), and t is the time in 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 do you calculate Simple Interest?

Back

I = P * r * t, where I is the interest, P is the principal, r is the rate of interest per year, and t is the time in years.

Front

If Chris borrows $450 at 3.5% simple interest for 10 years, how much interest will he pay?

Back

I = 450 * 0.035 * 10 = $157.50.

Front

If Chris chooses a loan compounded annually at 2% for 7 years, what will be the total amount he owes?

Back

A = 450(1 + 0.02)^7 = $450 * 1.14869 = $517.91.

Front

What does 'compounded quarterly' mean?

Back

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

Front

How do you calculate the total amount owed on a loan compounded quarterly?

Back

Use the formula A = P(1 + r/n)^(nt), where n is the number of times interest is compounded per year.

Front

If Emily spends $7,400 on furniture with 9.5% interest compounded quarterly for 8 years, how much will she pay in total?

Back

A = 7400(1 + 0.095/4)^(4*8) = $15,683.28.

Front

What is the total amount Henry will have after depositing $750 at 8.5% compounded annually for 5 years?

Back

A = 750(1 + 0.085)^5 = $1127.74.