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

The formula is A = P(1 + r)^t, where A is the total amount, P is the principal amount, r is the interest rate, and t is the time in years.

Front

What does 'P' represent in the compound interest formula A = P(1 + r)^t?

Back

P represents the principal amount, which is the original amount of money deposited or borrowed.

Front

What does 'r' represent in the compound interest formula A = P(1 + r)^t?

Back

r represents the annual interest rate (in decimal form) applied to the principal.

Front

What does 't' represent in the compound interest formula A = P(1 + r)^t?

Back

t represents the time the money is invested or borrowed for, measured in years.

Front

How do you calculate the total amount after 5 years if $750 is deposited at an 8.5% interest rate compounded annually?

Back

Using the formula A = P(1 + r)^t, A = 750(1 + 0.085)^5 = $1127.74.

Front

How do you find the interest earned from a compound interest account?

Back

Subtract the principal amount (P) from the total amount (A): Interest = A - P.

Front

If you invest $1500 at a 12% interest rate compounded annually, how much will you have after 3 years?

Back

Using A = P(1 + r)^t, A = 1500(1 + 0.12)^3 = $2105.12.

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 accumulated interest.

Front

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

Back

Using I = P * r * t, I = 450 * 0.035 * 10 = $157.50.