Simple and Compound Interest

Front

What is Simple Interest?

Back

Simple Interest is calculated using the formula: SI = P * r * t, where 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 total amount with 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 compounding periods per year, and t is the number of years.

Front

How do you calculate the total return on an investment with Compound Interest?

Back

Total return = A - P, where A is the total amount after interest and P is the principal.

Front

If you invest $20,000 at 5.2% interest compounded annually for 3 years, what is the total return?

Back

Total return = $23,285.05.

Front

What is the formula for calculating Simple Interest?

Back

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

Front

If you start with $350 and earn 2.5% interest over 3 years, how much interest do you earn using Simple Interest?

Back

Interest earned = $26.25.

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

How does compounding frequency affect Compound Interest?

Back

The more frequently interest is compounded, the more total interest will be earned over time.

Front

What is the effect of time on Compound Interest?

Back

The longer the time period, the more interest will accumulate due to compounding.