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

Back

A represents the total amount of money accumulated after n years, including interest.

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 invested 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, in years.

Front

If Julia invests $1000 at 5% interest compounded annually, how much will she have after 4 years?

Back

$1215.51

Front

If Trevor wants to save $4000 in 3 years and invests $1500 at 12% interest compounded annually, will he reach his goal?

Back

No, he will not have enough money.

Front

How do you convert a percentage to a decimal for use in the compound interest formula?

Back

To convert a percentage to a decimal, divide by 100. For example, 5% becomes 0.05.

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.