Simple and Compound Interest

Front

What does the P in I = PRt mean?

Back

Principal

Front

In the formula I = P·R·T, what does R stand for?

Back

Rate: the interest percentage you will pay on a loan

Front

What is the formula for simple interest?

Back

I = Prt

Front

In the simple interest formula I = Prt, what does t represent?

Back

Time, in years

Front

How do you convert a percentage to a decimal?

Back

Divide by 100 (e.g., 4.3% = 0.043)

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 and also on the accumulated interest.

Front

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

Back

I = Prt = 1000 * 0.05 * 3 = $150

Front

What is the total amount after 3 years if you invest $1000 at a 5% simple interest rate?

Back

Total Amount = Principal + Interest = 1000 + 150 = $1150

Front

What is the formula for calculating the total amount with compound interest?

Back

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

If you have a loan of $2000 at a 6% annual interest rate compounded annually for 2 years, what is the total amount owed?

Back

A = 2000(1 + 0.06/1)^(1*2) = 2000(1.06)^2 = $2245.20