LOANS VOCABULARY AND SIMPLE INTEREST

Front

What is the formula for calculating simple interest?

Back

I = P * r * t, where I is interest, P is principal, r is rate (as a decimal), and t is time (in years).

Front

If you invest $1,000 at a simple interest rate of 5% for 3 years, how much interest will you earn?

Back

$150

Front

What does the 'P' in the simple interest formula represent?

Back

P represents the principal amount, or the initial amount of money invested or borrowed.

Front

What does the 'r' in the simple interest formula represent?

Back

r represents the annual interest rate expressed as a decimal.

Front

How do you convert a percentage to a decimal?

Back

Divide the percentage by 100. For example, 4.3% becomes 0.043.

Front

What is the time period in the simple interest formula?

Back

Time (t) is the duration for which the money is invested or borrowed, measured in years.

Front

If you have a principal of $5,000 and earn $300 in interest, what is the interest rate?

Back

The interest rate is 1.2%.

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 earned.

Front

Why is it important to convert the interest rate to a decimal before using it in calculations?

Back

It ensures accurate calculations, as the formula requires the rate in decimal form.

Front

If you save to buy a house instead of renting to own, what is a potential financial benefit?

Back

You may save more money in the long run by avoiding high rental costs and building equity.