simple and compound interest

Front

What is simple interest?

Back

Simple interest is calculated on the principal amount only, without compounding. It can be calculated using the formula: Interest = Principal × Rate × Time.

Front

What is the formula for calculating simple interest?

Back

The formula for calculating simple interest is: I = P × r × t, where I is the interest, P is the principal amount, r is the rate of interest (as a decimal), and t is the time in years.

Front

If David invests $10,000 at 3.5% simple interest for 7 years, how much interest will he earn?

Back

Interest = $10,000 × 0.035 × 7 = $2,450.

Front

What is compound interest?

Back

Compound interest is calculated on the initial principal and also on the accumulated interest from previous periods. It can be calculated using the formula: 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

How do you convert a percentage to a decimal?

Back

To convert a percentage to a decimal, divide the percentage by 100. For example, 23% becomes 0.23.

Front

What is the total amount in the account after 2 years if $2,750 is invested at 8% compounded annually?

Back

Using the formula A = P(1 + r/n)^(nt): A = 2750(1 + 0.08/1)^(1*2) = $3,190.00.

Front

How do you write 5% as a decimal?

Back

5% as a decimal is 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 interest that has already been added.

Front

If you have $1,000 at a 5% interest rate, how much will you have after 3 years with simple interest?

Back

Interest = $1,000 × 0.05 × 3 = $150. Total amount = $1,000 + $150 = $1,150.

Front

What does 'compounded annually' mean?

Back

Compounded annually means that the interest is calculated and added to the principal once a year.