Simple & 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 of money accumulated after n years, including interest, P is the principal amount, r is the annual interest rate, n is the number of times that interest is compounded per year, and t is the number of years.

Front

How do you calculate the total amount to be repaid on a loan with compound interest?

Back

To calculate the total amount to be repaid, use the formula: 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

What is the difference between simple 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

If you invest $1,000 at an annual interest rate of 5% compounded annually for 3 years, what will be the total amount?

Back

Total Amount = $1,000 (1 + 0.05/1)^(1*3) = $1,157.63.

Front

What is the formula for calculating compound interest?

Back

The formula for calculating compound interest is: A = P (1 + r/n)^(nt).

Front

What does 'compounded quarterly' mean?

Back

Compounded quarterly means that the interest is calculated and added to the principal four times a year.

Front

How much interest will you earn on a $2,000 investment at 6% annual interest compounded annually after 5 years?

Back

Interest Earned = Total Amount - Principal = $2,000 (1 + 0.06/1)^(1*5) - $2,000 = $1,252.48.

Front

What is the principal in a loan?

Back

The principal is the original sum of money borrowed or invested, excluding any interest or fees.

Front

If a loan of $10,000 has an interest rate of 8% compounded annually, what will be the total amount after 4 years?

Back

Total Amount = $10,000 (1 + 0.08/1)^(1*4) = $13,600.