AMDM Unit 4 Test

Front

What is simple interest?

Back

Simple interest is calculated using the formula: I = P * r * t, where I is the interest, P is the principal amount, r is the rate of interest per year, and t is the time in years.

Front

How do you calculate the total amount in an account with simple interest?

Back

Total Amount = Principal + Interest = P + (P * r * t)

Front

What is compound interest?

Back

Compound interest is calculated on the initial principal and also on the accumulated interest from previous periods.

Front

What is the formula for compound interest compounded annually?

Back

A = P(1 + r)^t, where A is the amount, P is the principal, r is the annual interest rate, and t is the number of years.

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.

Front

What does it mean for interest to be compounded semi-annually?

Back

It means that the interest is calculated and added to the principal twice a year.

Front

What is the formula for calculating the future value of an investment compounded continuously?

Back

A = Pe^(rt), where A is the amount, P is the principal, e is Euler's number, r is the interest rate, and t is the time in years.

Front

How does compounding frequency affect the total amount in an account?

Back

The more frequently interest is compounded, the more total interest will be earned, leading to a higher final amount.

Front

What is the effective annual rate (EAR)?

Back

The effective annual rate is the interest rate on an investment or loan that is compounded over a year, taking into account the effects of compounding.

Front

What is the principal in the context of interest calculations?

Back

The principal is the initial amount of money that is invested or loaned, before any interest is added.