3.1 Flashcard

Front

What is compound interest?

Back

Compound interest is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods.

Front

How do you calculate the ending balance with compound interest?

Back

The formula for calculating the ending balance with compound interest is A = P(1 + r/n)^(nt), where A is the ending balance, P is the principal amount, 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

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

What does 'compounded monthly' mean?

Back

Compounded monthly means that interest is calculated and added to the principal balance once every month.

Front

If Emma deposits $1200 at 3% interest compounded monthly, what is her ending balance after one year?

Back

$1,236.50

Front

What is the formula for calculating the total amount paid on a loan with compound interest?

Back

The total amount paid can be calculated using the formula A = P(1 + r/n)^(nt), where A is the total amount paid, P is the principal, r is the interest rate, n is the number of compounding periods per year, and t is the number of years.

Front

What is the significance of the compounding frequency (e.g., monthly, quarterly)?

Back

The compounding frequency affects how often interest is calculated and added to the principal, which can significantly impact the total amount of interest earned or paid over time.

Front

How do you determine the principal amount in a compound interest problem?

Back

The principal amount is the initial sum of money deposited or borrowed before interest is applied.

Front

What is the formula for exponential growth?

Back

The formula for exponential growth is y = a(b)^x, where a is the initial amount, b is the growth factor, and x is the time period.

Front

If Olivia spends $7,400 on furniture with 9.5% interest compounded quarterly, how much will she pay after 8 years?

Back

$15,683.28