Simple and Compound Interest FLASHCARD

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

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.

Front

How do you calculate Simple Interest?

Back

Simple Interest can be calculated using the formula: I = P * r * t.

Front

How do you calculate Compound Interest?

Back

Compound Interest can be calculated using 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 times interest is compounded per year, and t is the number of years.

Front

What does 'P' stand for in the interest formulas?

Back

'P' stands for the principal amount, which is the initial sum of money deposited or borrowed.

Front

What does 'r' represent in the interest formulas?

Back

'r' represents the annual interest rate, expressed as a decimal.

Front

What does 't' represent in the interest formulas?

Back

't' represents the time the money is invested or borrowed for, measured in 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

If a loan has a higher interest rate, what does that mean for the borrower?

Back

A higher interest rate means the borrower will pay more in interest over the life of the loan.

Front

What is the effect of compounding frequency on Compound Interest?

Back

The more frequently interest is compounded, the more interest will be earned or paid.