Flashcardizz - Simple and Compound Interest

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, 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 months to years?

Back

To convert months to years, divide the number of months by 12. For example, 6 months is 6/12 = 0.5 years.

Front

What is the formula for calculating the total amount with Simple Interest?

Back

The total amount A can be calculated using the formula: A = P + I, where I is the interest calculated using I = P * r * t.

Front

If you invest $1,000 at 5% simple interest for 3 years, how much interest will you earn?

Back

I = P * r * t = 1000 * 0.05 * 3 = $150.

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

How do you calculate Compound Interest?

Back

Use the formula A = P (1 + r/n)^(nt). For example, if P = $1,000, r = 5%, n = 1 (compounded annually), and t = 2 years, then A = 1000(1 + 0.05/1)^(1*2) = $1,102.50.

Front

What is the principal amount in an interest calculation?

Back

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

Front

If Mike borrowed $24,000 at 5.5% simple interest for 5 years, how much interest did he pay?

Back

I = P * r * t = 24000 * 0.055 * 5 = $6,600.

Front

What is the total amount after 2 years if $1,240 is invested at 8% compounded annually?

Back

A = P (1 + r/n)^(nt) = 1240(1 + 0.08/1)^(1*2) = $1,446.34.