Personal Financial Literacy Quick Check

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 the total amount in an account after earning simple interest?

Back

Total Amount = Principal + Interest, where Interest = Principal * Rate * Time.

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 interest that has already been added.

Front

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

Back

Interest = $1,000 * 0.05 * 3 = $150.

Front

If you invest $1,000 at a 5% compound interest rate for 3 years, how much will you have?

Back

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

Front

What is the formula for calculating monthly loan payments?

Back

Monthly Payment = [P * r(1 + r)^n] / [(1 + r)^n - 1], where P is the loan amount, r is the monthly interest rate, and n is the number of payments.

Front

What is the impact of making larger monthly payments on a credit card balance?

Back

Making larger monthly payments reduces the total interest paid and shortens the time to pay off the balance.

Front

What is the total cost of a loan?

Back

Total Cost = Principal + Total Interest paid over the life of the loan.

Front

How does the length of time affect the amount of interest earned on an investment?

Back

The longer the time period, the more interest is earned, especially with compound interest due to interest on interest.