Retest review 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 calculate the total amount in a Simple Interest account?

Back

Total Amount = Principal + Interest, where Interest = P * r * t.

Front

How do you calculate the total amount in a Compound Interest account?

Back

Total Amount = Principal * (1 + r/n)^(nt).

Front

What is the formula for calculating interest earned in a Simple Interest account?

Back

Interest = Principal * Rate * Time.

Front

If you deposit $1000 at a 5% simple interest rate for 3 years, how much interest will you earn?

Back

Interest = 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

If you invest $2000 at a 4% annual interest rate compounded annually for 5 years, what will be the total amount?

Back

Total Amount = 2000 * (1 + 0.04)^5 = $2433.49.

Front

What is the effective interest rate?

Back

The effective interest rate is the interest rate on an investment or loan that is adjusted for compounding over a given period.

Front

How do you convert a percentage to a decimal?

Back

To convert a percentage to a decimal, divide by 100. For example, 5% = 5/100 = 0.05.