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 of money accumulated after n years, including interest, P is the principal amount, r is the annual interest rate, n is the number of times that interest is compounded per year, and t is the number of years.

Front

How do you calculate the total amount with Simple Interest?

Back

Total Amount = Principal + Simple Interest.

Front

How do you calculate the total amount with Compound Interest?

Back

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

Front

What is the formula for calculating interest earned on an investment?

Back

Interest Earned = Total Amount - Principal.

Front

If you invest $1,000 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 deposit $500 at an interest rate of 4% compounded annually for 5 years, what will be the total amount?

Back

Total Amount = 500 * (1 + 0.04)^5 = $608.81.

Front

What does 'compounded annually' mean?

Back

Compounded annually means that the interest is calculated and added to the principal once a year.

Front

If you earn $200 in interest on a $1,000 investment at a 10% interest rate, how long was the money invested using Simple Interest?

Back

Time = Interest / (Principal * Rate) = 200 / (1000 * 0.10) = 2 years.