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.

Front

What does the variable 'P' represent in the simple interest formula I = P * r * t?

Back

'P' represents the principal amount, which is the initial sum of money borrowed or invested.

Front

What does the variable 'r' represent in the simple interest formula I = P * r * t?

Back

'r' represents the rate of interest per year, expressed as a decimal.

Front

What does the variable 't' represent in the simple interest formula I = P * r * t?

Back

't' represents the time in years for which the money is borrowed or invested.

Front

How do you calculate the total amount after 6 years with a principal of $40,000 at 14% interest compounded annually?

Back

Total Amount = P (1 + r)^t = 40000 * (1 + 0.14)^6 = $87,798.90.

Front

What is the formula for calculating the total amount with compound interest?

Back

The formula is 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

If Mr. Peterson paid $1,020 in simple interest at a rate of 5% for 3 years, how much did he borrow?

Back

Using the formula I = P * r * t, we can rearrange to find P: P = I / (r * t) = 1020 / (0.05 * 3) = $6,800.

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 accumulated interest.

Front

How much will Arnold's loan of $195,000 at 4.3% interest compounded annually be worth after 30 years?

Back

Using the compound interest formula: A = 195000 * (1 + 0.043)^30 = $689,546.99.