MONEY MATH (1)

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What is Compound Interest?

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Compound Interest is the interest calculated on the initial principal and also on the accumulated interest from previous periods. It is calculated using the formula: 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 time in years.

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What is Simple Interest?

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Simple Interest is calculated only on the principal amount, or on that portion of the principal amount which remains unpaid. It is calculated using the formula: SI = P * r * t, where SI is the simple interest, P is the principal amount, r is the rate of interest per year, and t is the time in years.

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How to calculate the total amount with Compound Interest?

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To calculate the total amount with Compound Interest, use the formula: A = P(1 + r/n)^(nt). Here, 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.

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What is the formula for calculating Simple Interest?

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The formula for calculating Simple Interest is: SI = P * r * t, where SI is the simple interest, P is the principal amount, r is the rate of interest per year, and t is the time in years.

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If a sum of money becomes four times in 20 years at simple interest, what is the rate of interest?

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The rate of interest is 15%. This is derived from the formula SI = P * r * t, where the total amount becomes four times the principal.

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What is the difference between Compound Interest and Simple Interest?

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The main difference is that Compound Interest is calculated on the initial principal and also on the accumulated interest, while Simple Interest is calculated only on the principal amount.

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How to find the principal amount if the total amount and interest are known?

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To find the principal amount, use the formula: P = A / (1 + r/n)^(nt) for compound interest, or P = A / (1 + rt) for simple interest.

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What is the effect of increasing the rate of interest on Compound Interest?

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Increasing the rate of interest will result in a higher total amount due to the exponential growth of interest on interest.

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What is the effect of time on Simple Interest?

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The total Simple Interest increases linearly with time; the longer the time period, the more interest is accrued.

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How to calculate the amount after a certain period with Simple Interest?

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To calculate the amount after a certain period with Simple Interest, use the formula: A = P + SI, where SI = P * r * t.