8.12D Simple and Compound interest

Front

What is simple interest?

Back

Simple interest is calculated using the formula: I = PRT, 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, 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 convert a percentage to a decimal?

Back

To convert a percentage to a decimal, divide the percentage by 100. For example, 4.3% becomes 0.043.

Front

What is the formula for calculating simple interest?

Back

The formula for calculating simple interest is I = PRT, where I is the interest, P is the principal amount, R is the rate of interest per year (in decimal), and T is the time in years.

Front

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

Back

You will earn $150 in interest. (I = 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

How do you calculate the total amount after compound interest?

Back

The total amount after compound interest can be calculated using the formula A = P(1 + r/n)^(nt).

Front

What is the principal in the context of interest?

Back

The principal is the initial amount of money that is either invested or borrowed before interest.

Front

If you have $500 in an account that earns 4% interest compounded annually, how much will you have after 5 years?

Back

You will have approximately $608.33 after 5 years.

Front

What does it mean for interest to be compounded annually?

Back

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