Compound Interest

Front

What is Compound Interest?

Back

Compound interest is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods.

Front

How is Compound Interest calculated?

Back

Compound Interest = P(1 + r/n)^(nt), where P = principal amount, r = annual interest rate, n = number of times interest is compounded per year, t = time in years.

Front

What does 'n' represent in the compound interest formula?

Back

The number of times interest is compounded per year.

Front

What does 't' represent in the compound interest formula?

Back

Time in years.

Front

If $3000 is invested at 3% compounded continuously, how long will it take to double?

Back

It will take approximately 23.1 years.

Front

What is the formula for continuous compounding?

Back

A = Pe^(rt), where A is the amount of money accumulated after n years, including interest, P is the principal amount, r is the annual interest rate, and t is the time in years.

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 been added to it.

Front

What is the future value of an investment?

Back

The future value is the amount of money that an investment will grow to over a period of time at a given interest rate.

Front

If Karla invests $1,000 at 6.75% compounded semi-annually, what is the formula to find her future value after 15 years?

Back

A = 1000(1 + 0.0675/2)^(2*15).

Front

What does the principal amount refer to in compound interest?

Back

The principal amount is the initial sum of money invested or loaned.