GENMATH Summative Test

The amount of time in years the money is borrowed or invested; length of time between the origin and maturity dates:

• Repayment date or maturity date

• Borrower or debtor

• Time or term (t)

• Principal (P)

The interest that is computed on the principal. The interest remains constant throughout the term:

• Origin or loan date

• Lender or creditor

• Simple Interest

• Interest (I)

The annual rate, usually in percent, charged by the lender, or rate of increase of the investment:

• Time or term (t)

• Principal (P)

• Interest (I)

• Rate (r)

The amount of money borrowed or invested on the origin date:

• Time or term (t)

• Principal (P)

• Interest (I)

• Rate (r)

The formula used in solving simple interest:

• ( I_s = P(1 + r)t )

• ( I_s = F - P )

• ( I_s = F(1 + r)t )

• ( I_s = Prt )

Which of the following statements correctly distinguishes between simple and compound interest?

• Compound interest is calculated on the initial principal only, while simple interest is calculated on the initial principal and also on the accumulated interest of previous periods.

• Simple interest is calculated on the initial principal only, while compound interest is calculated on the initial principal and also on the accumulated interest of previous periods.

• Simple interest is calculated on the accumulated interest of previous periods, while compound interest is calculated only on the initial principal.

• Simple interest results in a higher amount of interest over time compared to compound interest.

The interest computed on the principal and also on the accumulated past interest. It is a way to earn money because you don't just earn using your original money, but also the interest you earned:

• Simple Interest

• Maturity value or future value

• Compound Interest

• Repayment date or maturity date

If you invest $1,000.00 at an annual simple interest rate of 5% for 3 years, what will be the total interest earned?

• $150

• $200

• $250

• $300

A bank offers two investment options: Option A: Simple interest at an annual rate of 4% for 5 years. Option B: Compound interest at an annual rate of 3.5%, compounded annually for 5 years. If you invest $10,000, which option will yield a higher maturity value, and why?

• Option A, because the interest rate is higher.

• Option A, because simple interest accumulates faster over time.

• Both options will yield the same maturity value because the difference in interest rates is negligible.

• Option B, because compound interest grows the investment by adding interest on both the principal and the accumulated interest.

Consider two loans: Loan X: $5,000 at a simple interest rate of 6% per year for 4 years. Loan Y: $5,000 at a compound interest rate of 5% per year, compounded annually for 4 years. Which loan will result in a higher total interest paid, and what does this indicate about the relationship between interest rates and the type of interest?

• Loan X, indicating that simple interest results in higher total interest paid when the interest rate is higher.

• Loan Y, indicating that compound interest results in higher total interest paid even if the interest rate is lower.

• Loan X, indicating that simple interest always results in higher total interest paid regardless of the interest rate.

• Loan Y, indicating that compound interest results in higher total interest paid only when the interest rate is higher.