Financial Literacy Review

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

• A = P (1 + r/n)^(nt)

• A = P (1 + r)^t

• A = P (1 + rt)

• A = P (1 + r/n)^(n*t)

What is the principal in a loan?

• The total amount of interest paid over the life of the loan.

• The original sum of money borrowed or invested, excluding any interest or fees.

• The fees charged by the lender for processing the loan.

• The amount of money that must be repaid at the end of the loan term.

How do you convert months to years for interest calculations?

• Multiply the number of months by 12.

• Add 12 to the number of months.

• Divide the number of months by 12.

• Subtract 12 from the number of months.

What is compound interest?

• Compound interest is calculated only on the initial principal amount.

• Compound interest is calculated on the initial principal and also on the accumulated interest from previous periods.

• Compound interest is the interest calculated on a loan that is paid off in installments.

• Compound interest is the interest that is not paid until the end of the loan term.

How do you calculate the interest paid on a loan?

• By multiplying the principal by the interest rate and the loan term.

• By subtracting the principal from the total amount repaid.

• By adding the principal to the total amount repaid.

• By dividing the total amount repaid by the loan term.

What is the impact of compounding frequency on interest earned?

• The more frequently interest is compounded, the more interest will be earned over time.

• Compounding frequency has no effect on the total interest earned.

• Less frequent compounding results in higher interest earnings.

• Interest is only earned on the principal amount, regardless of compounding frequency.

How can you compare two different loan offers?

• Calculate the total cost of each loan, including interest, and compare the amounts.

• Look at the interest rates only and choose the lower one.

• Consider the loan term and select the longer duration.

• Evaluate the lender's reputation and choose the most reputable one.

What does it mean to earn interest on an investment?

• Receiving a payment for the use of your money, typically expressed as a percentage of the principal.

• A fee paid to the bank for holding your money.

• The amount of money you lose when you invest in a failing business.

• A bonus given by the government for saving money.

What is the significance of the interest rate in loans?

• It determines the loan term length.

• It affects the total amount of money paid back over the life of the loan.

• It sets the minimum credit score required for approval.

• It influences the type of collateral needed for the loan.

If a loan has an annual interest rate of 7.5%, how is the interest calculated for 5.5 years?

• Using the formula for compound interest

• Using the formula for simple interest

• Using the formula for both compound and simple interest

• Interest cannot be calculated without additional information