Calculating the True Cost of Compound Interest

What is compound interest?

• Interest on the initial amount only

• Interest on the interest already accrued

• A fixed amount of interest regardless of the principal

• Interest calculated only once a year

What does the variable 'P' stand for in the compound interest formula?

• Payment frequency

• Profit gained

• Percentage rate

• Principal amount

What does the variable 'R' represent in the compound interest formula?

• Repayment amount

• Risk factor

• Return on investment

• Rate of interest as a decimal

How often is the interest compounded in the given credit card example?

• Daily

• Quarterly

• Monthly

• Annually

What would be the credit card balance after three months if no payments are made, given a 22% APR compounded daily?

• $4500

• $4000

• $4226.09

• $5000

How much extra would you pay in interest alone on the credit card after three months?

• $226

• $100

• $326

• $426

If compounded daily, how many times does the interest compound in a year?

• 365

• 400

• 100

• 300

What operation is performed first according to the order of operations in the compound interest formula?

• Addition

• Division

• Subtraction

• Multiplication

What is the APR for the payday loan described in the video?

• 22%

• 10%

• 100%

• 261%

What is the total amount owed after two months if the payday loan is not repaid on time?

• $550

• $500

• Not specified

• $600