Exploring Simple and Compound Interest Concepts

Which type of interest is more commonly encountered in loans and credit cards?

• Simple interest

• Compound interest

• Fixed interest

• Variable interest

What is the formula to calculate simple interest?

• Interest = Principal / (Rate x Time)

• Interest = (Principal x Rate) / Time

• Interest = Principal + (Rate x Time)

• Interest = Principal x Rate x Time

If you borrow $1000 at a 4.5% annual rate for 2 years, how much interest will you pay?

• $200

• $45

• $180

• $90

What was the simple interest rate on Mr. Gabriel's loan for his computer?

• 5%

• 7%

• 6%

• 8%

How much more did Mr. Gabriel pay for his computer due to interest?

• $400

• $359

• $180

• $279

What distinguishes compound interest from simple interest?

• Compound interest decreases over time.

• Compound interest accumulates on both the initial principal and accrued interest.

• Compound interest is calculated only once.

• Compound interest is calculated on the initial principal only.

After the first year, how much interest has been added to the $600 investment at 8.75% compounded annually?

• $65.25

• $60.00

• $57.09

• $52.50

What is the total amount after two years on the $600 investment at 8.75% interest compounded annually?

• $709.59

• $652.50

• $700.00

• $750.00

How much total interest is earned on the $600 investment over two years?

• $109.59

• $100.00

• $150.00

• $200.00

What is the effect of compounding annually on an investment?

• Reduces the principal amount

• Has no effect on the interest

• Decreases the total interest earned

• Increases the total interest earned