Exploring Simple vs. Compound Interest for Kids

The video tutorial explains the concept of interest, differentiating between simple and compound interest. It highlights the benefits of compound interest for investments and the implications of interest when borrowing money. The tutorial also covers how credit card interest works and provides financial tips for managing interest effectively.

What is primarily covered by the interest charged by lenders?

• Government taxes on financial transactions

• Operational costs of the lender

• Risk associated with the loan

• Profit margins of the lender

What does the interest cover when you borrow money?

• The risk of the loan not being repaid

• Insurance costs for the loan

• Operational expenses of the bank

• The lender's investment portfolio

Which type of interest results in earning interest on interest?

• Variable interest

• Compound interest

• Simple interest

• Fixed interest

What is the advantage of compound interest when saving money?

• It allows you to earn interest on the original principal only.

• It enables earning interest on both the principal and accumulated interest.

• It offers a fixed rate of return over the investment period.

• It reduces the total amount of interest you earn.

How many years will it take to double your money at a 6% annual compound interest rate according to the rule of 72?

• 10 years

• 17 years

• 12 years

• 15 years

Using the rule of 72, how long would it take to double your investment with an 8% interest rate?

• 9 years

• 12 years

• 6 years

• 8 years

What is the monthly payment for a $25,000 car loan with a 5% APR over five years?

• $450.58

• $471.78

• $489.99

• $500.00

When is simple interest usually more favorable?

• When investing large sums of money

• When borrowing money

• When looking for a variable interest rate

• When saving for a short-term goal

How much additional money could you owe after one month if you don't pay off a $350 credit card purchase at a 20% APR?

• $10.00

• $5.82

• $3.50

• $7.00

What happens if you only make the minimum payment on a credit card balance?

• The principal decreases faster.

• You may end up paying interest on interest.

• Interest does not accumulate.

• The APR decreases.