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Flashcards: Simple Interest and Compound Interest 30 Flashcards 
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Card: 1 / 30 
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What is the formula for calculating Simple Interest? |
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Card: 2 / 30
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The formula for calculating Simple Interest (SI) is SI = P * r * t/100 , where P is the principal amount, r is the rate of interest per year , and t is the time in years. |
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Card: 3 / 30
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If you invest $1,000 at an annual interest rate of 5% for 3 years, how much total interest will you earn? |
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Card: 4 / 30
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Using the Simple Interest formula: SI = P * r * t = 1000 * 0.05 * 3 = $150. Therefore, the total interest earned is $150. |
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Card: 5 / 30
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What is the difference between Simple Interest and Compound Interest? |
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Card: 6 / 30
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Simple Interest is calculated only on the principal amount, whereas Compound Interest is calculated on the principal plus any interest that has been added to it over time. This means that with Compound Interest, you earn interest on your interest. |
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Card: 7 / 30
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What is the formula for calculating Compound Interest? |
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Card: 8 / 30
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The formula for calculating Compound Interest (CI) is CI = P(1 + r/n)^(nt) - P, where P is the principal, r is the annual interest rate (in decimal), n is the number of times interest is compounded per year, and t is the number of years. |
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Card: 9 / 30
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If you invest $2,000 at an annual interest rate of 4% compounded quarterly for 5 years, what will be the total amount at the end of the investment? |
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Card: 10 / 30
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Using the Compound Interest formula: A = P(1 + r/n)^(nt), where A is the total amount. Here, P = 2000, r = 0.04, n = 4, and t = 5. So, A = 2000(1 + 0.04/4)^(4*5) = 2000(1 + 0.01)^(20) = 2000(1.22019) ≈ $2,440.38. Thus, the total amount at the end of the investment is approximately $2,440.38. |
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Card: 11 / 30
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What is the effective annual rate (EAR) when interest is compounded quarterly at a nominal rate of 8%? |
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Card: 12 / 30
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The formula for EAR is EAR = (1 + r/n)^(nt) - 1. Here, r = 0.08, n = 4, and t = 1. Thus, EAR = (1 + 0.08/4)^(4*1) - 1 = (1 + 0.02)^4 - 1 = 1.082856 - 1 ≈ 0.082856 or 8.29%. |
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Card: 13 / 30
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You deposit $1,500 into a savings account that earns 6% interest compounded monthly. How much will you have in the account after 2 years? |
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Card: 14 / 30
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Using the Compound Interest formula: A = P(1 + r/n)^(nt). Here, P = 1500, r = 0.06, n = 12, and t = 2. So, A = 1500(1 + 0.06/12)^(12*2) = 1500(1 + 0.005)^(24) ≈ 1500(1.12749) ≈ $1,691.24. |
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Card: 15 / 30
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If you want to accumulate $5,000 in 3 years with an account that pays 5% annual compound interest, what principal amount do you need to invest today? |
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Card: 16 / 30
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Using the formula A = P(1 + r/n)^(nt), we rearrange to find P: P = A / (1 + r/n)^(nt). Here, A = 5000, r = 0.05, n = 1, and t = 3. Thus, P = 5000 / (1 + 0.05/1)^(1*3) = 5000 / (1.157625) ≈ $4,320.50. |
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Card: 17 / 30
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What key factor distinguishes Compound Interest from Simple Interest? |
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Card: 18 / 30
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The key factor is that Compound Interest is calculated on the accumulated interest as well as the principal, while Simple Interest is calculated solely on the principal amount. |
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Card: 19 / 30
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What is the formula for calculating Simple Interest? |
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Card: 20 / 30
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The formula for calculating Simple Interest (SI) is SI = P * r * t, where P is the principal amount, r is the rate of interest per year (in decimal), and t is the time in years. |
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Card: 21 / 30
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If you invest $1,000 at an annual interest rate of 5% for 3 years, how much total interest will you earn? |
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Card: 22 / 30
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Using the Simple Interest formula: SI = P * r * t = 1000 * 0.05 * 3 = $150. Therefore, the total interest earned is $150. |
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Card: 23 / 30
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What is the difference between Simple Interest and Compound Interest? |
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Card: 24 / 30
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Simple Interest is calculated only on the principal amount, whereas Compound Interest is calculated on the principal plus any interest that has been added to it over time. This means that with Compound Interest, you earn interest on your interest. |
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Card: 25 / 30
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What is the formula for calculating Compound Interest? |
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Card: 26 / 30
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The formula for calculating Compound Interest (CI) is CI = P(1 + r/n)^(nt) - P, where P is the principal, r is the annual interest rate (in decimal), n is the number of times interest is compounded per year, and t is the number of years. |
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Card: 27 / 30
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If you invest $2,000 at an annual interest rate of 4% compounded quarterly for 5 years, what will be the total amount at the end of the investment? |
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Card: 28 / 30
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Using the Compound Interest formula: A = P(1 + r/n)^(nt), where A is the total amount. Here, P = 2000, r = 0.04, n = 4, and t = 5. So, A = 2000(1 + 0.04/4)^(4*5) = 2000(1 + 0.01)^(20) = 2000(1.22019) ≈ $2,440.38. Thus, the total amount at the end of the investment is approximately $2,440.38. |
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Card: 29 / 30
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What is the effective annual rate (EAR) if an investment of $1,000 grows to $1,100 over 2 years with compound interest? |
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Card: 30 / 30
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To find the effective annual rate (EAR), use the formula EAR = (A/P)^(1/t) - 1. Here, A = 1100, P = 1000, and t = 2. Thus, EAR = (1100/1000)^(1/2) - 1 = 0.0472 or 4.72%. |
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 Completed! Keep practicing to master all of them. |
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