GMAT Exam > GMAT Videos > Quantitative for GMAT > Problem Set 2 : Compound Interest
Problem Set 2 : Compound Interest Video Lecture | Quantitative for GMAT
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FAQs on Problem Set 2 : Compound Interest Video Lecture - Quantitative for GMAT
| 1. What is compound interest and how does it work? |  |
Ans. Compound interest is the interest calculated on the initial amount of money as well as the accumulated interest from previous periods. It works by adding the interest to the principal amount, and then calculating the interest for the next period based on the new total.
| 2. How is compound interest different from simple interest? | |
Ans. Compound interest differs from simple interest as it takes into consideration the interest earned in previous periods and adds it to the principal amount for subsequent interest calculations. Simple interest, on the other hand, only considers the original principal amount.
| 3. Can you provide an example of compound interest? | |
Ans. Sure! Let's say you invest $1,000 in a savings account with an annual interest rate of 5%. After the first year, you would earn $50 in interest. In the second year, the interest would be calculated on the new total, which would be $1,050. This process continues for each subsequent year.
| 4. How can compound interest affect my savings or investments over time? | |
Ans. Compound interest can have a significant impact on savings or investments over time. By reinvesting the earned interest, your initial principal grows faster, leading to exponential growth in the long run. The longer you keep your money invested, the more pronounced the effect of compound interest becomes.
| 5. Are there any formulas or calculations to determine compound interest? | |
Ans. Yes, there is a formula to calculate compound interest. It is given by the formula: A = P(1 + r/n)^(nt), where A is the final amount, P is the principal amount, r is the annual interest rate, n is the number of times interest is compounded per year, and t is the number of years.
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Dec 31, 2024 Last updated |
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