Flashcards on Compound interest calculations
Master Compound Interest Calculations: Guide & Examples
Tap to flip · Swipe to navigate
Compound Interest
12 cards
Card 1
Question: What is compound interest?
Answer: Compound interest represents the interest earned on both the initial principal and the accumulated interest from previous periods.
Card 2
Question: How does compound interest differ from simple interest?
Answer: Simple interest is calculated only on the original principal amount, while compound interest reinvests the interest earned, leading to exponential gro
Card 3
Question: What is the formula for calculating simple interest (SI)?
Answer: SI = P · i · n (where P is principal, i is interest rate, and n is number of years)
Card 4
Question: What is the total amount (A) after n years with simple interest?
Answer: A = P · (1 + i · n) (where P is principal, i is interest rate, and n is number of years)
Card 5
Question: What is the fundamental formula for calculating the future value (A) with compound interest?
Answer: A = P · (1 + i)ⁿ
Card 6
Question: In the compound interest formula A = P · (1 + i)ⁿ, what does 'A' represent?
Answer: A (or Gₙ) represents the Future Value or Final Amount.
Card 7
Question: In the compound interest formula A = P · (1 + i)ⁿ, what does 'P' represent?
Answer: P (or G₀) represents the Principal Amount or Initial Investment.
Card 8
Question: In the compound interest formula A = P · (1 + i)ⁿ, what does 'i' represent?
Answer: i represents the Interest Rate per Compounding Period (expressed as a decimal).
Card 9
Question: In the compound interest formula A = P · (1 + i)ⁿ, what does 'n' represent?
Answer: n represents the Number of Compounding Periods.
Card 10
Question: What is crucial for consistency when using the compound interest formula regarding the interest rate and number of periods?
Answer: It is critical to ensure that the interest rate (i) and the number of periods (n) are consistent with the compounding frequency.