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Compound Interest Quiz

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Questions and Answers

What is the formula for calculating compound interest?

A = P(1 + r)^t

A = P(1 + r/n)^(nt) (correct)

A = P(1 + t)^r/n

A = P + rt

If $5000 is invested at an annual interest rate of 5% compounded quarterly, how much will it grow to after 3 years?

$5250.00

$5796.51 (correct)

$5125.00

$6000.00

What effect does increasing the compounding frequency have on the total amount of compound interest earned?

It increases the total amount of compound interest earned (correct)

It decreases the total amount of compound interest earned

It has no effect on the total amount of compound interest earned

It only affects the principal amount

What is the formula for calculating compound interest?

A = P(1 + r/n)^(nt) Signup and view all the answers

If you borrow $1000 at an annual interest rate of 5% compounded annually, how much will you have to repay after 3 years?

$1157.63 Signup and view all the answers

How does the frequency of compounding affect the total amount of compound interest earned?

More frequent compounding results in higher total interest Signup and view all the answers

Study Notes

Compound Interest

The formula for calculating compound interest is not provided in the text, but it is essential to know how to calculate it.

Investing with Compound Interest

If $5000 is invested at an annual interest rate of 5% compounded quarterly, the total amount after 3 years can be calculated.
Increasing the compounding frequency increases the total amount of compound interest earned.

Borrowing with Compound Interest

If you borrow $1000 at an annual interest rate of 5% compounded annually, you will have to repay the borrowed amount plus the interest after 3 years.

Compounding Frequency

The frequency of compounding affects the total amount of compound interest earned, with more frequent compounding resulting in a higher total amount.

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Description

Test your knowledge of compound interest with this quiz. Learn the formula for calculating compound interest and solve problems like finding the growth of an investment over time with different compounding frequencies. Understand the impact of increasing the compounding frequency on the total amount of compound interest earned.