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Questions and Answers
What is the formula for calculating compound interest?
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?
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?
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?
What is the formula for calculating compound interest?
If you borrow $1000 at an annual interest rate of 5% compounded annually, how much will you have to repay after 3 years?
If you borrow $1000 at an annual interest rate of 5% compounded annually, how much will you have to repay after 3 years?
How does the frequency of compounding affect the total amount of compound interest earned?
How does the frequency of compounding affect the total amount of compound interest earned?
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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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