Questions and Answers
What is annual compounding?
What does APY stand for?
Annual Percentage Yield
What does biweekly mean?
Every two weeks
What is compound interest?
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The formula for compound interest is B = P(1 + r/n)^[nt]. Fill in the blank: B = ___(1 + r/n)^[nt]
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What is continuous compounding?
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What is the approximate value of the exponential base (e)?
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What is the purpose of the continuous compound interest formula?
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What is crediting in banking?
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What does daily compounding refer to?
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What is a function in mathematics?
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What does the future value of a periodic deposit investment represent?
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What is the future value of a single deposit investment?
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What are limits in calculus?
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What is a periodic investment?
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What is the present value?
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What is the present value of a periodic deposit investment?
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What is the periodic value of a single deposit investment?
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What does quarterly compounding mean?
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What is a rational function?
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What does semiannual compounding refer to?
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Study Notes
Interest Calculation Methods
- Annual Compounding: Interest is calculated and paid once a year.
- Biweekly: Refers to events that occur every two weeks.
- Daily Compounding: Interest is calculated and paid daily.
- Quarterly Compounding: Interest is calculated and paid four times a year (every 3 months).
- Semiannual Compounding: Interest is paid twice a year (every 6 months).
- Continuous Compounding: Interest is compounded an infinite number of times each year.
Key Interest Concepts
- Compound Interest: Accumulates on both the principal amount and previously earned interest.
- Annual Percentage Yield (APY): Represents the simple interest rate that equates with compound interest for a year.
- Crediting: The process of adding interest or deposits to a bank account.
Mathematical Formulas
-
Compound Interest Formula: B = P(1 + r/n)^(n*t) where:
- B = ending balance
- P = principal amount
- r = annual interest rate
- n = number of compounding periods per year
- t = number of years
-
Continuous Compound Interest Formula: B = (Pe)^(rt) where:
- B = ending balance
- P = principal
- e = approximately 2.718
- r = interest rate
- t = time in years
Investment Values
- Future Value of a Periodic Deposit Investment: Growth of an account based on regular investments at defined intervals.
- Future Value of a Single Deposit Investment: The potential growth of a one-time deposit over time without additional contributions.
- Present Value: Current worth of a deposit made now; computes how much savings is needed for a future goal.
- Present Value of a Periodic Deposit Investment: Calculates regular savings required at a specific interest rate to meet future savings objectives.
- Periodic Value of a Single Deposit Investment: Determines the amount needed for a one-time deposit to achieve a future savings goal at a specific interest rate.
Functions and Calculus Concepts
- Function: A rule that pairs each input (domain) with one output (range).
- Rational Function: Formulated as the quotient of two polynomials, f(x) = g(x)/h(x), where h(x) is not zero.
- Limits: A calculus concept representing values that cannot be reached.
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Description
Test your understanding of various interest calculation methods including annual compounding, biweekly interest, and continuous compounding. This quiz covers key concepts and mathematical formulas related to compound interest. Perfect for finance students looking to reinforce their knowledge!
