Interest Calculation Methods Quiz

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Questions and Answers

What is annual compounding?

Interest calculated once a year (correct)

Interest calculated weekly

Interest calculated daily

Interest calculated monthly

What does APY stand for?

Annual Percentage Yield

What does biweekly mean?

Every two weeks

What is compound interest?

Interest that is accrued on the money deposited plus previous interest Signup and view all the answers

The formula for compound interest is B = P(1 + r/n)^[nt]. Fill in the blank: B = ___(1 + r/n)^[nt]

P Signup and view all the answers

What is continuous compounding?

A method of calculating interest compounded an infinite number of times each year Signup and view all the answers

What is the approximate value of the exponential base (e)?

2.718281828 Signup and view all the answers

What is the purpose of the continuous compound interest formula?

To calculate continuous compound interest Signup and view all the answers

What is crediting in banking?

The act of adding interest or a deposit to an account Signup and view all the answers

What does daily compounding refer to?

Calculating interest so it is paid daily Signup and view all the answers

What is a function in mathematics?

A rule that assigns a unique member of the range to each element of the domain Signup and view all the answers

What does the future value of a periodic deposit investment represent?

The balance of an account will grow based on investments made at defined intervals Signup and view all the answers

What is the future value of a single deposit investment?

The balance an account grows to at some point in the future with no additional deposits Signup and view all the answers

What are limits in calculus?

An unreachable value Signup and view all the answers

What is a periodic investment?

Same deposits made at regular intervals Signup and view all the answers

What is the present value?

The current value of a deposit made right now Signup and view all the answers

What is the present value of a periodic deposit investment?

Determining how much to save regularly at a specific interest rate to meet a future goal Signup and view all the answers

What is the periodic value of a single deposit investment?

The calculated value for a one-time deposit at a specific interest rate for a future savings goal Signup and view all the answers

What does quarterly compounding mean?

Interest is paid four times a year Signup and view all the answers

What is a rational function?

The quotient of two polynomials in the form f(x) = g(x)/h(x) where h(x) does not equal 0 Signup and view all the answers

What does semiannual compounding refer to?

Interest is paid twice a year Signup and view all the answers

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!