Podcast
Questions and Answers
What is the key difference between simple and compound interest?
What is the key difference between simple and compound interest?
- Simple interest is calculated only on the principal, while compound interest is calculated on the principal plus accumulated interest. (correct)
- Simple interest always yields a higher return than compound interest over time.
- Simple interest is calculated on the principal plus accumulated interest, while compound interest is calculated only on the principal.
- Simple interest results in an increasing interest amount each period, while compound interest results in a fixed interest amount each period.
If you deposit $3,000 into a savings account with a simple interest rate of 4% per year, what would be the total amount after 3 years?
If you deposit $3,000 into a savings account with a simple interest rate of 4% per year, what would be the total amount after 3 years?
- $3,360 (correct)
- $3,120
- $3,240
- $3,480
Which of the following scenarios would result in the highest return after 5 years, assuming all other factors are equal?
Which of the following scenarios would result in the highest return after 5 years, assuming all other factors are equal?
- Investing in an account with a compound interest rate of 6% per year, compounded quarterly. (correct)
- Investing in an account with a simple interest rate of 7% per year.
- Investing in an account with a compound interest rate of 6% per year, compounded semi-annually.
- Investing in an account with a compound interest rate of 6% per year, compounded annually.
You borrow $8,000 at a simple interest rate of 5% per year. If you need to pay back a total of $9,200, for how many years did you borrow the money?
You borrow $8,000 at a simple interest rate of 5% per year. If you need to pay back a total of $9,200, for how many years did you borrow the money?
If you invest $5,000 in an account that pays 3% interest compounded monthly, what will be the approximate balance after 8 years?
If you invest $5,000 in an account that pays 3% interest compounded monthly, what will be the approximate balance after 8 years?
When might simple interest be preferable over compound interest?
When might simple interest be preferable over compound interest?
What effect does increasing the compounding frequency have on an investment?
What effect does increasing the compounding frequency have on an investment?
Suppose you have two options: Option A offers simple interest at 8% per year, and Option B offers compound interest at 7.5% per year, compounded annually. For what investment period would Option A yield a higher return?
Suppose you have two options: Option A offers simple interest at 8% per year, and Option B offers compound interest at 7.5% per year, compounded annually. For what investment period would Option A yield a higher return?
You want to take out a loan of $10,000. Bank A offers a simple interest rate of 6%, while Bank B offers a compound interest rate of 5.5% compounded annually. If you plan to pay back the loan after 2 years, which bank offers the better deal?
You want to take out a loan of $10,000. Bank A offers a simple interest rate of 6%, while Bank B offers a compound interest rate of 5.5% compounded annually. If you plan to pay back the loan after 2 years, which bank offers the better deal?
What is the main advantage of compound interest over simple interest, especially when considering long-term investments?
What is the main advantage of compound interest over simple interest, especially when considering long-term investments?
Flashcards
Simple Interest
Simple Interest
Interest calculated only on the principal amount of a loan or deposit.
Compound Interest
Compound Interest
Interest calculated on the principal plus accumulated interest.
Principal
Principal
The initial amount of money borrowed or invested.
Interest Rate
Interest Rate
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Time (in years)
Time (in years)
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Compounding Frequency
Compounding Frequency
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Compounding Effect
Compounding Effect
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Simple Interest Loans
Simple Interest Loans
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Compound Interest Investments
Compound Interest Investments
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Simple interest
Simple interest
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Study Notes
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