Simple and Compound Interest Quiz
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Questions and Answers

What is the formula to calculate simple interest?

  • A = P(1 + rt)
  • I = Prt (correct)
  • I = Pt
  • A = P + I

A person deposits $1000 in a savings account that earns 5% annual simple interest. How much will be the interest earned at the end of the first year?

  • $500
  • $20
  • $100
  • $50 (correct)

What is the difference between simple and compound interest?

  • Simple interest is calculated on the principal amount, while compound interest is calculated on the principal and interest. (correct)
  • Simple interest is calculated monthly, while compound interest is calculated annually.
  • Simple interest is calculated annually, while compound interest is calculated monthly.
  • Simple interest is calculated on the principal and interest, while compound interest is calculated on the principal amount.

A bank offers a 10% annual compound interest on a deposit of $5000. If the interest is compounded annually, how much will be the amount after 2 years?

<p>$6300 (C)</p> Signup and view all the answers

What is the effect of compounding frequency on the interest earned?

<p>More frequent compounding results in more interest earned. (B)</p> Signup and view all the answers

If a ₱100,000 deposit earns a 5% annual simple interest, how much will be the total amount after 3 years?

<p>₱117,500 (D)</p> Signup and view all the answers

A 2-year investment of ₱50,000 earns a 10% annual compound interest. How much will be the interest earned during the first year?

<p>₱5,000 (B)</p> Signup and view all the answers

A bank account with a ₱20,000 principal earns a 6% annual compound interest. If the interest is compounded quarterly, what will be the total amount after 1 year?

<p>₱22,120 (D)</p> Signup and view all the answers

A savings account has a ₱15,000 principal and earns a 7% annual simple interest. How much will be the total amount after 5 years?

<p>₱21,500 (B)</p> Signup and view all the answers

A ₱30,000 investment earns a 9% annual compound interest. If the interest is compounded semiannually, what will be the total amount after 2 years?

<p>₱37,872 (A)</p> Signup and view all the answers

Flashcards

Simple Interest Formula

The formula to calculate simple interest is I = Prt, where I is the interest, P is the principal, r is the interest rate, and t is the time.

Simple Interest Calculation

Simple interest is calculated only on the initial deposit (principal).

Simple vs. Compound Interest

Simple interest is calculated only on the principal, while compound interest is calculated on both the principal and the accumulated interest.

Compound Interest Effect of Frequency

The more frequent the compounding periods (e.g., daily, monthly, quarterly), the faster the investment grows.

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Principal Amount

The starting amount of money in an investment or loan.

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Annual Interest Rate

The percentage of the principal earned each year

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Time in Investment

The duration of time money is invested or borrowed over which interest is calculated.

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Total Amount (Simple Interest)

The principal plus accumulated simple interest.

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Compound Interest Calculation (Annual)

Calculates interest on the initial principal and interest from prior periods.

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Compound Interest over Two Years

Interest is earned on the principal and the accumulated interest at the end of each year.

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