Podcast
Questions and Answers
What term describes the initial amount of money borrowed or lent?
What term describes the initial amount of money borrowed or lent?
- Principal (correct)
- Future Value
- Interest Rate
- Maturity Value
Which formula calculates simple interest?
Which formula calculates simple interest?
- F = P(1 + r)t
- F = P(1 + rt)
- F = P + i
- i = Prt (correct)
When would you use the formula F = P(1 + rt)?
When would you use the formula F = P(1 + rt)?
- To compute total repayment amount for a compound interest loan
- To find maturity value of a simple interest loan (correct)
- To determine the future value of an investment in stock
- To calculate compound interest
What does the term 'maturity date' refer to in the context of a loan?
What does the term 'maturity date' refer to in the context of a loan?
Which of the following represents the formula for calculating compound interest compounded annually?
Which of the following represents the formula for calculating compound interest compounded annually?
If a loan has an interest rate of 5% compounded quarterly, what is the value of m?
If a loan has an interest rate of 5% compounded quarterly, what is the value of m?
How is the total amount paid at the end of a simple interest loan calculated?
How is the total amount paid at the end of a simple interest loan calculated?
What is the formula to calculate the compound interest when compounded m times a year?
What is the formula to calculate the compound interest when compounded m times a year?
Flashcards
Simple Interest
Simple Interest
Interest calculated only on the principal amount over a fixed period.
Compound Interest
Compound Interest
Interest calculated on both the principal and accumulated interest over time.
Principal (P)
Principal (P)
The initial amount of money borrowed or lent.
Interest Rate (r)
Interest Rate (r)
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Time (t)
Time (t)
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Maturity Value (F)
Maturity Value (F)
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Compounding Frequency (m)
Compounding Frequency (m)
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Simple Interest Formula
Simple Interest Formula
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Study Notes
Simple Interest
- Simple interest is calculated on the original principal amount
- Formula: F = P + i or F = P(1 + rt)
- F = final or future amount
- P = Principal
- i = interest
- r = interest rate
- t = time
Lender/Creditor
- Person/institution that lends money
Borrower/Debtor
- Person/institution that borrows money
Principal/Present Value
- Original amount borrowed/lent
Interest
- Amount paid for the use of money
Interest Rate
- Percentage of interest over the principal divided by number of years
Origin/Loan Date
- Date the borrower receives the money
Repayment/Maturity Date
- Date the borrowed money is repaid
Time/Period/Term
- Number of years the money is borrowed
Future Value/Maturity Value/Accumulated Value
-
Amount received by the lender at the maturity date
-
Formula: i = Prt
Compound Interest
- Interest calculated on both the principal and accumulated interest
- Formula (annually): F = P(1 + r)t
- F = maturity/future/final value
- P = borrowed money or Principal
- r = interest rate in %
- t = time period
- Formula (compounded m times a year): F = P(1 + r/m)mt
- m = frequency of conversion (number of times interest is compounded per year)
Additional Compound Interest Details
- m = 1 (compounded annually)
- m = 2 (compounded semi-annually)
- m = 4 (compounded quarterly)
- m = 12 (compounded monthly)
- m = 365 (compounded daily)
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Description
This quiz covers the essential concepts of simple interest, including the formulas used to calculate future value, principal, and interest rates. It also explains the roles of lenders and borrowers, and provides an introduction to compound interest. Test your understanding of these financial principles!
