Basics Of Interest Flashcards
Interest problems generally involve what 4 quantities?
1) Principal(s)
2) Investment length(s)
3) Interest rate(s)
4) Amount value(s)
What is interest?
An amount charged to a borrower for the use of the lender’s money over a period if time.
What is the investment in financial transactions called?
Principal
What do you call the amount that the principal has grown to at the end of an investment period?
Amount value
How do you find interest when given Amount Value and Principal?
I = A - P
Where I is interest, A is amount value and P is principal
Interest expressed as a percent of the principal is called what?
Interest rate
What is collateral?
An asset that is released in the event that a borrower of capital defaults.
What is the unit in which time of investment is measured called?
Measurement period.
You deposit $1000 into a savings account. One year later, the account has accumulated $1,050.
- What is the principal in this investment?
- What is the interest earned?
- What is the annual interest rate?
Principal = $1,000
Interest earned = $1,050 - $1,000= $50
Annual interest rate = $50/$1000= 5%
What is the formula to calculate simple interest?
A = P(1 + it)
Write an expression giving the amount of interest earned from time (t) to time (t+s) in terms of A only.
A(t+s) - A(t)
You invest $3200 in a savings account on January 1, 2004. On December 31, 2004 the account has accumulated to $3294.08 . What is the annual interest rate?
2.94%
What is the formula for compound interest?
A = P(1 + i)^t
Using the compound interest formula, how long would it take for an investment of $15,000 to increase to $45,000 if the annual compound interest rate is 2%?
55.48 years
Using the formula for simple interest, in how many years will $500 accumulate to $630 if the annual interest rate is 7.8%?
3.3 years
