Lesson 19 - Interest Flashcards
What is the definition of interest?
Interest is the cost of borrowing money, typically expressed as a percentage of the principal amount.
True or False: Interest can only be earned on savings accounts.
False
Fill in the blank: The formula for calculating simple interest is ______.
I = PRT, where I is interest, P is principal, R is rate, and T is time.
What does the term ‘principal’ refer to in interest calculations?
Principal refers to the initial amount of money that is borrowed or invested.
Which type of interest is calculated on the initial principal only?
Simple interest
What is the formula for compound interest?
A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, including interest.
True or False: Compound interest can lead to exponential growth of savings over time.
True
What does ‘n’ represent in the compound interest formula?
‘n’ represents the number of times that interest is compounded per year.
What is the primary difference between simple interest and compound interest?
Simple interest is calculated only on the principal, while compound interest is calculated on the principal plus any accumulated interest.
Multiple Choice: Which of the following is a common compounding frequency? A) Monthly B) Annually C) Daily D) All of the above
D) All of the above
Fill in the blank: The total amount earned from interest is called ______.
interest earned
What is an example of a situation where interest is paid?
Taking out a loan from a bank.
True or False: The higher the interest rate, the less interest you will earn.
False
What is the effect of increasing the compounding frequency on the total amount of compound interest earned?
Increasing the compounding frequency generally increases the total amount of compound interest earned.
Short Answer: What is an annual percentage rate (APR)?
APR is the annual rate charged for borrowing or earned through an investment, expressed as a percentage.
Multiple Choice: Which of the following statements is true about compound interest? A) It is always less than simple interest B) It is calculated on both the principal and accrued interest C) It does not apply to loans D) It is fixed and does not change
B) It is calculated on both the principal and accrued interest
Fill in the blank: The amount of interest paid on a loan can be calculated using the formula ______.
I = PRT
What is the term for the total amount of money that must be paid back on a loan, including principal and interest?
Total repayment amount
True or False: Interest is always calculated on a yearly basis.
False
Short Answer: How can one reduce the amount of interest paid on a loan?
By making extra payments towards the principal or refinancing to a lower interest rate.
