Simple and Compound Interest Flashcards
What is interest?
It is the amount you pay or receive for borrowing or placing a sum of money in a bank
What does Interest depend on?
It depends upon the Principal, interest rate and time expressed in years
I = PRT/100
What is Principal?
It is the amount of money you place or borrow from a bank
What is Interest rate?
It is the rate of yearly interest, in percentage, given by or charged by the bank
What is Time expressed as?
It is expressed in terms of year
If the time you place the money in a bank is 6 months. Do we multiply the amount by 6?
No, we multiply by 6/12 or 0.5
1 year is 12 months, so we divide the number of months by 12
What is the total amount earn or owed?
We add the interest to the Principal borrowed or place in the bank
Total = P + I
Calculate the simple interest earn when the principal is $20000 at an interest rate of 2% and for 2 years?
I = ($20000 * 2 * 2)/100
= $800
Calculate the total amount when the principal is $20000 at an interest rate of 2% and for 2 years?
I = ($20000 * 2 * 2)/100
= $800
Total = $20000 + $800
=$20800
Calculate the simple interest earn when the principal is $20000 at an interest rate of 2% and for 3 months?
Time is 3/12 = 0.25
I = ($20000 * 2 * 0.25)/100
= $100
Calculate the total amount when the principal is $20000 at an interest rate of 2% and for 3 months?
Time is 3/12 = 0.25
I = ($20000 * 2 * 0.25)/100
= $100
Total = $20000 + $100
$20100
What is compound interest?
In compound interest, the principal amount changes at certain periods in times to include the interest.
If the amount, time and rate is the same, compound rate or simple rate will give more interest
Compound interest will be more, as the interest is added to the Principal after each year.
Calculate the compound interest earn when the principal is $20000 at an interest rate of 2% and for 2 years?
Interest in year 1 = ($20000 * 2 * 1)/100
= $400
After 1 year, new P is $20000 + $400 = $20400
Interest in year 2 = ($20300 * 2 *1)/100
= $408
Compound interest is $400 + $408 = $808
Calculate the total amount when the principal is $20000 at a compound interest rate of 2% and for 2 years?
Interest in year 1 = ($20000 * 2 * 1)/100
= $400
After 1 year, new P is $20000 + $400 = $20400
Interest in year 2 = ($20300 * 2 *1)/100
= $408
Compound interest is $400 + $408 = $808
Total amount is $20000 + $808 = $20808
