SIMPLE AND COMPOUND INTEREST

Question 1

amount of money borrowed or invested initially during the origin date

Answer 1

PRINCIPAL (P)

Question 2

annual percentage charged by the lender or the rate of increase of the investment

Answer 2

RATE (r)

Question 3

period usually in years that the money is borrowed or lent or the period between origin and maturity date

Answer 3

TIME or TERM (t)

Question 4

is the amount after t years with interest on maturity

date (interest + principal)

Answer 4

FUTURE VALUE (F)

Question 5

future value is also called what

Answer 5

MATURITY VALUE

Question 6

two kinds of interests

Answer 6

SIMPLE INTEREST

COMPOUND INTEREST

Question 7

differentiate simple interest to compound interest according to their principal, rate and interest computation

Answer 7

PRINCIPAL: remains the same for simple interest vs. in compound interest it changes annually
RATE: remains the same for both
INTEREST: computed based on the same principal for simple interest. in compound interest, the interest is
computed based on the accumulated principal and interest from the previous year

Question 8

formula for simple interest

Answer 8

Is = Prt

Question 9

formula for the future value of simple interest`

Answer 9

F = P + Is or F = P(1 + rt)

Question 10

in this type of interest, the interest is computed by multiplying the principal to the rate and the period in years

Answer 10

SIMPLE INTEREST

Question 11

this type of interest is best used for short-term investments with smaller amount of principal

Answer 11

SIMPLE INTEREST

Question 12

in this type of interest, the interest is computed from the principal and its accumulated interest from the previous period

Answer 12

COMPOUND INTEREST

Question 13

in this type of interest, principal changes on every compounding period

Answer 13

COMPOUND INTEREST

Question 14

funds under compound interest grow at a _____ rate than they would in an account with a simple interest rate

Answer 14

faster

Question 15

formula for the future value of compound interest

Answer 15

F = P(1 + r)^t
where:
P is the principal or present value
r is the rate
t is the period of compounding in years

Question 16

formula for compound interest

Answer 16

Ic = F − P
where:
F is future value
P is the principal value

Question 17

formula for finding the t in compound interest

Answer 17

t = log(F/P) / log(1 + r)

Question 18

formula for finding the r in compound interest

Answer 18

r = t√(F/P) - 1

Question 19

number of conversion period in a year (how many times will the compounding happen in a year)

Answer 19

Frequency of Conversion (m)

Question 20

time between successive conversions of interest

Answer 20

Conversion period or Interest period (n)

Question 21

annual rate of interest

Answer 21

Nominal rate (i^m)

Question 22

the interest rate every compounding

Answer 22

Interest rate per period n (j)

Question 23

formula for j (interest rate per period)

Answer 23

j = i^m / m

or nominal rate / frequency of conversion

Question 24

formula for the maturity value when compounding more than once in a year

Answer 24

F = P( 1 + (i^m/m))^mt 
or F = P(1 + j)^n
where:
i^m is annual interest rate
n is the interest period (n=mt)
j is the interest rate per period
t is time
P is the principal value
m is the frequency of conversion

Question 25

formula for t when compounding more than once in a year

Answer 25

t = log (F/P) / mlog (1 + i^m/m)
where:
i^m is annual interest rate
F is future value
t is time
P is the principal value
m is the frequency of conversion

Question 26

formula for the annual interest/nominal rate when compounding more than once in a year

Answer 26

i^m = m(n√(F/P) - 1) 
or i^m = m(mt√(F/P) - 1) 
i^m is annual interest rate
n is the interest period (n=mt)
t is time
P is the principal value
m is the frequency of conversion
F is future value

Question 27

formula for the maturity of continuous compound interest

Answer 27

F = Pe^((i^m)t)
F is future value
P is the principal value
e is euler's number 
i^m is annual interest rate
t is time