Assess Yourself
Are you ready to take this lesson's quiz? The questions below will help you find out. Make sure you understand why each correct answer is correct—if you do not, review that part of the lesson.
What is simple interest based on?
- the interest rate and the accumulated interest on previous interest
- the principal amount and the accumulated interest on previous interest
- the principal amount, the interest rate, and the loan or investment term
- the loan or investment term, the principal amount, and the accumulated interest over time
The formula to calculate simple interest is \( I = Prt \).
The formula to calculate simple interest is \( I = Prt \).
The formula to calculate simple interest is \( I = Prt \).
The formula to calculate simple interest is \( I = Prt \).
What is one difference between compound interest and simple interest?
- Compound interest involves interest on interest.
- Compound interest involves the loan or investment term.
- Compound interest involves the interest rate of the loan or investment.
- Compound interest involves the initial amount of the loan or investment.
Since compound interest is compounded, interest will accumulate, not only from the principal, but also from previous interest.
Since compound interest is compounded, interest will accumulate, not only from the principal, but also from previous interest.
Since compound interest is compounded, interest will accumulate, not only from the principal, but also from previous interest.
Since compound interest is compounded, interest will accumulate, not only from the principal, but also from previous interest.
In the compound interest formula \( A = P\left( 1 + \frac{r}{n} \right)^{n \cdot t}, \) what does the \( n \) represent?
- the interest rate
- the number of total years of the loan or investment
- the number of times interest is compounded per year
- the total amount paid or earned at the end of the term
Compound interest, as the name suggests, compounds the interest earned a certain number of times per year. This amount is multiplied by the time and divided into the interest rate.
Compound interest, as the name suggests, compounds the interest earned a certain number of times per year. This amount is multiplied by the time and divided into the interest rate.
Compound interest, as the name suggests, compounds the interest earned a certain number of times per year. This amount is multiplied by the time and divided into the interest rate.
Compound interest, as the name suggests, compounds the interest earned a certain number of times per year. This amount is multiplied by the time and divided into the interest rate.
Use the compound interest formula \( A = P\left( 1 + \frac{r}{n} \right)^{n \cdot t} \) to calculate the future value invested after two years on an initial amount of $100, with an interest rate of 10%, compounded annually.
- $130
- $20
- $121
- $107
In order to calculate the value of your investment after 2 years, divide the interest rate by the number of times the interest is compounded. Then add 1 to this value and raise it to a power that is the number of years of the investment multiplied by the number of times the interest is compounded. Finally, multiply this result by the principal amount to get the total amount.
In order to calculate the value of your investment after 2 years, divide the interest rate by the number of times the interest is compounded. Then add 1 to this value and raise it to a power that is the number of years of the investment multiplied by the number of times the interest is compounded. Finally, multiply this result by the principal amount to get the total amount.
In order to calculate the value of your investment after 2 years, divide the interest rate by the number of times the interest is compounded. Then add 1 to this value and raise it to a power that is the number of years of the investment multiplied by the number of times the interest is compounded. Finally, multiply this result by the principal amount to get the total amount.
In order to calculate the value of your investment after 2 years, divide the interest rate by the number of times the interest is compounded. Then add 1 to this value and raise it to a power that is the number of years of the investment multiplied by the number of times the interest is compounded. Finally, multiply this result by the principal amount to get the total amount.
In the simple interest formula \( I = Prt \), what does the \( r \) represent?
- the interest rate as a percentage
- the interest rate as a decimal
- the number of times the interest is compounded
- the loan or investment term in years
In order to calculate simple interest, multiply the principal amount by the term in years. Next, multiply this result by the interest rate, which must be converted from a percentage to a decimal.
In order to calculate simple interest, multiply the principal amount by the term in years. Next, multiply this result by the interest rate, which must be converted from a percentage to a decimal.
In order to calculate simple interest, multiply the principal amount by the term in years. Next, multiply this result by the interest rate, which must be converted from a percentage to a decimal.
In order to calculate simple interest, multiply the principal amount by the term in years. Next, multiply this result by the interest rate, which must be converted from a percentage to a decimal.
Which of the following scenarios will be the most beneficial to you?
- having a compound-interest investment earning 1% interest
- having a compound-interest investment earning 5% interest
- having a simple-interest investment earning 1% interest
- having a simple-interest investment earning 5% interest
A compound-interest investment will earn more interest than one that uses simple interest.
A compound-interest investment will earn more interest than one that uses simple interest.
A compound-interest investment will earn more interest than one that uses simple interest.
A compound-interest investment will earn more interest than one that uses simple interest.
Summary
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