Simple Interest
What is simple interest?
is the simplest way to calculate interest
What makes compound interest different from simple interest?
Interest is earned on both the original principal and previously earned interest.
What does TVM stand for?
Time Value of Money
What is inflation?
The average increase in prices over time.
True or False:
Simple interest earns interest on previous interest.
False
State the simple interest formula
I = C × r × n
What happens to interest growth over time with compound interest?
It grows faster because interest earns interest.
In the TVM Solver, what does FV mean?
Future Value
What happens to the value of money during inflation?
Its purchasing power decreases.
A bank account starts with $2000 and earns 3% simple interest. How much interest is earned in one year?
$60
A student invests $1000 at 4% simple interest for 5 years. Find the interest earned.
I = $200
If $100 is invested at 5% compounded annually, how much interest is earned during Year 1?
$5
In TVM Solver, what does PV mean?
Present Value
What is depreciation?
A decrease in the value of an asset over time.
Which grows faster over a long period:
Simple interest or compound interest?
Compound interest
Cameron has $70 in a savings account that earns 5% annually. The interest is not compounded.How much interest will he earn in 1 year?
$3.50
If $100 is invested at 5% compounded annually, what is the balance after Year 1?
$105
What does N represent in the TVM Solver?
The total number of periods, not years.
Name one asset that commonly depreciates.
A car
In TVM Solver, are deposits entered as positive or negative values?
Negative
A person invests $5000 at 3% simple interest for 8 years. How much interest is earned?
I = $1200
A bank offers 6% interest compounded monthly. How many times is interest added each year?
12 times
If payments are made quarterly for 10 years, what is N?
40
If inflation is 2.5% and an investment earns 2%, is the real value increasing or decreasing?
Decreasing
A person deposits $200 each month into a savings account earning 5.4% interest compounded monthly for 15 years. What finance tool would you use to solve this?
TVM Solver