Simple vs. Compound
What type of interest is calculated strictly on the original principal deposit?
Simple interest
What does the acronym APR stand for?
Annual Percentage Rate
Maya starts saving $100/month at age 20. Sam starts saving $100/month at age 35. Who will have more money at age 65?
What type of interest allows you to earn money on your principal plus all previously earned interest?
Compound Interest
What does the acronym APY stand for?
Annual Percentage Yield
True or False: If you start saving at age 20 instead of age 30, you can end up with more money in retirement even if you contribute less overall cash.
True
You deposit money and earn $50 in interest in Year 1, $50 in Year 2, and $50 in Year 3. What kind of interest is this?
Simple Interest
Which interest rate takes compounding into account: APR or APY?
APY
When it comes to investing, ________ in the market is more important than the amount of money you put in.
Time
What is the financial term for the initial sum of money you deposit or invest?
Principal
You deposit money and earn $50 in interest in Year 1, $55 in Year 2, and $61 in Year 3. What kind of interest is this?
Compound Interest
A bank advertises a savings account with a 5.0% APR and a 5.12% APY. Which rate represents the actual total return you will earn in a full year?
APY
What is Mrs. Ortell's latest hobby?
Crocheting (making pumpkins)
You put $1,000 into an account with 10% Simple Interest. How much total money is in the account after 3 years?
$1,300 ($100 per year x 3 years + $1,000 principal)
Why do compound interest earnings grow larger over time, while simple interest earnings stay the same?
Because compound interest earns interest on top of past interest, so the total balance keeps getting bigger.
True or False: APR is always higher than APY on the same compound interest account.
False (APY is always higher or equal because it includes compounding)
You put $1,000 into an account with 10% Compound Interest compounded annually. How much total money is in the account after 2 years?
$1,210 ($1,100 after Year 1; $1,100 + $110 interest after Year 2)