Vocabulary
The original amount of money earning interest
Principal
What is the formula for calculating simple interest?
Interest= Principal x Rate x Time
Your principal is $800. The annual rate of interest is 5.5% What is the interest after 6 months?
$22.00
Principal: $1,200
Annual Interest Rate: 6.0%
Interest Period: Quarterly
Find the interest for the first period
$18.00
List three different ways to make a deposit
In person at the bank, ATM, or online
This earns interest on the original principal and on the interest earned during previous interest periods, in other words "interest on interest"
Compound interest
What are the two steps for calculating compound interest?
Amount= Principal + Interest
Compound Interest= Amount - Original Principal
$3.45
Principal: $1,200
Annual Interest Rate: 6.0%
Interest Period: Quarterly
Find the total amount after the first interest period$1,218.00
Explain the difference between compound interest and simple interest.
Simple interest is paid only on the principal amount. Compound interest is paid on the original amount plus interest earned over previous interest periods
An account into which someone deposits an equal amount of money at equal period or intervals of time
Annuity
What are the formulas for compound interest using a compound interest table?
Amount= Original Principal x Amount of $1.00
Compound Interest= Amount - Original Principal
$635.85 invested at 7% for 6 months
$22.75
Piers deposited $350 into a new regular savings account that earns 6.5% interest compounded semiannually. He made no other deposits or withdrawals. What amount was in account at the end of year 1?
$373.12
What's the difference between an ordinary annuity and an annuity due?
With an ordinary annuity, deposits are made at the end of the period. With an annuity due, deposits are made at the beginning of the period.
This type of annuity occurs when you make regular deposits at the beginning of the interest period, and immediately starts earning interest
Annuity due
What are the formulas used to compute the future value and the interest of an ordinary annuity?
Future Value= Amount of Deposit x Future Value of $1.00
Total Interest= Future Value- Total of all Deposits
Calvin earned $13.78 in simple interest at an annual rate of 6.5%. If he invested $424, what was the time period of the investment?
6 months
If $1.00 at 5.5% interest compounded daily has a value of $1.00513 after 34 days, how much interest would June's account have earned on $5,000 after 34 days?
$25.65
Principal, annual interest rate, and the amount of time the money is in the account.
If an amount of money is placed into an account that earns interest semi-quarterly, how many interest periods would there be in 4 years?
32
What is the formula used to find the future value of an annuity due?
FV of an AD= FV of an Ordinary Annuity x (1 + Rate per Period)
Tron earned $110 in simple interest in 9 months at an annual interest rate of 8%. What was the amount of money he invested?
$1,833.33
Which kind of interest is more beneficial: simple or compound? Why?
Compound. It allows interest to build upon itself, making the total amount increase exponentially.
Right now, how much is an average interest rate on federal student loans for undergraduate college students?
6.39%