Compound interest

Learning Objectives Define compound interest and distinguish it from simple interest. Identify the principal, interest rate, time, and compounding frequency in a given problem. Apply the compound interest formula to calculate the future value of an investment or loan. Calculate the total interest earned or paid using the compound interest formula. Compare different compounding frequencies and explain their impact on financial outcomes. Solve real-world problems involving compound interest in savings and debt scenarios. Ever wonder how banks make money, or how your savings can grow faster over time than you might expect? 💰 It's all thanks to a powerful concept called compound interest! In this lesson, you'll discover the magic of compound interest, a fundamental c...

TermDefinitionExample Principal (P)The initial amount of money deposited, invested, or borrowed.If you put $100 into a savings account, $100 is the principal. Interest Rate (r)The percentage charged by the lender or paid to the saver for the use of money, usually expressed as an annual rate.A bank offers a 5% annual interest rate on savings. You would use 0.05 in calculations. Time (t)The duration, in years, for which the money is invested or borrowed.If you invest money for 36 months, the time (t) would be 3 years. Compounding Period (n)How often the interest is calculated and added back to the principal within a year. Common periods include annually (n=1), semi-annually (n=2), quarterly (n=4), or monthly (n=12).If interest is compounded quarterly, 'n' would be 4 because it&#03...

Simple Interest Formula $I = Prt$ Used to calculate the total simple interest earned or paid. 'I' is interest, 'P' is principal, 'r' is annual interest rate (as a decimal), 't' is time in years. Compound Interest Formula (General) $A = P(1 + \frac{r}{n})^{nt}$ Used to calculate the future value 'A' of an investment or loan. 'P' is principal, 'r' is annual interest rate (as a decimal), 'n' is the number of times interest is compounded per year, and 't' is the time in years. Compound Interest Formula (Annual Compounding) $A = P(1 + r)^t$ A simplified version of the general compound interest formula when interest is compounded once per year (n=1). 'A' is future value, &#0...