Simple + Compound Interest

Question 1

Define simple interest.

Answer 1

Interest calculated only on the principal amount (the original amount of money)

Question 2

What is the formula for simple interest?

Answer 2

Simple interest = Principal × Rate × Time

Question 3

Fill in the blank: Compound interest is calculated on the ______ and any interest earned.

Answer 3

Principal

Question 4

True or false: Simple interest increases over time at a constant rate.

Answer 4

TRUE

Question 5

Define compound interest.

Answer 5

Interest calculated on the initial principal and also on the accumulated interest.

Question 6

What does APR stand for?

Answer 6

Annual Percentage Rate

Question 7

Fill in the blank: The principal is the initial amount of ______.

Answer 7

Money invested or borrowed.

Question 8

True or false: Compound interest can lead to exponential growth.

Answer 8

TRUE

Question 9

What is the effect of compounding frequency on interest?

Answer 9

More frequent compounding results in higher total interest earned.

Question 10

Define interest rate.

Answer 10

The percentage at which interest is charged or paid.

Question 11

What is the difference between simple and compound interest?

Answer 11

Simple interest is calculated on the principal only; compound interest includes accumulated interest.

Question 12

True or false: The total amount with simple interest is always less than with compound interest.

Answer 12

FALSE

Question 13

What is the formula for compound interest?

Answer 13

Compound interest = Principal × (1 + Rate)^Time - Principal.

Question 14

Define principal.

Answer 14

The original sum of money invested or borrowed

Question 15

Fill in the blank: Time in interest calculations can be expressed in ______.

Answer 15

Years, quarterly, months, or days

Question 16

What is interest?

Answer 16

The cost of borrowing money or the return on investment.

Question 17

Fill in the blank: The future value is the total amount after ______.

Answer 17

Interest is applied.

Question 18

What is effective interest rate?

Answer 18

The actual interest rate an investor earns or pays after compounding.

Question 19

Define rate of interest.

Answer 19

The percentage of the principal charged as interest over a period.

Question 20

Fill in the blank: Compounding occurs when interest is added to the principal ______.

Answer 20

At regular intervals.

Question 21

True or false: The longer the time period, the more compound interest accumulates.

Answer 21

TRUE

Question 22

What is the total amount after simple interest?

Answer 22

Total Amount = Principal + Simple Interest.

Question 23

Fill in the blank: Investment is the act of allocating resources to generate ______.

Answer 23

Returns.

Question 24

Define annual compounding.

Answer 24

Interest is calculated once per year on the principal.

Question 25

12 is decreased by 4%. Find the resulting value.

Answer 25

12 x 0.96 = 11.52

Question 26

£128 is increased by 30%, then decreased by 15%. What is the overall percentage change?

Answer 26

128 x 1.3 = 166.4 166.4 x 0.85 = 141.44 141.44 - 128 = 13.44 13.44/128 = 0.105 Overall Percentage Change = +10.5%

Question 27

Over three years, an 42,000kg iceberg falls to 20% of its original mass. Find the resulting mass of the iceberg.

Answer 27

42,000 x 0.2 = 8,400 Resulting Mass = 8,400kg

Question 28

8.48 x 10^6 is increased by 20%. Express the resulting value in standard form to 3s.f.

Answer 28

8,480,000 x 1.2 = 10,176,000 10,176,000 = 1.2 x 10^7 (3s.f.)

Question 29

Maddy invests €200 into an account paying 5% compound interest yearly. How much money is in the account after 3 years?

Answer 29

200 x (1.05)^3 = 231.53 (2d.p.) After 3 years = €231.53 (2d.p.)

Question 30

Maddy invests €200 into an account paying 5% compound interest yearly. Calculate the value of the fifth interest payment Maddy will receive.

Answer 30

200 x (1.05)^4 = 243.10 (2d.p.) 200 x (1.05)^5 = 255.26 (2d.p.) 5th interest payment = 255.26 - 243.10 = **€12.16**

Question 31

Scott used a ‘20% off’ voucher to buy tickets. He paid £120 for tickets using the voucher. How much would these tickets have cost Scott without a voucher?

Answer 31

£120 = 80% £120 x 1.25 = £150.00 Tickets originally = £150

Question 32

After a 7.5% pay rise, Paul’s salary was £29,455. What was his salary before the pay rise?

Answer 32

29,455/1.075 = 27,400 Original salary = £27,400

Question 33

In a sale, all normal prices are reduced by 20%. In the sale, the normal price of a tablet computer is reduced by €79. Work out the normal price of the tablet computer.

Answer 33

€79 = 20% 79 x 5 = 395 Normal price of tablet = €395

Question 34

When Flora has walked 20% of the way from her home to her work, she has 1200 metres more to walk than when she has 20% of the walk remaining. How far, in metres, is it from her home to her work?

Answer 34

100% - 20% - 20% = 60% 60% = 1200m 20% = 400m 100% = 2000m or 2km

Question 35

The value of a boat depreciates by 16% each year. At the end of 2012, the value of the boat is £65000. Work out the value of the boat at the end of 2015.

Answer 35

65000 x (1- 0.16)^3 = 38,525.76 Value of boat at the end of 2015 = £38, 525.76