Compound Interest Flashcards

Interest calculated on the initial principal and also on the accumulated interest from previous periods.

A = P(1 + r)^n, where A is the final amount, P is the principal, r is the interest rate (as a decimal), and n is the number of time periods.

The initial amount of money invested or borrowed.

The percentage interest rate per time period, expressed as a decimal in calculations.

The number of times the interest is applied over the total duration.

The total amount after interest has been added, including the principal.

Divide the percentage by 100. For example, 5% becomes 0.05.

As the number of time periods (n) increases, the final amount (A) grows faster due to compounding.

Simple interest is calculated only on the principal, while compound interest is calculated on the principal and accumulated interest.

Savings accounts, where interest is added to the balance and future interest is calculated on the new total.