Simple & Compound Interest

Flashcards covering key concepts of simple and compound interest, definitions, formulas, and examples.

Interest

The amount of money that we get for lending or investing money, or that we pay for borrowing money.

Principal

The amount of money deposited or borrowed.

Rate or Interest Rate

The charge for interest, given as a percentage, assumed to be per year.

Simple Interest

Interest calculated only on the principal, and it is only calculated once.

Simple Interest Formula

Interest = principal × rate × time (I = Prt).

Future Value

The total amount due when a loan is repaid, which includes principal plus interest.

Present Value

The initial value of an account, denoted P.

Compound Interest

Interest computed on the original principal as well as on any accumulated interest.

Compounding Period

The period of time between two interest payments.

Natural Number e

A mathematical constant approximately equal to 2.71828, significant in calculus and compound interest formulas.