24.3. Types of Interest

Try these first

1. 1.

   What is the formula for Simple Interest?

   Hint

   Think about the components of the formula.

2. 2.

   How do you define Compound Interest?

   Hint

   Consider how CI differs from SI.

3. 3.

   What is the main difference between Simple Interest and Compound Interest?

   • SI is calculated only on the principal
   • CI includes accumulated interest.
   • SI includes accumulated interest
   • CI is only on principal.
   • They are the same.
   • None of the above.

   Hint

   Think about how interest is calculated for both.

4. 4.

   True or False: Compound Interest is always higher than Simple Interest for longer time periods.

   • True
   • False

   Hint

   Consider how interest accumulates differently.

5. 5.

   A person invests $5,000 in a savings account with a 6% simple interest rate for 10 years. Calculate the total amount received at the end of 10 years and discuss how this would compare to a compound interest scenario at the same rate.

   Hint

   Remember to use the SI formula for a straight calculation.

6. 6.

   If a loan of $3,000 is charged a 4% interest compounded annually for 5 years, what is the total amount repayable? How would this differ from using simple interest calculations?

   Hint

   Use the CI formula to find the outstanding amount.