SIMPLE vs COMPOUND INTEREST Isimp. = P * r *t where P - principal amount (the initial amount you borrow or deposit), r - annual rate of interest (as a decimal), t- number of years the amount is deposited or borrowed for. nt I comp. = P * [(1+ - [(1 + ) – 1] where n - number of times the interest is compounded per year. 2. If you take a three-year simple-interest loan of 100 000 CZK at an annual interest rate of 5,5%, what would be the total amount of interest paid? Total number of Principal Time period Total Interest paid Interest rate compounding periods (CZK) (as a decimal) (number of years) (CZK) 100,000 0.055 3 16,500 3. How much interest on interest is earned in an account by the end of 5 years if € 100 000 is deposited and interest is 4% per year, compounded quarterly? Compounding Compound Interest Simple Interest Interest Principal Interest rate Time period Interest per period t Total number of frequency earned on compounding periods (EUR) 20,000.00 (EUR) (as a decimal) (number of years) (times per year) (as a decimal) (EUR) (EUR) 100,000 2,019.00 0.04 5 20 0.0100 22,019.00

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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SIMPLE vs COMPOUND INTEREST
Isimp. = P *r *t
where P - principal amount (the initial amount you borrow or deposit),
r - annual rate of interest (as a decimal),
t - number of years the amount is deposited or borrowed for.
nt
I comp.
= P + [(1+)" – 1]
where n - number of times the interest is compounded per year.
2. If you take a three-year simple-interest loan of 100 000 CZK at an annual interest rate of 5,5%, what would be the total amount of interest paid?
Total number of
Principal
Interest rate
Time period
Total Interest paid
compounding
(CZK)
(as a decimal)
(number of years)
periods
(CZK)
100,000
0.055
3
16,500
3. How much interest on interest is earned in an account by the end of 5 years if € 100 000 is deposited and interest is 4% per year, compounded quarterly?
Interest per period Compound Interest
earned
Simple
Interest
Interest
Time period
Compounding
frequency
Principal
Interest rate
Total number of
on
compounding periods
(EUR)
(as a decimal)
(number of years)
(times per year)
(as a decimal)
(EUR)
(EUR)
(EUR)
100,000
22,019.00
2,019.00
0.04
5
4
20
0.0100
20,000.00
Transcribed Image Text:SIMPLE vs COMPOUND INTEREST Isimp. = P *r *t where P - principal amount (the initial amount you borrow or deposit), r - annual rate of interest (as a decimal), t - number of years the amount is deposited or borrowed for. nt I comp. = P + [(1+)" – 1] where n - number of times the interest is compounded per year. 2. If you take a three-year simple-interest loan of 100 000 CZK at an annual interest rate of 5,5%, what would be the total amount of interest paid? Total number of Principal Interest rate Time period Total Interest paid compounding (CZK) (as a decimal) (number of years) periods (CZK) 100,000 0.055 3 16,500 3. How much interest on interest is earned in an account by the end of 5 years if € 100 000 is deposited and interest is 4% per year, compounded quarterly? Interest per period Compound Interest earned Simple Interest Interest Time period Compounding frequency Principal Interest rate Total number of on compounding periods (EUR) (as a decimal) (number of years) (times per year) (as a decimal) (EUR) (EUR) (EUR) 100,000 22,019.00 2,019.00 0.04 5 4 20 0.0100 20,000.00
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