INTEREST. Simple Interest Compound Interest SIMPLE INTEREST VS. COMPOUND INTEREST Interest earned on the principal investment Earning interest on interest.

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Presentation transcript:

INTEREST

Simple Interest Compound Interest SIMPLE INTEREST VS. COMPOUND INTEREST Interest earned on the principal investment Earning interest on interest Principal is the original amount of money invested or saved

$1, $350 SIMPLE INTEREST P (Principal) r (Interest Rate) t (Time Period) I (Interest Earned) $1,000 invested at 7% interest rate for 5 years P (Principal) I (Interest Earned) A (Amount Investment is Worth) $ 1,000 $350$1,350 Compute InterestAdd Interest to Principal

$2, $1625 SIMPLE INTEREST P (Principal) r (Interest Rate) t (Time Period) I (Interest Earned) $2,500 invested at 6.5% interest rate for 10 years P (Principal) I (Interest Earned) A (Amount Investment is Worth) $2,500$1625$4,125 Compute InterestAdd Interest to Principal

$ $350 SIMPLE INTEREST P (Principal) r (Interest Rate) t (Time Period) I (Interest Earned) $500 invested at 3.5% interest rate for 20 years P (Principal) I (Interest Earned) A (Amount Investment is Worth) $500$350$850 Compute InterestAdd Interest to Principal

COMPARISON PrincipalRateTimeSimple Compound Annually Compound Monthly Compound Daily $1,0007%5 yrs$1,350 $2,5006.5%10 yrs$4,125 $5003.5%20 yrs$850 $2,0001.5%7 yrs $10,0002%15 yrs $5,0000.5%20 yrs $2,210 $13,000 $5,500

COMPOUND INTEREST EQUATION $1,000 invested at 7% interest rate compounded yearly for 5 years $1,000 (1+.07) 1x5 1 r = Interest Rate A = Amount Investment is Worth P = Principal t = number of years P 1 + = A ( ) rnrn nt n = # of times per year =$1,403 = $1,000 (1.07) 5

COMPOUND INTEREST EQUATION $1,000 invested at 7% interest rate compounded monthly for 5 years $1,000 (1+.07) 12x5 12 r = Interest Rate A = Amount Investment is Worth P = Principal t = number of years P 1 + = A ( ) rnrn nt n = # of times per year =$1,417 = $1,000 ( ) 60

COMPOUND INTEREST EQUATION $1,000 invested at 7% interest rate compounded daily for 5 years $1,000 (1+.07) 365x5 365 r = Interest Rate A = Amount Investment is Worth P = Principal t = number of years P 1 + = A ( ) rnrn nt n = # of times per year =$1,419 = $1,000 ( ) 1825

COMPOUND INTEREST EQUATION $2,500 invested at 6.5% interest rate compounded yearly for 10 years $2,500 (1+.065) 1x10 1 r = Interest Rate A = Amount Investment is Worth P = Principal t = number of years P 1 + = A ( ) rnrn nt n = # of times per year = $4,693 = $2,500 (1.065) 10

COMPOUND INTEREST EQUATION $2,500 invested at 6.5% interest rate compounded monthly for 10 years $2,500 (1+.065) 12x10 12 r = Interest Rate A = Amount Investment is Worth P = Principal t = number of years P 1 + = A ( ) rnrn nt n = # of times per year = $4,780 = $2,500 ( ) 120

COMPOUND INTEREST EQUATION $2,500 invested at 6.5% interest rate compounded daily for 10 years $2,500 (1+.065) 365x r = Interest Rate A = Amount Investment is Worth P = Principal t = number of years P 1 + = A ( ) rnrn nt n = # of times per year = $4,787 = $2,500 ( ) 3650

COMPOUND INTEREST EQUATION $500 invested at 3.5% interest rate compounded yearly for 20 years $500 (1+.035) 1x20 1 r = Interest Rate A = Amount Investment is Worth P = Principal t = number of years P 1 + = A ( ) rnrn nt n = # of times per year = $995 = $500 (1.035) 20

COMPOUND INTEREST EQUATION $500 invested at 3.5% interest rate compounded monthly for 20 years $500 (1+.035) 12x20 12 r = Interest Rate A = Amount Investment is Worth P = Principal t = number of years P 1 + = A ( ) rnrn nt n = # of times per year = $1006 = $500 ( ) 240

COMPOUND INTEREST EQUATION $500 invested at 3.5% interest rate compounded daily for 20 years $500 (1+.035) 365x r = Interest Rate A = Amount Investment is Worth P = Principal t = number of years P 1 + = A ( ) rnrn nt n = # of times per year = $1007 = $500 ( ) 7300

COMPARISON PrincipalRateTimeSimple Compound Annually Compound Monthly Compound Daily $1,0007%5 yrs$1,350 $2,5006.5%10 yrs$4,125 $5003.5%20 yrs$850 $2,0001.5%7 yrs $10,0002%15 yrs $5,0000.5%20 yrs $2,210 $13,000 $5,500 $1,403$1,417$1,419 $4,693$4,780$4,787 $1,007 $1,006 $995 $2,220 $2,221 $13,459 $13,495 $13,498 $5,524 $5,526