Simple Interest

is money added onto the original amount saved (earned) or borrowed (charged). Simple Interest: Video below! kejWlQk

Simple Interest Formula I (Interest) - The amount earned or the amount charged p (Principal)- The amount borrowed or deposited r (Rate) – Percent at which the interest is charged t (Time)- In years or months

Calculating Simple Interest Convert the percent to a decimal. 16% =.16 How much money would you pay in interest if you borrowed $1,600 for 1 ½ years at 16% APR? I = prt I = $1,600 x.16 x 1.5 I = $384

Shawnique bought a beautiful house for $350,000. Her loan was for 30 years at 6.5% APR. How much money will she end up paying in interest? 6.5% =. 065 I = prt I = $350,000 x.065 x 30 I = $682,500

Kent put $8,500 into an 18 month CD. The interest rate is 3.25% How much money will Kent earn in interest? 3.25% = I = prt I = $8,500 x.0325 x 1.5 I = $414.38

Katie bought a new sports car for $28,500. She financed her car for 6 years at 6.75%APR. How much will she end up paying for interest on her car? 6.75% = I = prt I = $28,500 x.0675 x 6 I = $11,542.50

Cody bought a new truck for $25,000. He took out a loan for 5 ½ years with 7.75% APR. How much will Cody end up paying in interest? 7.75% = I = prt I = $25,000 x.0775 x 5.5 I = $10,656.25

Tia saved her $9,000 for 2 ½ years at 4.25% APR in a CD, to go on a month long vacation with her family. How much did she earn in interest? 4.25% = I = prt I = $9,000 x.0425 x 2.5 I = $956.25

What is compound interest? The principal on which interest is calculated is increased by adding the interest at the end of each time period onto the principal.

Compound Interest Re-investing your interest income from an investment makes your money grow faster over time! This is what compound interest does. Compound interest uses the same information as simple interest, but what is new is the frequency of compounding n. n=1 annual, n=2 semi-annual, n=4 quarterly, n=12 monthly, n=52 weekly, n=365 daily.

COMPOUND INTEREST FORMULA amount at the end Principal (amount at start) annual interest rate (as a decimal) time (in years) number of times per year that interest in compounded

Typically interest is NOT simple interest but is paid semi-annually (twice a year), quarterly (4 times per year), monthly (12 times per year), or even daily (365 times per year).

(2) Effective rate of interest is the equivalent annual simple rate of interest that would yield the same amount as that made compounding. This is found by finding the interest made when compounded and subbing that in the simple interest formula and solving for rate. Find the effective rate of interest for the problem above. The interest made was $ Use the simple interest formula and solve for r to get the effective rate of interest. I = Prt 85.83=(500)r(2) r = = 8.583% Find the amount that results from $500 invested at 8% compounded quarterly after a period of 2 years.

Video: How to calculate Compound Interest using a formula.