SIMPLE AND COMPOUND INTEREST Since this section involves what can happen to your money, it should be of INTEREST to you!

Warm Up: Find 6% of $400. Find 5% of $2,000. Find 4.5% of $700.

Warm Up: Find 6% of $400. Find 5% of $2,000. Find 4.5% of $700. $24 $100 $31.50 $17.88

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

I = PRT IMPLE INTEREST FORMULA Annual interest rate Interest paid Time (in years) Principal (Amount of money invested or borrowed)

Simple Interest Equation: Step 1 (Principal) r (Interest Rate) t (Time Period) I (Interest Earned) 1,000 .07 5 350.00 $1,000 invested at 7% interest rate for 5 years

If you invested $200.00 in an account that paid simple interest, find how long you’d need to leave it in at 4% interest to make $10.00. enter in formula as a decimal I = PRT 10 = (200)(0.04)T 1.25 yrs = T 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).

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

4 (2) .08 500 4 Find the amount that results from $500 invested at 8% compounded quarterly after a period of 2 years.

4 (2) .08 500 4 Find the amount that results from $500 invested at 8% compounded quarterly after a period of 2 years.

Smart Investing OR Which would you choose? An investment earning compound interest An investment earning simple interest OR Largest return