Journal How can interest (APR) be good and bad?

Simple VS. Compound Interest Interest Day 1 Notes

VOCABULARY Principal: Simple Interest: Compound Interest:

COMPARING SIMPLE & COMPOUND INTEREST Scenario 1: You invest $1000 in an account that pays 5% simple interest every year. How much do you get from interest every year? How much do you have in your account after 5 years? Scenario 2: You invest $1000 in an account that pays 5% compound interest every year. How much do you get from interest every year? How much do you have in your account after 5 years?

SIMPLE INTEREST FORMULAS I = Prt ACCUMULATED BALANCE A = P + I or A = P + Prt A: accumulated balance

Compound Interest Formula 𝐴=𝑃 (1+𝐴𝑃𝑅) 𝑌 A = accumulated balance P = Principal APR = annual percentage rate Y = # of years

Example 1 Ryan deposited $2,000 in a saving account at the interest rate of 4% per year. How much simple interest will he earn in 5 years? A = P + Prt

Example 2 Garcia borrowed $4,000 from his cousin Susan at the rate of 8% per annum. He repaid the amount after two years. How much did he repay? 𝐴=𝑃 (1+𝐴𝑃𝑅) 𝑌

Example 3 On July 18, 1461, King Edward IV of England borrowed the modern equivalent of $384 from New College of Oxford. The King soon paid back $160, but never repaid the remaining $224. The debt was forgotten for 535 years. Upon its rediscovery in 1996, a New College administrator wrote to the Queen of England asking for repayment with interest. Assuming the interest rate was compounded annually at 4%, what does the Queen of England owe New College of Oxford? 𝐴=𝑃 (1+𝐴𝑃𝑅) 𝑌

Example 4 Charlie is investing $10,000 in a CD for 20 years. The CD has an APR of 4.5% and is compounded annually. How much does Charlie have at the end of the 20 years? How much is from interest? 𝐴=𝑃 (1+𝐴𝑃𝑅) 𝑌