Simple & Comp'd Interest Simple interest: interest rate applies to principal only % Comp’d interest: interest rate applies to principal and accrued interest

Solution: Example: Determine the amt available in 3 years if $ 10,000 is deposited now at 20% per year (a) simple and, (b) Compound interest Solution: (a) Simple interest F = principal + interest = P + P(n)(i) = 10,000 +10,000(3)(0.20) = $16,000

Solution: Example: Determine the amt available in 3 years if $ 10,000 is deposited now at 20% per year (a) simple and, (b) Compound interest Solution: (b) Comp’d interest F1 = 10,000+10,000(0.20) = 12,000 F2= 12,000+12,000(0.20) = 14,400 F3= 14,400+14,400(0.20) = $17,280