Lesson 3.2 Simple Interest February 15, 2011Copyright © … REMTECH, inc … All Rights Reserved1 Introduction Simple interest is a method of calculating the interest on money that is borrowed or loaned Simple Interest is not typically used when you deal with a bank or other financial institution Simple interest is a great way to become familiar with the concept of interest Understanding simple interest will help you understand compound interest

Lesson 3.2 Simple Interest February 15, 2011Copyright © … REMTECH, inc … All Rights Reserved2 Objectives Define simple interest, nominal interest rate and period interest rate You should be able to do the following after completing this lesson. Explain when simple interest is and is not used List the common interest calculation periods for simple interest Indicate how many times simple interest is calculated each year for different calculation periods Calculate simple interest using both the nominal interest rate and period interest rate

Lesson 3.2 Simple Interest February 15, 2011Copyright © … REMTECH, inc … All Rights Reserved – Simple interest What simple interest is In this section, you will learn: How simple interest is calculated using the formula below What the principal is for a simple interest loan What is unique about the principal for a simple interest loan What must be repaid to clear a simple interest loan SI = P x R x Y

Lesson 3.2 Simple Interest February 15, 2011Copyright © … REMTECH, inc … All Rights Reserved – When is Simple Interest Used? When simple interest is typically used Examples of when simple interest is used In this section, you will learn: How you can use simple interest to estimate the interest for a bank loan When simple interest is less than or greater than the interest for a bank loan

Lesson 3.2 Simple Interest February 15, 2011Copyright © … REMTECH, inc … All Rights Reserved – Specifying Interest Rates In this section, you will learn: How the interest rate for simple interest loans is expressed What the period interest rate is What the nominal interest rate is What the common calculation periods are for simple interest How many times the interest is calculated each year for each calculation period Why the calculated interest is the same when using both the nominal interest rate and the period interest rate

Lesson 3.2 Simple Interest February 15, 2011Copyright © … REMTECH, inc … All Rights Reserved – Calculating Simple Interest In this section, you will learn: How to calculate simple interest using the standard formula below and the nominal and period interest rates SI = P x R x Y Simple Interest Saving Example How to determine the number of interest calculation periods for a simple interest loan How to determine how much must be repaid for a simple interest loan You will run the following Interactive Example:

Lesson 3.2 Simple Interest February 15, 2011Copyright © … REMTECH, inc … All Rights Reserved – Benefits of Simple Interest In this section, you will learn: When simple interest is working against you How you should use your knowledge of simple interest When simple interest is working for you What you must do to be financially successful

Lesson 3.2 Simple Interest February 15, 2011Copyright © … REMTECH, inc … All Rights Reserved8 Discussion Questions Will banks and other financial institutions ever begin using simple interest in their transactions? Is it really necessary to understand interest since banks and other financial institutions always calculated it for you?