Calculating Simple & Compound Interest

Simple Interest  Simple interest (represented as I in the equation) is determined by multiplying the interest rate by the principal by the number of periods. (Same amount every year)

Simple Interest equation: I = Prt  Principal sum (P)- The initial amount of money invested or borrowed (ie. $10, 000)  Interest rate (r)- The amount charged or given to the principal sum (ie. 5%)  Interest period (t)- The number of years you plan to invest or borrow (ie. 5 years)

Let’s try it Tim, a grade 9 student at Preston High school received $1000 from his grandma for his birthday. After learning about savings in his BBI class, he decides to go to his bank and put the money into a savings account at an interest rate of 3% annually until he goes to university in 4 years. Calculate the simple interesting using the simple interest equation: I=Prt

I = Prt  P = $1000  r= 3% annually  t= 4 years I = 1000 x 0.03 x 4 = 120 Therefore Tim will have made $120 in interest over the 4 years resulting in a total of $1120.

Compound Interest  Interest calculated on the amount saved or borrowed plus any interest already accumulated

Calculating Compound Interest, using the Tim example from before Principal (P)Interest (Pxr) Total 1000= 1000 x.03 = 30 = = 1030 x.03 = = = x.03 = = = x.03 = =