Simple and Compound Interest Video: Simple/ Compound InterestSimple/ Compound Interest Video: A Penny a DayA Penny a Day

Interest ●When you deposit money in a bank, you EARN money for it. This money is called interest. ●When you borrow money from a bank, you are expected to pay for doing this. This is also called interest.

Principal and Simple Interest ●PRINCIPAL is the original amount of money you deposit or borrow. ●SIMPLE INTEREST is the interest earned only on the principal.

Simple Interest Formula I = prt I Is the interest earned ($ earned) p Is the principal ($ invested or borrowed) r Is the interest rate per year t Is the time in years

Solve Simple Interest: Find the Simple Interest: 1) You borrow $300 for 5 years at an annual interest rate of 4%. What is the simple interest you pay in dollars?

Step 1) Write the formula…...I=prt Step 2) Substitute numbers for letters in formula (convert % into decimal) p=$300 r=4% (0.04) t = 5 years The interest is $60. So while I borrowed $300, I had to pay the bank $60 for borrowing it. I = prt I = 300x0.04x5 I = $60

Compound Interest ●COMPOUND INTEREST is interest paid on the original principal and on the interest. ● THE BALANCE of an account is the principal plus the interest earned.

Compound Interest Formula B = p(1 + r) t B Is the Balance p......Is the principal ($ deposited or borrowed) r Is the interest rate per year t Is the time in years

Solve Compound Interest Find the Compound Interest 1)You borrow $5,000 from the bank and you have to pay the principal and interest off at end of 9 years. Compound Interest rate is 3.75% What is your balance after 9 years?

Step 1) Write the formula B = p(1 + r) t Step 2) Substitute numbers for letters in formula (convert % into decimal) p=$5000 r=3.75% (0.0375) t=9 B = 5000 ( ) 9

Step 3) Use calculator to simplify (power) B = 5000 ( ) 9 =5000 ( ) Step 4) Round to nearest cent B= $