1. COMPOUND INTEREST
Since this section involves what can happen to your money, it should be of INTEREST to you!

2. I = Prt IMPLE INTEREST FORMULA annual interest rate (as a decimal)
Interest paid
I = Prt
time (in years)
Principal (Amount of money invested or borrowed)

3. If you invested $ in an account that paid simple interest, find how long you’d need to leave it in at 4% interest to make $10.00.
enter in formula as a decimal
I = Prt
10 = (200)(0.04)t
1.25 yrs = t
Typically interest is NOT simple interest but is paid semi-annually (twice a year), quarterly (4 times per year), monthly (12 times per year), or even daily (365 times per year).

4. COMPOUND INTEREST FORMULA
annual interest rate (as a decimal)
Principal (amount at start)
time (in years)
amount at the end
number of times per year that interest in compounded

5. Find the amount that results from $500 invested at 8% compounded quarterly after a period of 2 years. 4
(2)
.08
500 4
Effective rate of interest is the equivalent annual simple rate of interest that would yield the same amount as that made compounding. This is found by finding the interest made when compounded and subbing that in the simple interest formula and solving for rate.
Find the effective rate of interest for the problem above.
The interest made was $ Use the simple interest formula and solve for r to get the effective rate of interest.
I = Prt =(500)r(2)
r = = 8.583%

6. If you want to know the amount to invest now to obtain a certain amount with a given interest rate for a given time, you’ll want to take the interest equation and solve for P. This formula is called the Present Value. (It can easily be obtained from the other formula so you just need to memorize the simple, compound and continuous interest formulas and you can solve for P if necessary).
You can divide both sides by the stuff in the parenthesis to get P alone. We can represent this division with a negative exponent.