1. Lesson 7.7 Simple and Compound Interest
Essential Question: How do you calculate interest and account balances?

2. Before we start…
You open a savings account at the bank and deposit $200. Other than your initial deposit, the account remains inactive. One year later, your balance is $206. How much interest was earned?

3. What is interest? What is principal?
An amount paid for the use of money
What is principal?
The amount you borrow or deposit

4. What is simple interest?
When interest is earned or paid only on the principal

5. What is the annual interest rate?
The percent of the principal you pay or earn per year

6. What is the balance?
The sum of the interest and the principal

7. How do you calculate simple interest?
Use the simple interest formula.
𝐼=𝑃𝑟𝑡

8. Simple Interest Formula
Principal
Time (in years)
Interest
𝑰=𝑷𝒓𝒕
Rate (as a decimal)

9. A $1000 bond earns 6% simple annual interest
A $1000 bond earns 6% simple annual interest. What is the interest earned after 4 years?

10. Find the simple interest earned on $500 after 5 years in a money market account paying 5%.

11. You get a summer job at a bakery
You get a summer job at a bakery. Suppose you save $1400 of your pay and deposit it into an account that earns simple annual interest. After 9 months, the balance is $1421. Find the annual interest rate.

12. Jose deposits $2000 of his tax refund into an account that earns simple annual interest. After 6 months, the balance is $2040. Find the annual interest rate.

13. Investment You put $750 into a certificate of deposit
Investment You put $750 into a certificate of deposit. Your simple annual interest rate is 4%. You receive a check for the interest at the end of each year. How long will it take to earn $150 in interest?

14. Balance You deposit $500 into an account that earns 6% simple annual interest. What will the account’s balance be after 2 years?

15. Loan You borrow $50 at 4% simple annual interest
Loan You borrow $50 at 4% simple annual interest. How much will you owe in 1 year?

16. What is compound interest?
Interest that is earned on both the principal and any interest that has been earned previously

17. How do you calculate compound interest?
Use the compound interest formula
𝐴=𝑃 1+𝑟 𝑡

18. Interest Rate (decimal)
Account Balance
𝐴=𝑃 1+𝑟 𝑡
Principal
Time (years)

19. You deposit $1500 into an account that earns 2
You deposit $1500 into an account that earns 2.4% interest compounded annually. Find the balance after 6 years.

20. You deposit $1200 into an account that earns 3
You deposit $1200 into an account that earns 3.8% interest compounded annually. Find the balance after 5 years.

21. You deposit $1250 into an account that earns 2
You deposit $1250 into an account that earns 2.25% interest compounded annually. Find the balance after 4 years.

22. You deposit $2000 into an account that earns 3
You deposit $2000 into an account that earns 3.6% interest compounded annually. Find the balance after 5 years.

23. How do you calculate interest and account balances?

24. Ticket Out the Door
You purchase a bond for $450. The bond earns 6.5% simple annual interest. How much interest will the bond earn after 10 years?