1. Compound Interest

2. Simple Interest
Principal
Rate
Interest
total
100
.05
5.00
105.00
110.00
115.00
120.00
125.00
Simple interest – Interest is JUST calculated on the principal (initial deposit) each month.

3. Compound Interest
With compound interest, the original principal is added with the interest for the next year and interested is calculated based on the principal AND interest

4. Compound Interest Principal Rate Interest Total 100 .05 5.00 105.00
5.25
110.25
5.51
115.76
5.78
121.54
6.08
127.62
Principal
Rate
Interest
total
100
.05
5.00
105.00
110.00
115.00
120.00
125.00

5. Video – simple vs. compound interest

6. Formulas
Simple Interest: I = prt
Compound Interest: A= P(1+r)t

7. Simple vs. Compound I = prt A=P(1+r)t
Principal: $1,200 Rate: 4% Time: 5 years
Simple Interest: I = 1200 x .04 x $240
total in the bank = $240 = $1440
Compound Interest: A = 1200(1+.04)5
1200(1.04)5
1200( )
A = $

8. William borrows money to buy a $9,000 car
William borrows money to buy a $9,000 car. The interest rate on the loan is 4.5%, compounded annually. The loan is for 3 years. How much does William owe in total?
A=P(1+r)t
A = 9000(1+.045)3
9000(1.045)3
9000( )
$10,270.50
Remember! (1.045)3 = x x 1.045