1. Simple and Compound Interest
Lesson 7.7
OBJ: To calculate interest earned and account balances

2. Simple Interest
I = prt; where p is principal, r is the rate and t is the time in years.
Interest – The amount earned or paid for the use of money.
Principal – The amount of money borrowed or deposited.
Simple Interest – The amount paid only on the principal
Annual Interest Rate – The percent of the principal earned or paid per year.

3. Examples
A $1000 bond earns 6% simple annual interest. What is the interest earned after 4 years?
Find the simple interest earned on $500 after 5 years in a money market account paying 5%.

4. Balance (A)
The amount of an account that earns simple interest is the sum of the interest and the principal.
A = p + prt or A = p(1 + rt)
You can use either formula to get the balance when calculating the balance after simple interest.

5. Examples
Susan deposits $2000 into her savings account. What is her balance after she earns 7% simple interest for 6 years?
Find the unknown amount
A = ?
p = $1000
r = 2.5%
t = 2 years

6. Examples A = $1424.50 p = ? r = 3.5% t = 6 months
Remember time must be in years!!!

7. Compound Interest
The interest that is earned on both the principal and any interest that has been previously earned.
Formula A = p(1 + r)t
Example – You deposit $1200 into an account that earns 3.8% interst compounded annually. Find the balance after 5 years.

8. Examples
You deposit $1200 into an account that earns 3.8% interest compounded annually. Find the balance after 5 years.
Max borrows $3500 for a new car. The loan has 6.7% interest that will be compounded annually. How much money will he owe after 36 months?