Download Interest - SusanAndrews

Interest
11/2/09
Simple Interest:
 amount you earn when lending or
depositing money, or the amount you
pay when borrowing money


a percentage (rate) of the principal
that is earned or paid over a certain
period of time (per year)
Principle: the money you borrowed
or lent
“Interest is a percentage of the
principle per year”
Interest = % • principle • year
Interest = rate • principle • year
I = p r t  MEMORIZE
Where…
I= interest
r = rate
p = principal
t = time in years
Total Amount after Interest = P + I
A=P+I
Marcia deposits $200 in an account
with 8% simple interest for 3 years.

What is the simple interest she will earn?
I=p•r•t
I = $200 • .08 • 3
I = $48
•
What will her balance be in the account after the
3 years?
A=P+I
A = $200 + $48
A= $248
The interest earned will be $48 and her balance in
the account will be $248.
Compound Interest

Earning interest or paying interest on
your interest
Total Amount after compound interest = P(1+r)t
A = P(1+r)t
Where…
A = total amount after compound interest
DO NOT MEMORIZE THIS EQUATION
How much would Marcia have in the bank if
the 8% interest was compounded?

A = P(1+r) ^ t
A = 200(1 + .08) ^ 3
A = 200(1.08) ^ 3
A = 200(1.259712)
A = $251.9424
A = $251.94
Marcia will have $251.94 in the bank.
**remember order of operations
**round to nearest cent at the end
Simple Versus Compound Interest

Which has more of an effect on the
total after interest?
Compound Interest
Compound : A = $ 251. 94
Simple: A = $ 248.00