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Simple & Compound Interest

Simple & Compound Interest. Vocabulary. Interest: A fee paid by a borrower of money to the owner as compensation. Principal: The initial sum of money borrowed. Rate: The percentage used to calculate interest. Simple Interest.

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Simple & Compound Interest

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  1. Simple & Compound Interest

  2. Vocabulary • Interest: A fee paid by a borrower of money to the owner as compensation. • Principal: The initial sum of money borrowed. • Rate: The percentage used to calculate interest.

  3. Simple Interest • Definition: Interest is calculated as a percentage of only the principal amount. • Formula for interest: I = P × r × t I= interest, P = principal, R = rate, T = time

  4. Simple Interest • Example: Adam borrows $250 from Brandy at a 12% simple interest rate. How much does Adam owe in 8 years?

  5. Compound Interest • Definition: Interest calculated as a percentage of the principal and the previously accrued interest. • Formula: A = P(1+r)t A = Total amount at time “t”

  6. Compound Interest • Example: Kristy borrows $1200 from Dylan at 18 percent interest compounded annually. How much does Dylan owe in 14 years How much did he pay in interest?

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