Simple and Compound Interest

1. Simple and Compound Interest

2. Simple Interest • Interest is like “rent” on a loan. • You borrow money (principal). • You pay back all that you borrow plus more (interest). • Interest is a percent (rate)of the amount borrowed (principal). • Interest = principal x rate x time (in years) • Typically used in loans for new cars.

3. Example 1 • Find the simple interest paid annually for 2 years on $900 at 16% per year.

4. Example 2 • After 3 months the simple interest earned annually on an investment of $7000 was $63. Find the interest rate.

5. Compound Interest • This is interest earned or paid on both the principal and previously earned interest.

6. A is the final amount • P is the principal • r is the interest rate expressed as a decimal • n is the number of times the interest is compounded • t is the time

7. $1500 is invested at a rate of 3.5% compounded annually for 4 years

8. Example 3 • Find the amount in an account with $700 invested at a rate of 7.2% compounded quarterly for 2 years.

9. Example 4 • $28,000 invested at a rate of 4% compounded semi annually for 5 years.