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Simple & Compound Interest

Simple & Compound Interest. Simple & Compound Interest. Objective : 7.1.01 Develop and use ratios, proportions, and percents to solve problems Essential Question : How can I use percents to calculate simple and compound interest?. Simple & Compound Interest. Vocabulary :

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Simple & Compound Interest

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  1. Simple & Compound Interest

  2. Simple & Compound Interest • Objective: • 7.1.01 Develop and use ratios, proportions, and percents to solve problems • Essential Question: • How can I use percents to calculate simple and compound interest?

  3. Simple & Compound Interest Vocabulary: • Interest:an specified amount of money paid or earned for the use of money. • Principal:the original amount of money borrowed or deposited. • Rate:the interest percentage. • Time:the period of time for which an amount of money is invested or borrowed. • Simple Interest:an interest calculation that is calculated only on the principal. • Compound Interest:an interest calculation that is calculated using the principal and any interest remaining in an account.

  4. Simple & Compound Interest Real World Example: Simon is 12 years old and has decided that he wants to buy a car when he turns 16. He has some money and thinks if he puts it in the bank for the next four years he will get enough interest to buy a car. If he invests $3000 and receives 4% simple interest over the next four years, how much will he have to spend on a new car? I = Prt I = (3000)(0.04)(4) I = $480 Simon will have a total of $3,480 to spend on a car when he turns 16

  5. Simple & Compound Interest Simple Interest Formula I = Prt Time (in years) Interest Rate Principal

  6. Simple & Compound Interest Compound Interest Formula B = P(1 + )nt r n Time (in years) Balance Rate Principal

  7. Simple & Compound Interest Example 1:Finding Simple Interest Find the simple interest for $4,000 invested for 4 years at an annual interest rate of 4%. I = Prt I = ? I = (4000)(0.04)(4) P = 4,000 I = $640 r = 4% = 0.04 $4,000 + $640 t = 4 years $4,640.00

  8. Simple & Compound Interest Example 2:Finding Compound Interest If you deposit $4,000 in an account that pays 4% compounded annually what is your balance after 4 years. B = p(1 + r)t B = ? B = 4000(1 + 0.04)4 p = 4,000 B = $4679.43 r = 4% = 0.04 t = 4 years $4,679.43

  9. Simple & Compound Interest Example 3:Finding Simple Interest Find the simple interest for $2,500 invested for 4½ years at an interest rate of 4.5%. I = Prt I = ? I = (2500)(0.045)(4.5) P = 2,500 I = $506.25 r = 4.5% = 0.045 $2,500 + $506.25 t = 4.5 $3,006.25

  10. Simple & Compound Interest Example 4:Finding Simple Interest Find the simple interest for $80 invested for 6 months earning 6% simple interest. I = Prt I = ? I = (80)(0.06)(6/12) P = 80 I = $2.40 r = 6% = 0.06 $80.00 + $2.40 t = • 6/12 = 0.5 $82.40

  11. Simple & Compound Interest Example 5:Using Simple Interest to Find Time If you invest $8,000 and receive 9% simple interest, how long would it take to earn $5,040 in interest. I = Prt I = 5,040 5040 = (8000)(0.09)(t) P = 8,000 5040 = 720t r = 9% = 0.09 720 720 t = ? t = 7 years

  12. Simple & Compound Interest Example 6:Using Simple Interest to Find Rate If you invest $8,000 and receive $5040 in simple interest after 7years, what was the interest rate. I = Prt I = 5,040 5040 = (8000)(r)(7) P = 8,000 5040 = 56000r r = ? 56000 56000 t = 7 r = 0.09

  13. Simple & Compound Interest When Calculating Interest: Always Remember… First make sure you are using the correct formula…is it simple interest or compound interest? • Make the correct substitutions…p is principal, r is interest rate, t is time in years, and B is balance. • Solve for the unknown. • Reread the question and calculate your answer.

  14. Simple & Compound Interest Independent Practice: Find the interest for each example below: 1. $800, 5 years, 5% interest 2. $1,500, 6½ years, 8% interest 3. $450, 7 years, 11.75% interest = $200.00 = $780.00 = $370.13

  15. Simple & Compound Interest Independent Practice: Find the interest for each example below: 1. $800, 5 years, 5% interest 2. $1,500, 6½ years, 8% interest 3. $450, 7 years, 11.75% interest = $200.00 = $780.00 = $370.13

  16. Simple & Compound Interest HOMEWORK

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