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Interest…How does it all work?

Interest…How does it all work?. Interest : fee paid by a borrower of assets (bank) to the owner as a form of compensation for the use of the assets (money). It is most commonly the price paid for the use of borrowed money, or money earned by what people deposit (put in) in a bank.

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Interest…How does it all work?

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  1. Interest…How does it all work? • Interest: fee paid by a borrower of assets (bank) to the owner as a form of compensation for the use of the assets (money). • It is most commonly the price paid for the use of borrowed money, or money earned by what people deposit (put in) in a bank

  2. Simple Interest • http://www.youtube.com/watch?v=6AZijeJDmgY • Simple Interest: The amount of interest can be calculated by using the formula: I= Prt • I=Interest • P=principal (original amount of money/amount invested) • R=rate (%) (HINT: when you put it in the formula you need to change it to a decimal) • T=time (how long)

  3. I=Prt Sample Problem… What is your interest if your: The amount of money you put in was 125.00 Your Interest rate was 8.5% You put it in for 7 years I = Prt I= 125.00 (.085) (7) I = $74.38

  4. Compound Interest • http://www.youtube.com/watch?v=DB-qoEkQGOo • Compound interest • Paid on the original principal ANDon the accumulated past interest • You can use the same formula as simple, you will just use it how ever many years it gives you.

  5. Compound Interest I = Prt I= 125.00 (.085) (1) I = $ 10.63 So at the end of year one you would have 125.00 + 10.63 = 135.63 I = Prt I= 135.63 (.085) (1) I = $ 11.53 So the amount after 2 years would be 135.63 + 11.53 = 147.16 Sample Problem… What is your total amount of money in your account if: -The amount of money you put in was 125.00 -Your Interest rate was 8.5% -You put it in for 2 years and it’s compounded annually

  6. Teenage (and Mrs. Etter) ScenarioThe Problem: You want to save to get an Iphone5s. Your parents tell you to use your own money-OH MAN! Problem is they cost $499.00 and you have only $100.00 in your piggy bank.The Thought: You remember your wonderful social studies teacher telling you about interest the bank will pay you for putting money into their institution. Action Steps: So you head off to the local new cool bank called Ettigulis Banking! You put your money into a new account. Rates: The bank is so stinking nice (unlike McNiece Banking that only gives .3% interest rate) and they give you an interest rate of 10%.The Question: How many years will it take you to reach your goal of $499.00? SIMPLE VS. COMPOUND

  7. Comparing Compound and Simple You invested 100.00 in 2 different accounts. One that gets simple interest and one that gets compound interest. In 50 years…look at the difference.

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