Calculating Simple Compound Interest Simple Interest Simple interest

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Calculating Simple & Compound Interest

Calculating Simple & Compound Interest

Simple Interest ¡ Simple interest (represented as I in the equation) is determined by

Simple Interest ¡ Simple interest (represented as I in the equation) is determined by multiplying the interest rate by the principal by the number of periods. (Same amount every year)

¡ ¡ ¡ Principal sum (P)- The initial amount of money invested or borrowed

¡ ¡ ¡ Principal sum (P)- The initial amount of money invested or borrowed (ie. $10, 000) Interest rate (r)- The amount charged or given to the principal sum (ie. 5%) Interest period (t)- The number of years you plan to invest or borrow (ie. 5 years) Simple Interest equation: I = Prt

Let’s try it Tim, a grade 9 student at Preston High school received $1000

Let’s try it Tim, a grade 9 student at Preston High school received $1000 from his grandma for his birthday. After learning about savings in his BBI class, he decides to go to his bank and put the money into a savings account at an interest rate of 3% annually until he goes to university in 4 years. Calculate the simple interesting using the simple interest equation: I=Prt

I = Prt P = $1000 ¡ r= 3% annually ¡ t= 4 years

I = Prt P = $1000 ¡ r= 3% annually ¡ t= 4 years ¡ I = 1000 x 0. 03 x 4 = 120 Therefore Tim will have made $120 in interest over the 4 years resulting in a total of $1120.

Compound Interest ¡ Interest calculated on the amount saved or borrowed plus any interest

Compound Interest ¡ Interest calculated on the amount saved or borrowed plus any interest already accumulated

Calculating Compound Interest, using the Tim example from before Principal (P) 1000 1030 1060.

Calculating Compound Interest, using the Tim example from before Principal (P) 1000 1030 1060. 90 Interest (Pxr) = 1000 x. 03 = 30 = 1030 x. 03 = 30. 90 =1060. 90 x. 03 Total = 1030 = 1060. 90 = 1092. 73 = 31. 83 1092. 73 = 1092. 73 x. 03 = 1125. 51 = 32. 78