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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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Vocabulary
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
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


Simple interest1
Simple Interest

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


Compound interest
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”


Compound interest1
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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