Calculating simple compound interest
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Calculating Simple & Compound Interest. 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). Simple Interest equation : I = Prt.

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Calculating Simple & Compound Interest

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Calculating Simple & Compound Interest


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)


Simple Interest equation: I = Prt

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)


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 = 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 already accumulated


Calculating Compound Interest, using the Tim example from before


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