Simple Interest and Compound Interest

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# Simple Interest and Compound Interest - PowerPoint PPT Presentation

Simple Interest and Compound Interest. DO NOW…. Alice Tsongas deposited \$600 in a new account at Bradenton Savings and Loan Association. No other deposits or withdrawals were made. After 3 months the interest was computed at an annual interest rate of 3 ½ percent.

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### Simple Interest and Compound Interest

DO NOW…

Alice Tsongas deposited \$600 in a new account at Bradenton Savings and Loan Association. No other deposits or withdrawals were made. After 3 months the interest was computed at an annual interest rate of 3 ½ percent.

Using the following formula

Find out how much simple interest Alice earned on her savings.

I = p r t

DO NOW…

Alice Tsongas deposited \$600 in a new account at Bradenton Savings and Loan Association. No other deposits or withdrawals were made. After 3 months the interest was computed at an annual interest rate of 3 ½ percent.

I = p r t

I = (\$600)(0.035)(1) = \$21

I = (\$600)(0.035)(3/12) =\$5.25

When you deposit money in a bank, you EARN money for it. This is called interest.

• When you borrow money from a bank, you are expected to pay for it. This money is also called interest.
• The PRINCIPAL is the original amount of money you deposit or borrow.

I = p r t

I ….. Is the interest earned

p….. Is the principal

r…….is the interest rate per year

t…….time in year

Find the Simple Interest
• You borrow \$300 for 5 years at an annual interest rate of 4%.
• What is the simple interest you pay in dollars ?

I = p r t

I = (\$300)(0.04)(5) = \$60

You have \$500 in an account that earns an annual rate of 5.1%. At the end of each year, you withdraw the interest you have earned. Lets Graph the total interest you earn after 1, 2, 3 and 4 years.

Today’s Assignment

Complete Questions 1-6 on page 35 of your Work Book

Do Now…

On May 1, Cleveland Livingston opened a savings account that paid 3.5% exact interest at Fulton Savings Bank with a deposit of \$5,000. Ten days later he deposited \$2,000. Fourteen days later he deposited \$8,000. No other deposits or withdrawals were made. Six days later the bank calculated the daily interest

How much simple Interest did his money earn?

How much was in the account at the end of the 30 days?

COMPOUND INTEREST

COMPOUND INTEREST is the interest paid on the original principal and on any interest that has been left in the account.

THE BALANCE of an account is the principal plus the interest earned…

Big with Credit Card Companies

Know the Formula

B=p(1+r)

t

B ------- is the Balance

P-------- is the Principal

r-------- is the interest rate per year

t -------- is the time in years

Find the Compound Interest

• You deposit \$5,000 in a bank account that pays 3.75% compound interest.
• What is your balance after 9 years?

B = p (1 + r)

t

9

B = 5,000 (1 +0.0375 )

B = 5,000 (1.392813439)

B = 6,964.07

Total Balance after 9 years \$6,964.07