Presentation on theme: "Simple and Compound Interest"— Presentation transcript:
1 Simple and Compound Interest Lesson 7.7OBJ: To calculate interest earned and account balances
2 Simple InterestI = prt; where p is principal, r is the rate and t is the time in years.Interest – The amount earned or paid for the use of money.Principal – The amount of money borrowed or deposited.Simple Interest – The amount paid only on the principalAnnual Interest Rate – The percent of the principal earned or paid per year.
3 ExamplesA $1000 bond earns 6% simple annual interest. What is the interest earned after 4 years?Find the simple interest earned on $500 after 5 years in a money market account paying 5%.
4 Balance (A)The amount of an account that earns simple interest is the sum of the interest and the principal.A = p + prt or A = p(1 + rt)You can use either formula to get the balance when calculating the balance after simple interest.
5 ExamplesSusan deposits $2000 into her savings account. What is her balance after she earns 7% simple interest for 6 years?Find the unknown amountA = ?p = $1000r = 2.5%t = 2 years
6 Examples A = $1424.50 p = ? r = 3.5% t = 6 months Remember time must be in years!!!
7 Compound InterestThe interest that is earned on both the principal and any interest that has been previously earned.Formula A = p(1 + r)tExample – You deposit $1200 into an account that earns 3.8% interst compounded annually. Find the balance after 5 years.
8 ExamplesYou deposit $1200 into an account that earns 3.8% interest compounded annually. Find the balance after 5 years.Max borrows $3500 for a new car. The loan has 6.7% interest that will be compounded annually. How much money will he owe after 36 months?