 Simple and Compound Interest. Simple Interest Interest is like “rent” on a loan. You borrow money (principal). You pay back all that you borrow plus more.

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Simple and Compound Interest

Simple Interest Interest is like “rent” on a loan. You borrow money (principal). You pay back all that you borrow plus more (interest). Interest is a percent (rate)of the amount borrowed (principal). Interest = principal x rate x time (in years) Typically used in loans for new cars.

Example 1 Find the simple interest paid annually for 2 years on \$900 at 16% per year.

Example 2 After 3 months the simple interest earned annually on an investment of \$7000 was \$63. Find the interest rate.

Compound Interest This is interest earned or paid on both the principal and previously earned interest.

A is the final amount P is the principal r is the interest rate expressed as a decimal n is the number of times the interest is compounded t is the time

\$1500 is invested at a rate of 3.5% compounded annually for 4 years YearsInterest earnedAmount in account 00\$1500 11500 x 0.035 x 1\$1552.50 21552.50 x 0.035 x 1\$1606.84 31606.84x0.035x1\$1663.08 41663.08x0.035x1\$1721.29

Example 3 Find the amount in an account with \$700 invested at a rate of 7.2% compounded quarterly for 2 years.

Example 4 \$28,000 invested at a rate of 4% compounded semi annually for 5 years.

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