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8.4 Simple and Compound Interest

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Presentation on theme: "8.4 Simple and Compound Interest"— Presentation transcript:

1 8.4 Simple and Compound Interest
CH 8, section 8.4

2 Simple Interest I=PRT paid on average balance (principal)
Interest = Principal x Rate x Time calculate annually paid on average balance (principal) Ex. Deposit of $100 at 6% P= $100 R= 6% T= 1 year I= 100 x .06 x 1= $6

3 Try a couple… You deposit $100 at 12% for 1 year
You deposit $500 at 3.25% for 2 years You deposit $100 at 8% for 6 months (note a month is considered 1/12 of a year)

4 Compound Interest When you earn interest on both the principal (ie. Your initial deposit) and the interest. EX. After earning $6 in interest on your $100 investment, you allow that money to remain invested, making your principal for the following year $106.

5 Types of compounding Can be done Annually Semi annually Quarterly
Monthly Daily Note: the more often your money compounds, the more interest you earn.

6 Examples for compound interest
Refer to pages of your Economic Education for Consumers book to review samples of compound interest

7 Rule of 72 Tells you how long it will take an investment to double in value. EX. At 10%, it will take my investment 7.2 years to double in value. 72/10= 7.2

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