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 Timecalculate annuallypaid on average balance (principal)Ex. Deposit of $100 at 6%P= $100R= 6%T= 1 yearI= 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 yearsYou deposit $100 at 8% for 6 months(note a month is considered 1/12 of a year)
4 Compound InterestWhen 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 MonthlyDailyNote: 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 72Tells 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