Presentation on theme: "8.4 Simple and Compound Interest"— Presentation transcript:
18.4 Simple and Compound Interest CH 8, section 8.4
2Simple 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
3Try 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)
4Compound 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.
5Types of compounding Can be done Annually Semi annually Quarterly MonthlyDailyNote: the more often your money compounds, the more interest you earn.
6Examples for compound interest Refer to pages of your Economic Education for Consumers book to review samples of compound interest
7Rule 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