Compound Interest

A = New balance after interest P = Principle amount invested or borrowed. R = Interest Rate usually given as a percent (must changed to decimal before plugging it into formula) T = Time ( in years) Compound interest A =P(1 + r) t

EX1) A principle of $5,000 is invested at 4.5% for 2 years. I = PRT I= I=$450 5, XX Simple Compound A =P(1 + r) t A =5,000( ) 2 A = $5, Compound Interest paid after 2 years is A-P=I Find the compound interest. More interest is accumulated when using compound interest than when you use simple interest Compare simple and compound interest – 5000=

EX2) A =P(1 + r) t A = 16,595 A = $20, You finance a loan to buy a car for $16,595 with an interest rate of 3.9%. Find the amount you must pay back using compounded interest for 60 months. ( ) 5 How much interest will you pay at the end of 5 years? B – P = $20, $16,595 = $3,498.47

Essential Question Explain how compound interest differs from simple interest?