Simple and Compound Interest

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Simple and Compound Interest

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Presentation transcript:

Simple and Compound Interest 6.6

Interest The amount of money pair or earned for the use of money by a back or financial institution.

Simple Interest I = Interest Paid only on the initial principal of savings account or a loan. I = Interest P=Principal (the amount of money invested or borrowed r= annual interest rate (as a decimal) T= time (years)

Find the simple interest of $2,250 at 6% for 4 years t-= 4 years

Suppose Josh placed $2400 in the bank for 5 years. He makes $9 Suppose Josh placed $2400 in the bank for 5 years. He makes $9.20 on interest each month. Find the annual interest rate. Hint: Time needs to be in years not in months P=$2400 R= x T= 5 years I= $9.20 (60) = $552 why did we multiply by 60? 12 (5) =60 I= prt 552=2400(x)(5) 552= 12000x 0.046= x 4.6%

Mr. Gabel borrowed $1860 to buy a computer. He will pay $71 Mr. Gabel borrowed $1860 to buy a computer. He will pay $71.30 per month for 30 months. Find the simple interest rate for his loan. P= 1860 R= x T= 30 months = 2.5 years To find out how much Interest he pays: 71.30(30) =$2139 $2139-1860 =279 I=$279 I=prt 279=1860 (r)(2.5) 279= 4650r 0.06 =r 6%

Compound Interest Paid on the initial principal and on interest earned in the past Hint: t= 1 year and repeat process for every year with new principal

What is the total amount of money in an account where $5000 is invested at an interest rate of 5% compounded annually after 3 years Year 1: Year 2: Year 3 I=prt I=(5000)(0.05)(1) I=(5250)(0.05)(1) I=5512.5(0.05)(1) I= 250 I=262.50 I=275.625 After the first year you have: After year 2 you have: After 3 years you have: 5000+250 =5250 5250+262.50= 5512.5 5512.5+275.625= 5788.125 $5,788.13

Homework Page 283 (10-28) even