ENTRANCE TICKET You take out a loan for $20,000 to finance your college education. In your research of loans and loan interest rates, you find that: Federal.

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Presentation transcript:

ENTRANCE TICKET You take out a loan for $20,000 to finance your college education. In your research of loans and loan interest rates, you find that: Federal government offers you an interest rate of 4.6%. PNC Bank offers you an interest rate of 7.8%. If it takes you 10 years to pay off your loan, how much more will you pay if you take the PNC loan?

1.Federal government offers you an interest rate of 4.6%. Simple interest = P = r = t = I= (20,000)(.046)(10) I= $ PNC Bank offers you an interest rate of 7.8%. Simple Interest = P = r = t = I = (20,000)(.078)(10) I = $15,600 15,600 -9,200 $6,400 more

Agenda 1)Announcements 2)Go Over HW 3) Notes on Compound Interest 4) Practice Problems

Announcements Final PEETs due by 11/30/15 Wednesday’s lesson will be about Black Friday --- you are still responsible to complete the lesson if you do not have me on Wednesday (do it by 11/30/15)

Go Over HW Simple Interest Problems

Compound interest: interest is added back into the principal, thus earning more interest Compound (v) = to increase or add to Ex) Julio’s frustration with his class was compounded by his student’s poor quiz grades

SIMPLE INTEREST vs. COMPOUND INTEREST Simple interest makes $$ grow at a consistent rate Compound Interest makes $$ grow at an increasing rate

How do I calculate how much interest I earn/pay if interest is compounded? Compound Interest Formula: = P[(1 + r) t -1]Compound Interest Amount of $$ earn/pay at the end of the time period Principal starting $$ amount Rate of Interest Change % to decimal 25% .25 Time in years

EXAMPLE Brett deposits $725 into savings account that pays 2.3% interest compounded annually. How much will he pay in interest? T = 8 years = P[(1 + r) t -1] = $725[( ) 8 -1] = $ Compound Interest = ___ P = r = t =

Formula for different rates of time P[(1+r) t -1] = for annually P[(1+r/ 2 ) t*2 -1] = for semi-annually P[(1+r/ 4 ) t*4 -1] = for quarterly P[(1+r/ 12 ) t*12 -1] = for monthly

Compound Interest Problems Start now (finish at home)

Exit Ticket What do “annually,” “semi-annually,” “quarterly,” and “monthly” mean in terms of compound interest?