# 7-8 simple and compound interest

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7-8 simple and compound interest
Objective: To solve simple interest problems To solve compound interest PROBLEMS Warm-Up Calculate 5% of 320 25% of 600 80% of 950

7-8 simple and compound interest
Objective: To solve simple interest problems To solve compound interest PROBLEMS Homework Answers 6 hrs. w = V / Lh s = P / 4 x > 2 p = qd a ≤ -3 s = ½r + 4 b > 24 m = n 6 weeks 75% a = 2m – b 31.3 \$4900

7-8 simple and compound interest
Objective: To solve simple interest problems To solve compound interest PROBLEMS Vocabulary: principal – the initial amount of an investment or loan interest – the cost of borrowing interest rate – the percentage of the balance that an account earns over a period of time simple interest – interest paid only on the principal

7-8 simple and compound interest
Objective: To solve simple interest problems To solve compound interest PROBLEMS Simple Interest Formula: I = prt I: Interest p: principal r: interest rate per year t: time in years

7-8 simple and compound interest
Objective: To solve simple interest problems To solve compound interest PROBLEMS Example A Suppose you deposit \$1000 in a savings account that earns 6% simple interest per year. Find the interest earned in two years. I = prt I = 1000 (.06) (2) I = 1000 (.06) (2) = \$120 What is the total amount in the account after those two years? \$ \$120 = \$1120 What is the amount of interest earned in 6 months? I = prt I = 1000 (.06) (0.5) I = 1000 (.06) (0.5) = \$30

7-8 simple and compound interest
Objective: To solve simple interest problems To solve compound interest PROBLEMS Vocabulary: principal – the initial amount of an investment or loan interest – the cost of borrowing interest rate – the percentage of the balance that an account earns over a period of time simple interest – interest paid only on the principal compound interest – interest paid on both the principal and any interest earned in previous periods balance – the principal plus earned interest in previous periods

7-8 simple and compound interest
Objective: To solve simple interest problems To solve compound interest PROBLEMS Compound Interest Formula: B = p(1 + r)n B: Final Balance p: principal r: interest rate per each interest period n: number of interest periods

7-8 simple and compound interest
Objective: To solve simple interest problems To solve compound interest PROBLEMS Example B Suppose you deposit \$400 in a savings account that earns 5% interest compounded annually. The balance of the account after 4 years is \$ What is the balance of the account after another four years (total of 8 years)? B = p(1 + r)n B = 400( )8 B = 400( )8 ≈ 400(1.477) ≈ \$590.98

7-8 simple and compound interest
Objective: To solve simple interest problems To solve compound interest PROBLEMS Example C Find the balance on a deposit of \$2500 that earns 3% interest compounded semi-annually for 5 years? B = p(1 + r)n B = 2500( )10 B = 2500( )10 ≈ 2500(1.16) ≈ \$