1. Interest and Discounts
Unit 18
Interest and Discounts

2. Basic Principles of Interest
Interest and discounts are methods of using percent and percentage.
Interest is usually charged when money is borrowed.
The amount of money borrowed is called the principal.
The charge for borrowing the money or principal is the interest.

3. Basic Principles of Interest
The rate of interest is the percent used to calculate the interest due and is usually given for a 1-year period of time.
The term is the length of time for the loan, usually based on years.
The amount is the total amount of money that must be repaid. It includes the principal plus the interest.

4. Calculating Simple Interest
Simple interest means that the rate of interest is calculated for the entire time period. The amount of interest is then added to the principal to find the amount owed.
A formula for calculating simple interest is:
interest = principal x rate (decimal fraction) x time

5. Calculating Compound Interest
Compound interest is interest based on the principal plus previously earned interest.
Most car loans, home loans, and charge cards use compound interest instead of simple interest and in most cases, the interest is compounded daily.

6. Basic Principles of Discounts
A discount is an amount of money that is deducted from the cost.
The discount rate is the percent by which the price is reduced.
List price is the original cost of an item.
Net price is the price of an item after the discount has been subtracted.

7. Basic Principles of Discounts
Two basic formulas are used to calculate discounts:
discount = list price x discount rate
net price = list price − discount
Example: The list price for a stethoscope is $32 with a 12% discount for cash payments.
What is the net price for a cash payment?

8. Basic Principles of Discounts
discount = list price x discount rate
discount = $32 x 12%
= $32 x .12
= $3.84
net price = list price − discount
= $32 - $3.84
= $28.16

9. Practical Problem
A sterile supply technician orders supplies totaling $1, She receives a 12% discount for payment within 30 days.
If she pays within 30 days, how much of a discount will she receive?

10. Practical Problem Set up the problem and solve:
discount = list price x discount
= $1, x .12
= $
The technician will receive a discount of$