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Understanding Simple and Compound Interest Calculations

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sheri
38 diapositives · 498 Views · Jul 31, 2014

This guide covers the fundamentals of simple and compound interest, essential for financial literacy. Key concepts include the principal amount, interest rate, time period, and the differences between simple and compound interest. Simple interest calculations are straightforward, using the formula: Interest = Principal × Rate × Time. Compound interest, however, takes into account prior interest earned, making it more complex. We also delve into the Annual Percentage Rate (APR) to determine final balances with compounded interest over specified periods.

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  1. Math 50 8.5 – Solving Problems Involving Interest

  2. ________ - an initial amount of money borrowed or invested ________ - an amount of money that is a percent of the principal ____________ - a percent used to calculate interest ______________ - interest calculated using only the original principal and the amount of time the principal earns interest

  3. ________ - an initial amount of money borrowed or invested ________ - an amount of money that is a percent of the principal ____________ - a percent used to calculate interest ______________ - interest calculated using only the original principal and the amount of time the principal earns interest Principal

  4. ________ - an initial amount of money borrowed or invested ________ - an amount of money that is a percent of the principal ____________ - a percent used to calculate interest ______________ - interest calculated using only the original principal and the amount of time the principal earns interest Principal Interest

  5. ________ - an initial amount of money borrowed or invested ________ - an amount of money that is a percent of the principal ____________ - a percent used to calculate interest ______________ - interest calculated using only the original principal and the amount of time the principal earns interest Principal Interest Interest rate

  6. ________ - an initial amount of money borrowed or invested ________ - an amount of money that is a percent of the principal ____________ - a percent used to calculate interest ______________ - interest calculated using only the original principal and the amount of time the principal earns interest Principal Interest Interest rate Simple interest

  7. ex: Suppose you put $100 in an account that earns 5% simple interest.

  8. ex: Suppose you put $100 in an account that earns 5% simple interest.

  9. ex: Suppose you put $100 in an account that earns 5% simple interest.

  10. ex: Suppose you put $100 in an account that earns 5% simple interest.

  11. We can calculate the interest earned via simple interest with the following formula: is interest earned is principal is simple interest rate is time (in years)

  12. We can calculate the interest earned via simple interest with the following formula: is interest earned is principal is simple interest rate is time (in years)

  13. We can calculate the interest earned via simple interest with the following formula: is interest earned is principal is simple interest rate is time (in years)

  14. Ex 1.Mike invests $800 at 6% simple interest.

  15. Ex 1.Mike invests $800 at 6% simple interest.

  16. Ex 1.Mike invests $800 at 6% simple interest.

  17. Ex 1.Mike invests $800 at 6% simple interest.

  18. Ex 1.Mike invests $800 at 6% simple interest.

  19. Ex 1.Mike invests $800 at 6% simple interest.

  20. Ex 1.Mike invests $800 at 6% simple interest.

  21. Ex 1.Mike invests $800 at 6% simple interest.

  22. Ex 1.Mike invests $800 at 6% simple interest.

  23. Ex 1.Mike invests $800 at 6% simple interest.

  24. __________________ - interest calculated based on principal and prior earned interest ___________________________ - an interest rate used to calculate compound interest

  25. __________________ - interest calculated based on principal and prior earned interest ___________________________ - an interest rate used to calculate compound interest Compound interest

  26. __________________ - interest calculated based on principal and prior earned interest ___________________________ - an interest rate used to calculate compound interest Compound interest Annual Percentage Rate (APR)

  27. ex: Suppose you put $100 in an account that earns 5% APR (compounded annually).

  28. ex: Suppose you put $100 in an account that earns 5% APR (compounded annually).

  29. ex: Suppose you put $100 in an account that earns 5% APR (compounded annually).

  30. ex: Suppose you put $100 in an account that earns 5% APR (compounded annually).

  31. ex: Suppose you put $100 in an account that earns 5% APR (compounded annually).

  32. ex: Suppose you put $100 in an account that earns 5% APR (compounded annually).

  33. ex: Suppose you put $100 in an account that earns 5% APR (compounded annually).

  34. Here’s the formula for finding the final balance with compound interest: is the final balance is the principal is the APR is the number of times interest is compounded per year is the time (in years)

  35. Here’s the formula for finding the final balance with compound interest: is the final balance is the principal is the APR is the number of times interest is compounded per year is the time (in years)

  36. Ex 2.Henry invests $2000 with an APR of 6%. If the interest is compounded monthly, how much will he have after 1 year? After 4 years?

  37. Ex 2.Henry invests $2000 with an APR of 6%. If the interest is compounded monthly, how much will he have after 1 year? After 4 years?