Day 3 Simple vs Compound Interest.notebook April 07, Simple Interest is money paid or earned on the. The Principal is the

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1 LT: I can calculate simple and compound interest. p.11 What is Simple Interest? What is Principal? Simple Interest is money paid or earned on the. The Principal is the What is the Simple Interest Formula? Ex. You put $500 in a savings account. The account earns 3% simple interest per year. What is the interest after 3 years? Interest Earned is found by: I = Prt New Balance is found by: Principal + Interest Earned = New Balance You Try: You put $200 in a savings account. The account earns 4% simple interest per year. What is the interest after 5 years? What is the new balance? You Try: You borrow $100 from a bank. The bank charges 6% simple interest per year. You plan to pay the bank back after 6 months. Find the interest and total balanced owed.

2 How do I find the Annual Percentage Rate? 1. Use I = Prt 2. Substitute for I, P, and t 3. Solve for r. 4. Convert to a percentage. p.12 Ex. You put $350 in an account. The account earns $17.50 simple interest in 2.5 years. What is the annual interest rate? You Try: You put $1000 in an account. The account earns $100 simple interest in 4 years. What is the annual interest rate? Try this one: A bank offers a 2% simple interest rate. How long does it take an account with a principal of $800 to earn $100 interest? Try this one: A typical family in the United States owes about $5,000 in credit card debt. A typical credit card interest rate is 18% to 20% per year. What would you pay in interest for 5 years at 19%? What is your new balance?

3 What is Compound Interest? Compound Interest is interest that is calculated on principal AND previously earned interest. p.13 What is the formula for Compound Interest? Ex. You deposit $1000 in a savings account. The account earns 3% interest compounded annually. A) What is the balance after 2 years? B) What is the interest earned? You try: You deposit $2500 in a savings account. The account earns 2% interest compounded annually. (A) What is the balance after 3 years? (B) What is the interest earned? How do I find the Principal? Ex. 1. Use 2. Substitute for B, r, and t. 3. Solve for P. An account earns 3% interest compounded annually. The balance after 2 years is $10,201. What is the principal?

4 You try: p.14 An account earns 5% interest compounded annually. The only change in the account is interest earned. The balance is $ after 3 years. What is the principal? Finally, let's compare simple vs compound interest. A) A business owner wants to invest $10,000 for 10 years. Which account should the business owner choose? 4% B) Which account should the business owner choose if the money is being invested for 20 years? Summary:

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7 IF Store A $ % off Box 3 Store B Original Price$16.99 Sale Price $12.99 What is the percent of decrease? Which store is cheaper?

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10 Learning Target: I can calculate simple and compound interest.

11 What is interest? You don't need to write this Can be a positive thing for you! Interest can be... extra money that the bank gives you for saving your money at the bank. So, the more money in the your savings account, and the longer you keep it at the bank, the more money you will get.

12 You don't need to write this! It can also be a negative thing for you! Interest can be... extra money that the you are charged because you owe money. So, the more money you owe to a company and the longer you owe, the more in debt you go.

13 LT: I can calculate simple and compound interest. p.11 What is Simple Interest? What is Principal? principal Simple Interest is money paid or earned on the. The Principal is the amount of money borrowed or deposited. What is the Simple Interest Formula? Ex. You put $500 in a savings account. The account earns 3% simple interest per year. What is the interest after 3 years? Interest Earned is found by: I = Prt New Balance is found by: Principal + Interest Earned = New Balance You Try: You put $200 in a savings account. The account earns 4% simple interest per year. What is the interest after 5 years? What is the new balance? You Try: You borrow $100 from a bank. The bank charges 6% simple interest per year. You plan to pay the bank back after 6 months. Find the interest and total balanced owed.

14 How do I find the Annual Percentage Rate? 1. Use I = Prt 2. Substitute for I, P, and t 3. Solve for r. 4. Convert to a percentage. p.12 Ex. You put $350 in an account. The account earns $17.50 simple interest in 2.5 years. What is the annual interest rate? You Try: You put $1000 in an account. The account earns $100 simple interest in 4 years. What is the annual interest rate? Try this one: A bank offers a 2% simple interest rate. How long does it take an account with a principal of $800 to earn $100 interest? Try this one: A typical family in the United States owes about $5,000 in credit card debt. A typical credit card interest rate is 18% to 20% per year. What would you pay in interest for 5 years at 19%? What is your new balance?

15 What is Compound Interest? What is the formula for Compound Interest? Compound Interest is interest that is calculated on principal AND previously earned interest. p.13 Ex. You deposit $1000 in a savings account. The account earns 3% interest compounded annually. A) What is the balance after 2 years? B) What is the interest earned? You try: You deposit $2500 in a savings account. The account earns 2% interest compounded annually. (A) What is the balance after 3 years? (B) What is the interest earned? How do I find the Principal? Ex. 1. Use 2. Substitute for B, r, and t. 3. Solve for P. An account earns 3% interest compounded annually. The balance after 2 years is $10,201. What is the principal?

16 You try: p.14 An account earns 5% interest compounded annually. The only change in the account is interest earned. The balance is $ after 3 years. What is the principal? Finally, let's compare simple vs compound interest. A) A business owner wants to invest $10,000 for 10 years. Which account should the business owner choose? 4% B = $14, B) Which account should the business owner choose if the money is being invested for 20 years?

17 Summary: Simple Interest: I = Prt B = P(1+ rt) Compund Interest: B = P(1+r) t

18 P textbook page #1 12 Show work on own paper. I will collect pages 1 16 tomorrow.

19 Compound interest is calculated on principal and previously earned interest. Simple interest is calculated only on the principal. I = $40 and B = $1040 $ $ $ $ $ $ $ $ B = $ I = $88.51 P = $8000 Did not change 4% to a decimal. B = $

20 P = $10, P = $ The balance increases more as n increases. Interest compounded monthly will earn more interest because the account is making money off of the interest from the previous months.