INTEREST
Simple  Compound
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Simple
Interest

Example 1  Example
2

 The amount of simple interest is
determined by the formula I = Prt
 where:
 I is the amount of interest earned (in
dollars)
 P is the principal sum of money earning interest
(in dollars)
 r is the annual interest rate (a decimal)
 t is the time period (in years)

 Examples:

 1. Ross just sold his
old computer for $750 and had decided to put the money in a bank that is
paying 9.25% interest. If he leaves his money for 4 years how much interest
will he have made?

 a) Convert r to a decimal

 9.25% > 0.0925

 b) Use the interest formula to
solve for I

 I = Prt
 I = ($750)(0.0925)(4)
 I = $277.50

 Ross will have earned $277.50 in
interest in the four years.


2. 250 days ago, Olga invested some
money that she has been saving for a trip to Columbia. If she earned $256.25
in interest at a rate of 10.25 %, how much money did she originally
invest?

 a) Manipulate the simple interest
formula to solve for P

I=Prt 
> 
P 
= 
_I_ 




rt 
 b) Convert r to a decimal

 10.25% > 0.1025

 c) Convert t into years

250
Days 
> 
250 


365 
 d) Use your formula to solve for
P



P 
= 
_($
256.25)_ 


(0.0125)
(250) 


(365
) 
 P =$ 3650.00

 Olga originally invested
$3650.00



Mini
Lessons



Compound
Interest
Example 1  Example
2
The amount of compound interest is
determined by the formula
Where:
 A is the accumulated value (in dollars)
 P is the principal (in dollars)
 i is the periodic interest rate (a
decimal)
 n is the number of compounding periods

 Examples:

 1. Rebecca is a
seamstress who just opened her first shop. She has decided to invest her first
$2000 in an account for her retirement where interest is compounded annually
at 10.5%. If Rebecca plans to work for 35 years, how much money will she have
in that account when she retires?

 a) Convert r to a decimal

 10.5% > 0.105

 b) Use the formula to solve for
A







 When Rebecca retires in 35 years, she
will have $65 873.35 in her account.
 2. Keith wants to buy a grand piano
when he finishes his masters degree in 3 years. He has found a bank that will
give him an interest rate of 12% compounded annually. If he will need $15 000
for the piano, how much does he need to invest now?

 a) Convert r to a decimal

 12% > 0.12

 b) Change the formula to solve for
P



 c) Solve the equation for P





 Keith will need to invest $ 10
0676.70 now if he wants to have $15 000 in 3 years.

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