simple and compound interest guided notes

Simple and Compound Interest Guided Notes Vocabulary Principal Interest

 The amount of money you borrow borrow A fee you pay to the lender for borrowing the money

Interest Rate  The rate at which which the interest interest is paid Simple Interest Defnition Formula Example = o! muc" interest !ill you pay a#ter $ years on a %&'&&& loan !it" $( annual interest)

Method of calculating the interest charge on a loan P*R*T $2,5

Compound Interest Defnition Formula Example = o! muc" interest !ill you pay a#ter $ years on a %&'&&& loan !it" $( compounded annual interest)

!nterest earned on interest P"#i%n&'nt # "#(5%5&'5 $ #2,)2(+2

Rule o# *+ Defnition

 ears  ears to double double the in-estment

,"at it-s A way to estimate your interest will grow o-er time( used #or ,"y s"ould  ou.re  ou.re going going to ha-e a lot of money to pay bac/ bac/ in interest( interest( you N./ ta0e out a loan unless you really need to)

Simple 1 Compound Interest Practice DIREC/I.NS2 0omplete each scenario below( ou may use a calculator( 1e sure to use the correct formula for simple or compound interest( Simple Interest Example

Year

Principal Amount Saved

Interest Earned (10% Annual Interest Rate)

Ending Balance

1

$10000

$1000

$11000

!

$10000

$1000

$1!000

"

$10000

$1000

$1"000

Total Interest Earned

$"000

#( ow much much was was the princ principal ipal in in this e3ample4 e3ample4 a( #( 2( hat was was the total total intere interest st earned earned after after 6 years4 years4 a( 6( 6( hat was was the last last ending ending balanc balance e in the in-est in-estment4 ment4 a( #6( Compound Interest Example

Year

Principal Amount Saved

Interest Earned (10% Annual Interest Rate)

Ending Balance

1

$10000

$1000

$11000

!

$11000

$1100

$1!100

"

$1!100

$1!10

$1""10

Total Interest Earned

$""10

7( ow much much was was the princ principal ipal in in this e3ample4 e3ample4 a( #( 5( hat was was the total total intere interest st earned earned after after 6 years4 years4 a( 66(# ( hy might might someone want to earn compounding compounding interest on their in-estment4 a( 8o they they ma/e ma/e more more in the the end( end(

)( !dentif !dentify y the parts of of the e9uation e9uation for for simple simple interest: interest: a( ! ; in-e in-est stme ment nt b( P ; prin princi cipa pall c( R ; rate d( T; ttiime nt 

r       A =  P 1 +     n  

 I 

 =  =

8how your wor/ here: +(

; 2,5 simple interest to =nd how much interest would be earned on a $5, in-estment after # years with a ; $),5 5> annual interest rate(

 PR T 

?( !dentif !dentify y the parts parts of the e9uat e9uation ion for for compoundi compounding ng interest: a( A ; amount b( P ; prin princi cipa pall c( r ;rate d( n ; number number of times times per year year intere interest st is compoun compounded ded e( t ; time #( interest rate compounding annually(

8how your wor/ here: 5,"#(5%#&'5; 5,"#(5%#&'5; 6#77(7) ; +,#77(7)