5. Annual interest rate
IMPLE INTEREST
FORMULA
Interest paid
Principal
(Amount of money
invested or
borrowed)
Time (in years)
100
I = PRT
6. If you invested $200.00 in an account that paid
simple interest, find how long you’d need to
leave it in at 4% interest to make $10.00.
10 = (200)(0.04)T
1.25 yrs = T
enter in formula
as a decimal I = PRT
100
Problem
7. COMPOUND INTEREST
FORMULA
amount at the
end
Principal
(amount at
start)
annual interest rate
(as a decimal)
nt
n
r
PA
1
time
(in years)
number of times per year
that interest in compounded
8. nt
n
r
PA
1500
.08
4
4 (2)
83.585fA
Effective rate of interest is the equivalent annual simple rate of
interest that would yield the same amount as that made
compounding. This is found by finding the interest made when
compounded and subbing that in the simple interest formula and
solving for rate.
Find the amount that results from f500 invested at
8% compounded quarterly after a period of 2
years.
9. Now try
You have f 5000 in a savings
account earning 3% interest.
How much interest will you earn in 2
years?
Profit & Loss
10. Home work
Theresa deposited $5000 into a savings
account that pays a 3% interest compounded
monthly. If she withdraws the money in 2
years, how much will she have?
