math 50 8.5 – solving problems involving interest 1
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Math 50
8.5 – Solving Problems Involving Interest
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________ - 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
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________ - 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
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________ - 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
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________ - 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
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________ - 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
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ex: Suppose you put $100 in an account that earns 5% simple interest.
Simple InterestTime Balance
Beginning $100
1 year later
2 years later
3 years later
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ex: Suppose you put $100 in an account that earns 5% simple interest.
Simple InterestTime Balance
Beginning $100
1 year later
2 years later
3 years later
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ex: Suppose you put $100 in an account that earns 5% simple interest.
Simple InterestTime Balance
Beginning $100
1 year later
2 years later
3 years later
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ex: Suppose you put $100 in an account that earns 5% simple interest.
Simple InterestTime Balance
Beginning $100
1 year later
2 years later
3 years later
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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)
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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)
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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)
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Ex 1.Mike invests $800 at 6% simple interest.
Time Interest Earned Final Balance
1 year
5 years
60 days
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Ex 1.Mike invests $800 at 6% simple interest.
Time Interest Earned Final Balance
1 year
5 years
60 days
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Ex 1.Mike invests $800 at 6% simple interest.
Time Interest Earned Final Balance
1 year
5 years
60 days
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Ex 1.Mike invests $800 at 6% simple interest.
Time Interest Earned Final Balance
1 year
5 years
60 days
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Ex 1.Mike invests $800 at 6% simple interest.
Time Interest Earned Final Balance
1 year
5 years
60 days
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Ex 1.Mike invests $800 at 6% simple interest.
Time Interest Earned Final Balance
1 year
5 years
60 days
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Ex 1.Mike invests $800 at 6% simple interest.
Time Interest Earned Final Balance
1 year
5 years
60 days
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Ex 1.Mike invests $800 at 6% simple interest.
Time Interest Earned Final Balance
1 year
5 years
60 days
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Ex 1.Mike invests $800 at 6% simple interest.
Time Interest Earned Final Balance
1 year
5 years
60 days
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Ex 1.Mike invests $800 at 6% simple interest.
Time Interest Earned Final Balance
1 year
5 years
60 days
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__________________ - interest calculated based on principal and prior earned interest
___________________________ - an interest rate used to calculate compound interest
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__________________ - interest calculated based on principal and prior earned interest
___________________________ - an interest rate used to calculate compound interest
Compound interest
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__________________ - interest calculated based on principal and prior earned interest
___________________________ - an interest rate used to calculate compound interest
Compound interest
Annual Percentage Rate (APR)
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ex: Suppose you put $100 in an account that earns 5% APR (compounded annually).
Compound InterestTime Balance
Beginning $100
1 year later
2 years later
3 years later
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ex: Suppose you put $100 in an account that earns 5% APR (compounded annually).
Compound InterestTime Balance
Beginning $100
1 year later
2 years later
3 years later
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ex: Suppose you put $100 in an account that earns 5% APR (compounded annually).
Compound InterestTime Balance
Beginning $100
1 year later
2 years later
3 years later
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ex: Suppose you put $100 in an account that earns 5% APR (compounded annually).
Compound InterestTime Balance
Beginning $100
1 year later
2 years later
3 years later
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ex: Suppose you put $100 in an account that earns 5% APR (compounded annually).
Compound InterestTime Balance
Beginning $100
1 year later
2 years later
3 years later
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ex: Suppose you put $100 in an account that earns 5% APR (compounded annually).
Compound InterestTime Balance
Beginning $100
1 year later
2 years later
3 years later
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ex: Suppose you put $100 in an account that earns 5% APR (compounded annually).
Compound InterestTime Balance
Beginning $100
1 year later
2 years later
3 years later
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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)
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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)
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Annually 1Semiannually 2Quarterly 4Monthly 12Daily 365
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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?
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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?
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