SIMPLE

1
SIMPLE AND COMPOUND INTEREST
Since this section involves what can happen to
your money, it should be of INTEREST to you!
2
IMPLE INTEREST FORMULA
Annual interest rate
Interest paid
I PRT
Time (in years)
Principal(Amount of money invested or
borrowed)
3
If you invested 200.00 in an account that paid
simple interest, find how long youd need to
leave it in at 4 interest to make 10.00.
enter in formula as a decimal
I PRT
10 (200)(0.04)T
1.25 yrs T
Typically interest is NOT simple interest but is
paid semi-annually (twice a year), quarterly (4
times per year), monthly (12 times per year), or
even daily (365 times per year).
4
COMPOUND INTEREST FORMULA
annual interest rate(as a decimal)
Principal(amount at start)
time(in years)
amount at the end
number of times per year that interest in
compounded
5
Find the amount that results from 500 invested
at 8 compounded quarterly after a period of 2
years.
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 effective rate of interest for the
problem above.
The interest made was 85.83. Use the simple
interest formula and solve for r to get the
effective rate of interest.
I Prt 85.83(500)r(2)
r .08583 8.583
6
Acknowledgement I wish to thank Shawna Haider
from Salt Lake Community College, Utah USA for
her hard work in creating this PowerPoint. www.sl
cc.edu Shawna has kindly given permission for
this resource to be downloaded from
www.mathxtc.com and for it to be modified to suit
the Western Australian Mathematics Curriculum.
Stephen Corcoran Head of Mathematics St
Stephens School Carramar www.ststephens.wa.edu.
au