2/6/14 “Interest offers”

You take out a loan for $20,000 for college.

•Federal government offers you an interest rate of 4.6%.•Bank of America offers you an interest rate of 7.8%.

1.If it takes you 10 years to pay off your loan, how much more will you pay if you take the Bank of America loan?

On desk: Simple Interest problems # 1 - 15

1. Federal government offers you an interest rate of 4.6%.

I = P = r = t =

I = (20,000)(.046)(10)

I = $9200

2. Bank of America offers you an interest rate of 7.8%.

I = P = r = t =

I = (20,000)(.078)(10)

I = $15,600

15,600-9,200

$6,400 more

2/6/14Econ. Agenda

1.Go over HW problems (simple interest)

2.Compound interest (class notes)

3.Compound interest problems

HW: Finish compound interest problems #1-12

1. If Denzel deposits $2,400 in a savings account that earns 3% interest and leaves it there for 15 years, how much interest will he earn and what will his final balance be?

I = P = r = t =

Formula:

Show work:

2. If Gianny takes out a $25,000 loan for college and the federal government charges 2.7% interest, how much interest will Gianny pay if it takes her 12 years to pay back her loan? What is the final total cost of her loan?

I = P = r = t =

Formula:

Show work:

3. If Keyarra deposits $1,200 in a savings account that earns 2% interest and leaves it there for 18 months, how much interest will she earn and what will her final balance be?

I = P = r = t =

Formula:

Show work:

4. If Danny deposits $500 in a savings account that earns 2% interest and leaves it there for 8 years, how much interest will he earn and what will his final balance be?

I = P = r = t =

Formula:

Show work:

5. If Sergio deposits $750 in a savings account that earns 1.9% interest and leaves it there for 6.5 years, how much interest will he earn and what will his final balance be?

I = P = r = t =

Formula:

Show work:

6. I = $2160 B = $14,160

7. I = $163.20 B = $3563.20

8. I = $14,161 B = $31,161

9. I = $91.80 B = $1891.80

10.I = $225 B = $1725

11. Sammie wants to earn $500 in interest so she’ll have enough to buy a used car. She puts $2000 into an account that earns 2.5% interest. How long will she need to leave her money in the account to earn $500 in interest?

I = P = r = t =

Formula:

Show work:

12. Steph wants to earn enough interest to buy a used car that costs $2,500. She puts $1,500 in an account that earns 3.5% interest. How long will she need to leave her money in the account to earn enough interest to buy the car?

I = P = r = t =

Formula:

Show work:

13. Charis plans to put his graduation money into an account and leave it there for 4 years while he goes to college. He receives $750 in graduation money that he puts it into an account that earns 4.25% interest. How much will be in Charis’ account at the end of four years?

I = P = r = t =

Formula:

Show work:

14. Noura deposits $1,500 in an account that earns 2.5% interest. If she earns $187.50 in interest, how long has she had her money in the account for?

I = P = r = t =

Formula:

Show work:

15. Nathan is trying to decide how much money to save before college. Option #1 is to deposit $1,000 in an account that earns 3% interest and leave it there for 4 years. Option #2 is to deposit $2,500 in the same account. How much more money will Nathan have if he saves enough for Option #2?

I = P1 = P2= r = t =

Formula:

Show work:

Option #1 Option #2

2/6/14 Class notes – compound interest

APR: •Annual Percentage Rate•Interest rate you have to pay on your loan per year

Compound interest: •interest is added back into the principal, thus earning more interest

Example: Principal loan amount = $1,000APR = 5%

Interest accrued in one year = Now you owe =

**Compounding interest will charge you interest on TOTAL amount, not just the principal.**

Class Notes• How do I calculate how much interest I earn/pay

per year if interest is compounded?• Compound Interest Formula:

= P(1 + r)tAAmount of $$

earn/pay at the end of the time

period

Principal

starting $$ amount

Rate of Interest

Change % to decimal

25% .25

Time

in years

Class Notes

Changing % to decimals

6% =

36% =

0.2% =

2.78% =

EXAMPLE• Jose deposits $725 into savings account that pays 2.3%

interest compounded annually. How much will he have in his account after 8 years?

A = P(1 + r)t

A = $725(1 + .023)8

A = $869.65

A = ___ P = r = t =

Compound Interest Problems

•# 1 – 12

•Start now, due tomorrow