Interest

InterestHow simple and compound interest are calculatedSimple interest calculation

I = PRT (Interest = Principal x Rate x Time)

Dollar Amount x Interest rate x Length of Time (in years) = Amount Earned

ExampleIf you had $100 in a savings account that paid 6% simple interest, during the first year you would earn $6 in interest.$100 x 0.06 x 1 = $6At the end of two years you would have earned $12.The account would continue to grow at a rate of $6 per year, despite the accumulated interest.Teens Lesson 12 - Slide 12-E

How simple and compound interest are calculatedCompound interest calculationInterest is paid on original amount of deposit, plus any interest earned.(Original $ Amount + Earned Interest) x Interest Rate x Length of Time = Amount EarnedFV=PV (1+r/m)^ntFV=Future ValuePV=Present ValueR=annual rate of return in decimalN=Number of times per year compounded T=Number of years investedExampleIf you had $100 in a savings account that paid 6% interest compounded annually, the first year you would earn $6.00 in interest.$100 x 0.06 x 1 = $6$100 + $6 = $106With compound interest, the second year you would earn $6.36 in interest.The calculation the second year would look like this:$106 x 0.06 x 1 = $6.36$106 + 6.36 = $112.36

How much simple interest can you earn on a $500-savings account at a rate of 5 1/2% for 9 monthsI = PRT

I = 500 x 5 1/2 % x 9 months

I = 500 x .055 x (9 out of 12 months 9/12 = ) (.75)

I = 500 x .055 x .75

= $20.63

Calculate the value of a $2,000 CD offering 6% thats compounded quarterly at the end of the yearNote: To compound the interest quarterly, a new balance must be used at the beginning of each quarter.

1st quarter: $2,000 + ($2,000 x 6% x year) = $2,000 + ($2,000 x 0.06 x 0.25) = $2,030

2nd quarter: $2,030 + (2,030 x 0.06 x 0.25)= $2,060.45

3rd quarter: $2,060.45 + ($2,060.45 x 0.06 x 0.25)= $2,091.36

4th quarter: $2,091.36 + ($2,091.36 x 0.06 x 0.25)= $2,122.73

Final Balance: $2,122.73Interest Earned: $122.73the rule of 72Teens Lesson 12 - Slide 12-HHow many years will it take to double my money?

72 DIVIDED BY= YEARS TO DOUBLE A SUM OF MONEYINTEREST RATE

At what interest rate will my money double in a set number of years?

72 DIVIDED BY = INTEREST RATE REQUIREDYEARS TO DOUBLEA SUM OF MONEY