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# Simple Versus Compound Interest

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## Jessica Nelson

on 26 February 2013

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#### Transcript of Simple Versus Compound Interest

The Power of...
INTEREST Einstein:

"The most powerful force in the universe"
"8th Wonder of the World"
"Greatest mathematical discovery of all time" It is the theory of earning interest on your interest Making your money work harder for you. Let's Practice Calculating Interest By using a chart we can see exactly how much money we will have at the end of every year. Your Turn:
Complete the chart
Question Do we need to make a chart every time we calculate compound interest? Calculate each year end-balance using the simple interest rates listed on the Activity Worksheet In your cooporative groups:

Complete the table using monthly compounded interest Principal = \$100
Interest = 6% or .06 = ________
New Amount = \$__________ Compounding vs Simple Interest Simple Interest The amount paid for the use of money

Example:
I put \$10,000 into a savings account paying interest at 5% for 3 years After 1 year I would have \$500 of interest. After 3 years I would have received \$1,500 in interest. Therefore my total is \$11,500 Compound interest would mean reinvesting that money every year. Earning additional interest on interest. Principal The amount of money invested or borrowed Compound Interest NO ! We can use a formula! Interest = Principal (p) x Rate (r) x Time (t)
I = prt Example: Use Simple interest to find the ending balance
Worksheet \$1,450 at 4% for 3 yrs. \$4,000 at 3% for 4 years Important Terms: Interest
Percent
simple Interest
Compound Interest
Principal
Work
For You! 3 Keys to Compound Interest What are we learning
for the next 2 days?
We will learn how to solve
problems involving
Simple & compound
Interest Quick Review: Using a Calculator: Changing a Percent to a Decimal: How do we convert
decimals to percent? How to Change
Percent % to a Decimal Example: 10% = . 10
50% = . 50
45% = . 45 Remember to divide the
percentage by 100 Example:
23% =
67% = .23 .67 Step 1:
Step 2:
Step 3:
Be sure to include
decimal point Divide by 100 Type in Percent http://www.brainpop.com/math/ratioproportionandpercent/interest/ Which is Better? Let's take a look at our string Each inch = \$10,000 If you began to save \$100 per week at the age of 18 until you were 65 years old how much would you have? Saved the Money in her mattress!
65-18 = 47years
47 x 12 months = 564
564 Payments of \$100 =
\$56,400 Scenario #1 - Elizabeth Seceniro #2 - Juan Juan saved the same \$100 per week like Elizabeth, but instead he put his money in a bank account earning 6% annual interest, which is compounded annually.

After 47 years he would have saved \$ 313, 187

A difference of \$ 256, 787 Who do you want to be? Once you earn your first interest payment, it is added into the principal.
It will allow your money to earn even more money over time.
It is the most common type of payment you will earn by lending your money to a bank. Rate - the percent charged or paid for the use of money

Time - When used to calculate interest, time is given in years The History of Interest When will I ever use interest? Borrowing Money from a Bank
Credit Cards
Bank Accounts
Loans - Auto, Home Who uses interest? EVERYBODY! The United States actually has borrowed & loaned money from other countries

A "debt ceiling" is the maximum amount of
debt that a government can take on.

For instance, the United States currently has
a debt ceiling of \$12.1 trillion dollars. What is a "debt ceiling"? http://www.usdebtclock.org/ Directions: Whole Group Practice: I = prt
I = 210 x .08 x 7
I = 117.60
Total Balance: \$210 + 117.60
= 327.60 Assess Yourself Novice-
1 means "I'm just starting to learn this and I don't
understand it yet."
Apprentice-
2 means “I can do this if I get help, or look at an example.”
Practitioner-
3 means “I can do this on my own without help."
Expert-
4 means “ I can do this on my own and can explain how to do it.....Move over Mrs. Nelson Assess Yourself Novice-
1 means "I'm just starting to learn this and I don't understand it yet."
Apprentice-
2 means “I can do this if I get help, or look at an example.”
Practitioner-
3 means “I can do this on my own without help."
Expert-
4 means “ I can do this on my own and can explain how to do it.....Move over Mrs. Nelson.” 1) The amount of Money

2) Rate of Interest

3) Longer Time
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