Finance & Binomial Theorem (Lesson).notebook Simple
Finance & Binomial Theorem (Lesson).notebook
UNIT #8: Finance & Binomial Theorem
Simple Interest
Simple and Compound Interest
Learning Goal: I will learn how to calculate the simple and compound interest of a monetary amount.
Simple interest is interest paid on an investment each investment period (e.g. month, year). The interest is not rolled back into the original investment.
I = Prt I - dollars is the interest earned r - is the annual interest rate t - is the time in years
Example 1: a) How much interest would be earned on a $1000 GIC at 5% for 1 year? I = Prt 1000 (0.05) (1) = $50
Compound Interest With compound interest, the interest is reinvested at regular intervals (called the compounding period). Interest for the next period is paid on the original investment and the interest that accrued in the previous compounding period(s).
A = P(1 + i)n b) What amount will the investor have after 10 years? Interest earned: 1000 (0.05) (10) = $500 Total accumulated: $500 + $1000 (original investment) = $1500
A - amount at the end of the investment period P - principal or original investment i - interest rate over the compounding period n - number of compounding periods
1
Finance & Binomial Theorem (Lesson).notebook
Example 2: a) How much will a $1000 investment be worth at the end of 10 years with an interest of 5% compounded annually: A = P(1 + i)n = 1000(1 + 0.05)10 = 1628.89
Example 3: Calculate the interest paid if interest is compounded semi-annually.
P = 1000 i = 0.05 / 2 = 0.025 n = 10 x 2 = 20
b) How much interest was paid? Amount - Original Investment = 1628.89 - 1000 = $628.89.
A = P(1 + i)n = 1000(1 + 0.025)20 = 1638.61
c) How much more money does the investor make with compound interest than with simple interest? $1628.89 - $1500 = $128.89
UNIT 8: Finance & Binomial Theorem Simple and Compound Interest
Learning Goal: I will learn how to calculate the simple and compound interest of a monetary amount.
Success Criteria: To be successful, I must be able to... • understand the difference between simple interest and compound interest • Calculate simple interest using I = Prt • Calculate the amount of an investment that has compounded interest using A = P(1 + i)n
Practice Work p. 498 #1 p. 508 #1, 2, 4a, c, 11-14, 19-20
2
UNIT #8: Finance & Binomial Theorem
Simple Interest
Simple and Compound Interest
Learning Goal: I will learn how to calculate the simple and compound interest of a monetary amount.
Simple interest is interest paid on an investment each investment period (e.g. month, year). The interest is not rolled back into the original investment.
I = Prt I - dollars is the interest earned r - is the annual interest rate t - is the time in years
Example 1: a) How much interest would be earned on a $1000 GIC at 5% for 1 year? I = Prt 1000 (0.05) (1) = $50
Compound Interest With compound interest, the interest is reinvested at regular intervals (called the compounding period). Interest for the next period is paid on the original investment and the interest that accrued in the previous compounding period(s).
A = P(1 + i)n b) What amount will the investor have after 10 years? Interest earned: 1000 (0.05) (10) = $500 Total accumulated: $500 + $1000 (original investment) = $1500
A - amount at the end of the investment period P - principal or original investment i - interest rate over the compounding period n - number of compounding periods
1
Finance & Binomial Theorem (Lesson).notebook
Example 2: a) How much will a $1000 investment be worth at the end of 10 years with an interest of 5% compounded annually: A = P(1 + i)n = 1000(1 + 0.05)10 = 1628.89
Example 3: Calculate the interest paid if interest is compounded semi-annually.
P = 1000 i = 0.05 / 2 = 0.025 n = 10 x 2 = 20
b) How much interest was paid? Amount - Original Investment = 1628.89 - 1000 = $628.89.
A = P(1 + i)n = 1000(1 + 0.025)20 = 1638.61
c) How much more money does the investor make with compound interest than with simple interest? $1628.89 - $1500 = $128.89
UNIT 8: Finance & Binomial Theorem Simple and Compound Interest
Learning Goal: I will learn how to calculate the simple and compound interest of a monetary amount.
Success Criteria: To be successful, I must be able to... • understand the difference between simple interest and compound interest • Calculate simple interest using I = Prt • Calculate the amount of an investment that has compounded interest using A = P(1 + i)n
Practice Work p. 498 #1 p. 508 #1, 2, 4a, c, 11-14, 19-20
2
