Simple and
Compound Interest
Lesson 7.7
OBJ: To calculate interest earned
and account balances
Simple Interest
 I = prt; where p is principal, r is the rate and t is
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the time in years.
Interest – The amount earned or paid for the
use of money.
Principal – The amount of money borrowed or
deposited.
Simple Interest – The amount paid only on the
principal
Annual Interest Rate – The percent of the
principal earned or paid per year.
Examples
1.
2.
A $1000 bond earns 6% simple annual
interest. What is the interest earned
after 4 years?
Find the simple interest earned on
$500 after 5 years in a money market
account paying 5%.
Balance (A)
 The amount of an account that earns
simple interest is the sum of the interest
and the principal.
 A = p + prt or A = p(1 + rt)
 You can use either formula to get the
balance when calculating the balance
after simple interest.
Examples
1.
2.
Susan deposits $2000 into her savings
account. What is her balance after she
earns 7% simple interest for 6 years?
Find the unknown amount
A=?
p = $1000
r = 2.5%
t = 2 years
Examples
A = $1424.50
p=?
r = 3.5%
t = 6 months
Remember time must be in years!!!
3.
Compound Interest
 The interest that is earned on both the
principal and any interest that has been
previously earned.
 Formula A = p(1 + r)t
 Example – You deposit $1200 into an
account that earns 3.8% interst
compounded annually. Find the balance
after 5 years.
Examples
1.
2.
You deposit $1200 into an account that
earns 3.8% interest compounded
annually. Find the balance after 5
years.
Max borrows $3500 for a new car. The
loan has 6.7% interest that will be
compounded annually. How much
money will he owe after 36 months?