ENTRANCE TICKET
You take out a loan for $20,000 to finance your college
education.
In your research of loans and loan interest rates, you find that:
•Federal government offers you an interest rate of 4.6%.
•PNC Bank offers you an interest rate of 7.8%.
If it takes you 10 years to pay off your loan, how much more will
you pay if you take the PNC loan?
1. Federal government offers you an interest rate of 4.6%.
Simple interest =
P=
r=
t=
I= (20,000)(.046)(10)
I= $9200
2. PNC Bank offers you an interest rate of 7.8%.
Simple Interest =
P=
I = (20,000)(.078)(10)
I = $15,600
r=
t=
15,600
- 9,200
$6,400 more
Agenda
1) Announcements
2) Go Over HW
3) Notes on Compound Interest
4) Practice Problems
Announcements
• Final PEETs due by 11/30/15
• Wednesday’s lesson will be about Black Friday
--- you are still responsible to complete the
lesson if you do not have me on Wednesday
(do it by 11/30/15)
Go Over HW
• Simple Interest Problems
Compound interest:
•interest is added back into the principal, thus
earning more interest
Compound (v) = to increase or add to
Ex) Julio’s frustration with his class was
compounded by his student’s poor quiz grades
SIMPLE INTEREST vs. COMPOUND INTEREST
• Simple interest makes $$ grow
at a consistent rate
• Compound Interest makes $$
grow at an increasing rate
• How do I calculate how much interest I earn/pay
if interest is compounded?
• Compound Interest Formula:
Compound = P[(1 +
Interest Principal Rate of
Amount of $$
earn/pay at the
end of the time
period
starting $$
amount
Interest
Change % to
decimal
25%  .25
t
r) -1]
Time
in years
EXAMPLE
• Brett deposits $725 into savings account that pays 2.3%
interest compounded annually. How much will he pay in
interest? T = 8 years
Compound Interest = ___ P =
= P[(1 + r)t -1]
= $725[(1 + .023)8-1]
= $144.65
r= t=
Formula for different rates of time
• P[(1+r)t -1] = for annually
• P[(1+r/2)t*2 -1] = for semi-annually
• P[(1+r/4)t*4 -1] = for quarterly
• P[(1+r/12)t*12 -1] = for monthly
Compound Interest Problems
•Start now (finish at home)
Exit Ticket
• What do “annually,” “semi-annually,”
“quarterly,” and “monthly” mean in terms of
compound interest?