Compound Interest Lesson

Simple Interest and Compound Interest

M11GM-IIa-1 to b-1

December 12-13, 2022

Review

LECTURE

WHAT'S NEW

Multiple Choice

__________________person (or institution) who owes the money or avails of the funds from the lender

• Lender or creditor

• Principal (P)

• Borrower or debtor -

• Manager

Lender or creditor

person (or institution) who invests the money or makes the funds available

Borrower or debtor

person (or institution) who owes the money or avails of the funds from the lender

Origin or loan date

date on which money is received by the borrower

Repayment date or maturity date

a date on which the money borrowed or loan is to be completely repaid

Time or term (t)

amount of time in years the money is borrowed or invested; length of time between the origin and maturity dates

Principal (P)

- amount of money borrowed or invested on the origin date

Rate (r) -

annual rate, usually in percent, charged by the lender, or rate of increase of the investment

Interest (I) -

amount paid or earned for the use of money

Simple Interest (Is) (Is = Prt)

- interest that is computed on the principal and then added to it.

Maturity value or future value (F)

- amount after t years; that the lender receives from the borrower on the maturity date

Compound Interest (Ic) -

interest is computed on the principal and also on the accumulated past interests. (Ic = F-P )

Conversion period (m) – the number of times in a year the interest will be compounded, i.e., annually (m=1), semi-annually(m=2), quarterly(m=4) and monthly (m=12)

If an amount P is invested at an interest rate r compounded annually, then the investment will increase to a value A ( future value ), at the end of t years. It is modeled by the equation. ( 𝑨 = 𝑷(𝟏 + 𝒓) 𝒕 ) 

Draw

Complete the table

Draw

Complete the Table Solve for Compound Interest

• Name of Author

Evaluation

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