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Simple and Compound Interest: Name:Shiza, Nabira

This document provides information about simple and compound interest. It defines simple interest as a quick method to calculate interest on a loan by multiplying the principal, interest rate, and time. The simple interest formula is provided. Three examples of simple interest calculations are shown. Compound interest is defined as interest on interest where accrued interest is added to the principal. The compound interest formula is given along with three examples of calculations. Uses of simple and compound interest in loans, deposits, and other financial instruments are outlined.

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123 views13 pages

Simple and Compound Interest: Name:Shiza, Nabira

This document provides information about simple and compound interest. It defines simple interest as a quick method to calculate interest on a loan by multiplying the principal, interest rate, and time. The simple interest formula is provided. Three examples of simple interest calculations are shown. Compound interest is defined as interest on interest where accrued interest is added to the principal. The compound interest formula is given along with three examples of calculations. Uses of simple and compound interest in loans, deposits, and other financial instruments are outlined.

Uploaded by

sonia ali
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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SIMPLE AND COMPOUND

INTEREST
NAME:SHIZA ,NABIRA
DECIPLINE:AMM 1B
DATE OF PRESENTATION: 2ND MAY
SUBMITTED TO:MAAM NAJMA
WHAT IS SIMPLE INTEREST?
“SIMPLE INTEREST IS A QUICK
AND EASY METHOD OF
CALCULATING THE INTEREST
CHARGE ON THE LOAN”.

HOW IT IS CALCULATED?
“SIMPLE INTEREST CAN BE
CALCULATED BY MULTIPLYING
THE DAILY INTEREST RATE BY
PRINCIPAL BY NUMBER OF
DAYS”.
SIMPLE INTEREST FORMULA

I=PXRXT
WHERE;
I=INTEREST MONEY
P=PRINCIPAL
R=INTEREST RATE PER YEAR
T=TIME PERIOD AS PER YEAR
EXAMPLES OF SIMPLE INTEREST
EX#1
REHAN TAKES A LOAN OF 8000 TO BUY A USED
TRUCK AT THE RATE OF 9% SIMLPE INTEREST.
CALCULATE THE ANNUAL INTEREST TO BE PAID
FOR THE LOAN AMOUNT.
DATA
P=8000
R=9% OR 0.09
AS ANNUAL INTEREST IS TO BE CALCULATED
THE TIME PERIOD T=1
FORMULA

I=PXTXR
I= (8000) (1) (0.09)
I=720.00 ANSWER
EX#2
SARA INVESTED 10000 IN SAVINGS BANK
ACCOUNT THAT EARNED 2% SIMPLE
INTEREST.FIND THE INTEREST EARNED IF THE
AMOUNT WAS KEPT IN THE BANK FOR 4
YEARS.

DATA
P=10000
T=4 YEARS
R=2% OR 0.02
I=?

FORMULA
I=PXTXR
I= (10000) (4) (0.02)
I=800 ANSWER
EX#3
ALI BOUGHT 15000 FROM BANK TO BUY A CAR
AT 10% SIMPLE INTEREST .IF HE PAID 9000 AS
INTEREST WHILE CLEARING THE LOAN , FIND
THE TIME FOR WHICH THE LOAN WAS GIVEN.

DATA
P=15000
R=10% OR O.10
I=9000
T=?

FORMULA
I=PXRXT
T=9000/15000X0.10
T=6 YEARS ANSWERS
USES OF SIMPLE INTEREST
The simple interest formula is a basic formula that we
can use to study interest.

1) CAR LOAN
2) CONSUMER LOAN
3) CERTIFICATE OF DEPOSITE
4) EARLY PAYMENT DISCOUNTS
WHAT IS COMPOUND INTEREST?
Compound interest is the addition
of interest to the principal sum of a
loan or deposit, or in other words
interest on interest.

HOW TO CALCULATE COMPOUND


INTEREST?
1. Calculate Accrued Amount (Principal + Interest)
A = P(1 + r)t
2. Calculate Principal Amount, solve for P. P = A /
(1 + r)t
3. Calculate rate of interest in decimal, solve for r. r
= (A/P)1/t - 1.
4. Calculate rate of interest in percent. ...
5. Calculate time, solve for t.
FORMULA OF COMPOUND INTEREST

n
C = P [(1+r) - 1]
C = COMPOUND INTEREST
P = PRINCIPAL
r = RATE PER PERIOD
n = NUMBER OF PERIODS
EXAMPLES OF COMPOUND INTEREST

EX # 01
1. A principal of $2000 is placed in a savings
account at 3% per annum compounded
annually. How much is in the account after one
year, two years and three years?
Solution
When interest is compounded annually,
total amount A after t years is given by: A =
P (1 + r) t, where P is the initial amount
(principal), r is the rate and t is time in
years.
1 year: A = 2000(1 + 0.03) 1 = $2060 ANS

2 years: A = 2000(1 + 0.03) 2 = $2121.80 ANS

3 years: A = 2000(1 + 0.03) 3 = $2185.45 ANS


EX # 02
A deposit of $3000 earns 2% interest
compounded semiannually. How much
money is in the bank after for 4 years?

SOLUTION

A = P (1 + r) n

P = $3000

r = 2% annual interest rate / 2 interest periods = 1%


semiannual interest rate

n = number of payment periods = number of interest


periods times number of years

n = 2 times 4 = 8

A = 3000 ( 1 + 1%)8 = 3000(1 + 0.01)8 = 3000(1.01)8

A = 3000(1.082856)

A = 3248.57 ANS
EX # 03
A deposit of $2150 earns 6% interest
compounded quarterly. How much
money is in the bank after for 6 years?
Solution
A = P( 1 + r)n

P = $2150

r = 6% annual interest rate / 4 interest periods = 1.5% quarterly


interest rate

n = number of payment periods = number of interest periods


times number of years

n = 4 times 6 = 24

A = 2150( 1 + 1.5%)24 = 2150(1 + 0.015)24 = 2150(1.015)24

A = 2150(1.4295)

A = 3073.425

After 6 years, there will be 3073.425 dollars in the bank


account. ANS
USES OF COMPOUND INTEREST

1) PROVIDENT FUND
2) BANK DEPOSITE

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