Simple Interest vs. Compound Interest

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A brief comparison of simple interest and compound interest.

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Simple Interest vs. Compound Interest

  1. 1. Bu dget ing Presente d  By  Mr.   G lennon  
  2. 2. tulations!Congra You  finall y  have  a   job!   Time  to  buy  stuff!  
  3. 3. New T V! How  abo ut  that  ch oice  HDT V  Only  $2000.00…not  much  when  you  have  a  job…   …. right???  
  4. 4. ee mone y…?Fr You’re  a  l iJle  short  o n  cash   How  about  a   CREDIT  CARD?   NOW…Pay  LATER!   Buy  
  5. 5. x actly f reeNot e Not  quite  free…bu sUll  a  gre t   at  deal!   You’ll  have  to  pay  later,   but  you  get  the  HDTV   NOW!  
  6. 6. w it worksHo Put  $200 0.00  on  t he  card…   …pay  $2000.00   back  later.   R ight???  
  7. 7. not so muchYeah… Put  $200 0.00  on  t he  card…   ack  $2000.0 0  (If  you   Pay  b the  ENTIRE   $2000.00   pay   b ack  when  t he  first  bill   comes)  
  8. 8. interest$2000.00 %     +  Principal   Interest   =   What  you   PAY  
  9. 9. interest IF  YOU  PAY   $2000.00   +   IT  OFF  10  %  Interest   IMMEDIATELY!   =   $2200.00  
  10. 10. interest NO  BIG  DEAL   $2000.00   Only  $200.00 +    extra  10  %  Interest   …and  I  sUll  get   =   the  TV  now!   $2200.00  
  11. 11. NO PE!Meet  your  ne w  friend!   COMPOUND     INTEREST   This  is   Compound   Interest.    He   is  horrible   and  he  hates   you.  
  12. 12. 2 kinds of inte rest SIMPLE  INTEREST   1   Pay  a  percent  of   what  you  bor row.     Usually  on  a   schedule  (10%  for  2   years)  
  13. 13. 2 kinds of inte rest COMPOUND  INTEREST   2   Pay  a  percent  of   what  you  bor row   but  MORE  int erest   compounds  o n  top   of  the  princip al   AND  interest  you   owe.  
  14. 14. ex ample Simple interest $2000.00 The  amount  y   ou   have  to  pay  b +   ack   is  $2200,  no  10  %  Interest   maJer  how  l ong   =   it  takes.   $2200.00  
  15. 15. ex ample The  amount  y ou   have  to  pay  bCompound recalculated  e ack  is   interest ach   billing  period .    It  is   $2000.00 a  percent  of  t   he   +   amount  you   borrowed  AN10  %  Interest   D  the   original  amou =   nt  of   $2200.00   interest.   +  2.5%   +  2.5%   +  2.5%  

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