This document provides information about simple and compound interest. It defines simple interest as interest paid only on the principal amount without considering accumulated interest over time. The simple interest formula is shown as Interest = Principal x Rate x Time. Compound interest is interest calculated on the initial principal and also on previously accumulated interest over multiple compounding periods. The compound interest formula is shown, which calculates the ending amount based on the principal, interest rate, time in years, and number of compounding periods per year. An example of using the compound interest formula to calculate the ending amount of $500 invested at 8% compounded quarterly over 2 years is provided.

1. Calculating
Simple and
Compound
Interest
Since this section involves what can
happen to your money, it should be of
INTEREST to you! Interest is Interesting!

2. IMPLE
INTEREST
DEFINITION
Interest paid on the principal only
and NOT on any accumulated interest

3. Annual interest rate
IMPLE
INTEREST
FORMULA
Interest paid
Principal
(Amount of
money invested
or borrowed)
Time (in years)
I = PRT

4. I = (200)(0.04)(1.5)
I = $12
enter in formula
as a decimal I = PRT
Simple Interest Example 1

5. If you invested $300.00 in an account that paid
simple interest, find how long you’d need to
leave it in at 3% interest to make $15.00.
Simple Interest Example 2
Solving for Time
enter in formula
as a decimal I = PRT

6. COMPOUND INTEREST
FORMULA
amount
at the
end
Principal
(amount
at start)
annual
interest rate
(as a decimal)
nt
n
r
PA 





+= 1
time
(in
years)
number of times
per year that
interest in
compounded

7. nt
n
r
PA 





+= 1500
.08
4
4 (2)
83.585$=A
Find the amount that results from $500 invested at
8% compounded quarterly after a period of 2 years.
Example
To solve, plug in to calculator
Follow PEMDAS!
1.Parenthesis .08/4 + 1
2.Exponents ^8
3.Multiplication x 500