Lesson+1

toc Interest is money paid for the use of money. The total amount borrowed (whether by an individual from a bank in the form of a loan or by a bank from an individual in the form of a savings account) is called the **principal**. The **rate of interest**, expressed as a percent, is the amount charged for the use of the principal for a given period of time, usually on a yearly (that is, per annum) basis. When the interest due at the end of the payment period is added to the principal so that the interest computed at the end of the next payment period is based on this new principal amount (old principal + interest), the interest is said to have been **compounded**.
 * WELCOME TO YOUR INTRODUCTION OF: **  ** COMPOUND INTEREST! **    [[image:Compound-interest.jpg]]

**Simple Interest** is interest charged to a principal. = **Simple Interest Formula ** =

//I = Prt// //I = Interest after a period of time//  //P = Original amount borrowed//  //r = rate (as a decimal)//  //t = time (in years)//

**Payment Period: ** Annually: 1 Semiannually: 2  Quarterly: 4  Monthly: 12  Daily: 365

 **Compound Interest** is interest paid on principal and previously earned interest. = <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 140%;">**Compound Interest Formula**   = <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 140%; text-align: center;">//A = P * (1 + r/n) ^ (n*t)// //<span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 140%; line-height: 25px;">A = Amount you have after a period of time // //<span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 140%; line-height: 25px;">P = Original amount // //<span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 140%; line-height: 25px;">r = rate (as a decimal) // //<span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 140%; line-height: 25px;">n = number of times original amount is compounded (using payment periods) // //<span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 140%; line-height: 25px;">t = time (in years) //

<span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 140%;">No matter how frequent the compounding is, the amount after 1 year has the definite ceiling //Pe^r//. = <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 130%;">Continuous Compounding   =

<span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 140%; text-align: center;">//A = Pe ^ (rt)// //<span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 19px; line-height: 25px;">A = Amount you have after a period of time // //<span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 19px; line-height: 25px;">P = Original amount // //<span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 19px; line-height: 25px;">e = the number e // //<span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 19px; line-height: 25px;">r = rate (as a decimal) // //<span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 19px; line-height: 25px;">t = time (in years) // <span style="color: #800000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 140%;">Throughout this unit, we are going to be talking about information that relates to savings and finances. So not only will these formulas be helpful in the future but it's also important to know some terminology that is related to these particular compounding interest. = <span style="color: #800000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 18pt;">**Basic Vocabulary**   =

<span style="color: #800000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 140%;">**Annual percentage rate (APR)**: The yearly interest rate that is used to calculate finance charges on unpaid balances of credit card accounts. Lenders are required by law to disclose the APR used on credit card accounts. <span style="color: #800000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 140%;">**Average daily balance**: The average daily balance is determined by taking the sum of the ending balance each day and dividing that sum by the number of days in a billing cycle. A daily balance is affected by purchases, payments, interest, and fees. <span style="color: #800000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 140%;">**Credit limit**: The credit limit is the maximum amount you may charge on a credit card. This includes purchases, cash advances, balance transfers, finance charges, and fees. <span style="color: #800000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 140%;">**Finance charge**: The dollar amount you pay for using a credit card. Finance charges occur when an account has an unpaid balance. Most credit cards have a minimum finance charge and several methods are used in determining finance charges. We will examine one of the most common methods which uses the APR and average daily balance. <span style="color: #800000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 140%;">**Grace period**: The grace period is the number of days you have to pay your bill in full without accruing finance charges. The standard grace period is from 20 to 30 days from the statement date on a bill. Typically no grace period is given on cash advances, balance transfers, or accounts that have balances carried over from previous billing periods. <span style="color: #800000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 140%;">**Minimum payment**: The minimum amount a cardholder must pay for a billing cycle. Most credit cards require a minimum payment of 2% of the unpaid balance rounded off to the nearest dollar.

<span style="color: #800000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 140%;">If you are having difficulty understanding what these terms mean, please come in for help! :) = = =<span style="color: #800000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 160%; text-align: center;"> HOMEWORK: = <span style="color: #800000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 140%;">Research your own spending and saving habits. Create a list of items that you have bought this past month. Also write down how much money you have saved in this past month. Lastly, write down how many times you received money (whether from a job or a parent) and exactly how much you received from them.