Week 2  Lesson 1  Simple Interest Basics
By
Rob Sorensen
Created 2 years ago
Duration 0:17:14
79
The basics of working with simple interest including notation, the formula, working with dates and examples.

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Finance
Simple Interest

Slide 1  Simple Interest – Lesson 1Simple Interest Basics
 Rob Sorensen
 © Copyright 2015. All rights reserved.

Slide 2  Rob Sorensen
 Simple Interest Terminology
 P = principal
 I = simple interest
 r = the interest rate
 t = time
 Generally, we express the interest rate and time in years.
 Lender
 Borrower
 Principal
 Interest
 Amount Borrowed
 Cost
 Profit
 Amount Loaned

Slide 3  Simple Interest Formula
 The basic formula for simple interest is:
 I = Prt
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Slide 4  Example
 Suppose that you borrow $500 for one year at a rate of 6%. How much interest will you pay?
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Slide 5  Rob Sorensen
 Working with Dates
 Usually, the rate is given as an annual rate so we need the time period to be in years as well.
 If the time is given in months, we can divide by 12 (i.e. 3 months means that t=3/12).
 When using dates, however, we need to work with the exact number of days and then divide by 365.
 To do this, you can use the date function on your calculator.

Slide 6  Rob Sorensen
 Using Dates (Ex. 1.1C)
 Compute the amount of interest on $785.95 borrowed at 8% p.a. from Jan 30, 2015 until Mar 21, 2015.

Slide 7  Rob Sorensen
 Try It Out!
 How many days have you been alive?
 How much interest would you have earned if your parents had invested $1,000 at a simple interest rate of 9% p.a. when you were born?

Slide 8  Success Strategies
 Take your time reading questions.
 Write down everything that is given to you in the question as well as the unknown that you are trying to find.
 Make sure that you are working in consistent units – i.e. if the rate is annual, you must convert your time to years.
 Use all decimals during calculations – only round your final answer.
 Learn how to use the DATE functions on your calculator.
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