Week 2 - Lesson 1 - Simple Interest Basics

The basics of working with simple interest including notation, the formula, working with dates and examples.

FinanceSimple Interest
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Week 2 - Lesson 1 - Simple Interest Basics

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The basics of working with simple interest including notation, the formula, working with dates and examples.
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  1. Simple Interest – Lesson 1Simple Interest Basics

    Slide 1 - Simple Interest – Lesson 1Simple Interest Basics

    • Rob Sorensen
    • © Copyright 2015. All rights reserved.
  2. Rob Sorensen

    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
  3. Simple Interest Formula

    Slide 3 - Simple Interest Formula

    • The basic formula for simple interest is:
    • I = Prt
    • Rob Sorensen
    • 3
  4. Example

    Slide 4 - Example

    • Suppose that you borrow $500 for one year at a rate of 6%. How much interest will you pay?
    • Rob Sorensen
    • 4
  5. Rob Sorensen

    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.
  6. Rob Sorensen

    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.
  7. Rob Sorensen

    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?
  8. Success Strategies

    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.
    • Rob Sorensen
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