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It255

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a) What is the basic concept of interest?

b) How is interest usually expressed? (In terms of the principal) Interested is usually expressed as a percent on the principal.

c) What does the interest rate multiply on for simple interest? A 30-year loan for \$100,000 with a rate of 6%. The monthly payment would be \$599.56 for both the standard and simple interest mortgages. The interest due is calculated differently, however. On the standard mortgage, the 6% is divided by 12, converting it to a monthly rate of .5%. The monthly rate is multiplied by the loan balance at the end of the preceding month to obtain the interest due for the month. In the first month, it is \$500.

d) What does the interest rate multiply on for compound interest? It multiplies interest* total amount

What is the formula for simple interest? I=P *r* t
e)
Example below f) What is the formula for compound interest?
P is the principal (the initial amount you borrow or deposit) r is the annual rate of interest (percentage) n is the number of years the amount is deposited or borrowed for.
A is the amount of money accumulated after n years, including interest.
When the interest is compounded once a year: A=P(1+r)n*t Also you can use compound interest like this
Annually = P × (1 + r) = (annual compounding)
Quarterly = P (1 + r/4)4 = (quarterly compounding)
Monthly = P (1 + r/12)12 = (monthly compounding)

Given the following situation, perform the indicated calculations based on the formulas above. You borrow \$5000 for 15 years. The interest rate is 8%.

What would be the simple interest?

a) What would be the simple interest? P*R*T= 5000(15)(.08)=\$6,000

b) What would be the total repaid at the end of 15 years of simple interest?
5,000+6,000=11,000

c) What would be the compound interest, given a quarterly compounding period? A=5000(1+.08/4) (4)(1)=5,412.16

d) What would be the total repaid at the end of 15 years of quarterly compounded interest? 5000(1+.08/4) (4)(15)=16,405

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