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Business Math

The document explains the concept of simple interest and provides the formula i = prt, where i is the interest, p is the principal, r is the rate, and t is the time. It also discusses compound interest with formulas for different compounding frequencies and provides examples for both simple and compound interest calculations. Additionally, it illustrates how to calculate accumulated amounts after a specified period using these formulas.

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11 views1 page

Business Math

The document explains the concept of simple interest and provides the formula i = prt, where i is the interest, p is the principal, r is the rate, and t is the time. It also discusses compound interest with formulas for different compounding frequencies and provides examples for both simple and compound interest calculations. Additionally, it illustrates how to calculate accumulated amounts after a specified period using these formulas.

Uploaded by

Lumagbas Production
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Simple Interest n is the number of years the amount is

deposited or borrowed for.


Interest represents a change of money. A is the amount of money accumulated after
The formula for Simple Interest is: n years, including interest.
When the interest is compounded once a
i = prt year:

i is the interest generated. A = P(1 + r)n


p is the principal amount that is either
invested or owed However, if you borrow for 5 years the
r is the rate at which the interest is paid formula will look like:
t is the time that the principal amount is
either invested or owed A = P(1 + r)5

Example 1: This formula applies to both money invested


John wants to have an interest income of and money borrowed.
$3,000 a year. How much must he invest for
one year at 8%? Frequent Compounding of Interest:

Solution: What if interest is paid more frequently?


i = prt Here are a few examples of the formula:
3000 = p × 0.08 × 1 Annually = P × (1 + r) = (annual
3000 = 0.08p compounding)
p = 37,500 Quarterly = P (1 + r/4)4 = (quarterly
compounding)
Example 2: Monthly = P (1 + r/12)12 = (monthly
Jane owes the bank some money at 4% per compounding)
year. After half a year, she paid $45 as
interest. How much money does she owe the Compound Interest Problems:
bank?
1. A man invests $10,000 in an account that
Solution: pays 8.5% interest per year, compounded
i = prt quarterly. What is the amount of money that
he wil
l have after 3 years?
45 = 0.02p Information given in problem:
p = 2250 P= $10,000,r= 0.085,t= 3, and n= 4.

Compound Interest Using the formula


A=P(1 + r/n)nt
Formula:
A= 10,000 (1 + 0.085/4)(4)(3)
P is the principal (the initial amount you
borrow or deposit) = $12,870.19 after 3 years
r is the annual rate of interest (percentage)

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