Gen Math
Interest Notation and Definition of Terms
• a fee that someone pays in order to
borrow money.
Interest can function in two ways:
You may pay interest to a bank or
any lending institution if you
borrow money from them. It is a fee
they charge so you can use somebody
else's money before you get your
own. Compound Interest
A bank may pay you interest if you • an interest added to the principal at
put your money in a savings the end of a certain period of time
account. Depositing your money in a after which the interest is computed
bank makes the bank stronger and on the principal. This means that the
allows them to lend money to other interest is computed on the principal
they pay you interest for lending and also the accumulated past
them money. interests
Simple Interest Compound Amount
• Defined as interest in which only • the total amount due which consists
the original principal yields of the principal and the compound
interest for the entire term of the interest.
loan. In this case the principal and the
present value are equal. Conversion Period
• The amount invested or borrowed
• is the time between the successive
is computed based on the
conversions of interest into principal.
principal, interest rate, and length
• the number of unit of time in one year
of time for which the money is
as basis for computing interest which
invested or borrowed.
could be either (a) annually, (b)
The formula for the simple interest is:
semi-annually, (c) quarterly, or (d)
monthly.
I=Prt
A - is the final balance, future value of the
investment (FV), accumulated value, total
amount accrued.
P - is the principal, present value (PV), initial
principal amount, initial amount.
r - is the annual interest rate or rate of
interest compounded once per year in the
simpler version of the formula or more than
once per year in the complete version of the
formula. Keep in mind that r is compounded
as a decimal.
t - is the time in years.
n - is the number of compounding periods or
the number of times the interest is
compounded (calculated and added to
previous accumulated amount) each year.