INTEREST

Lesson Objective
• Able to apply Simple Interest and Compound Interest formula
• Able to calculate Interests (after duration)
• Able to calculate Total amount (after duration)
Definition of Interests in MONEY
MATTERS
Extra money from the original amount where the calculation of the
extra money is based on percentage called rate
Usual situations in interests
• Borrowing money that is to be paid in monthly installments for a
specific amount of years (months) usually in loans for buying houses,
cars and personal loans.

• Savings or investment in banks.

Examples
Bukhari borrowed $1600 from a bank. After monthly payment in three
years, the total amount he must pay back his loan is $1800.

The extra money charged of $200 is interest or also known as service

charge.
Examples
Ali put $500 into a bank. After the end of 1 year, he has $503 in his
account.

The extra $3 earned was given by the bank to Ali and is called interest.

Money earned for savings and investments is also called dividend.

TYPES OF INTERESTS
• SIMPLE INTERESTS
• COMPOUND INTERESTS
 TYPES OF INTERESTS
• SIMPLE INTERESTS
 
Formula
Interests $ = Principal $ × Rate (%) × Time (in years)

Principal means
the original
money
TYPES OF INTERESTS
This formula does not give
Interests
•  SIMPLE INTERESTS
• COMPOUND INTERESTS
Formula How do we get interests?
A=

B ER
A = Total Amount (after duration) EM
P = Principal (original money) REM
r = Rate (usually given in %) Interest = A – P
T = no. of years
EXAMPLE 1
Farah puts in $1000 in a bank for 5 years in a simple interest
account of 4%. Calculate after 5 years (a) the interest she
received, (b) the amount of money she accumulated.

 
(a) INTEREST = 1000 5
• Original, P = $1000
• Duration, T = 5
= $200
• Rate = 4%
(b)
• Formula: SIMPLE INTEREST Total amount = $1000 + $200
= $1200
EXAMPLE 2
Ali puts in $1000 in a bank for 5 years in a
compound interest account of 4%. Calculate
after 5 years (a) the interest he received, (b)
the amount of money he accumulated.
 
A = 1000
• Original, P = $1000
= 1000
• Duration, T = 5
• Rate = 4%
= 1217
• Formula: COMPOUND INTEREST
Interest = $1217 – $1000
(a) $217 = $217
(b) $1217
Step to Success
• Identify information P , R, T or I
• Identify what formula to use either Simple Interest or Compount
Interest
• Calculate using formula
• Identify the amount required for final answer and adjust answer as
required
Do exercise in handout