Math 10 Activation Assignment

Simple Interest

Compound Interest

Interest

When a customer deposits money into a checking/savings account, they will earn interest (lending money to the bank = loan)

Banks earn interest by lending that money (loan) to other customers/businesses

Loan ex. mortgage ( buy house), home equity line of credit (home renovations/repairs), car loans (buy car), personal loans (vacation), student loans (edu)

Colateral

Put something of value to borrow money so that the lender can keep the collateral if the borrower defaults on the loan (not repaying back)

Ex. home mortgage - if borrower defaults on loan, the bank (lender) has the right to take possession of the home

Loans without collaterals - borrower has to pay higher interest rate

Simple Interest

Formula: I = P r t

I = Interest: money payed back to the bank for borrowing
P = Principal: money borrowed from the bank
r = rate: rate of interest (in decimal) charged on loan for borrowing money
t = term: period of time (months/years) for keeping the loan

Interest paid on principal + interest earned

Interest paid only on principal

Can be paid multiple times a year by dividing the yearly rate by the number of periods.

Formula: A = P (I + r/n) ⁿ × ᵗ

A = Amount: final amount of the investment's worth
P = Principal: original investment amount
r = rate: rate of interest earned (in decimal)
n = number: number of compounding periods in a year
t = term: period of time (years) for holding the investment

Rule of 72

Way to calculate length of time for investment to double in value

Formula: 72 ÷ (annual rate of interest - percentage) = (number of years to double)

Investment options