## 11.1 Outline

- Amount of simple interest
- interest/interest rate
- principal/present value
- time
- simple interest formula

- Future value
- Interest for part of a year
- exact interest
- ordinary interest
- time ordinary interest
- future value formula (simple interest)

- Compounding interest
- compound interest
- compounding annual
- other compounding periods
- future value formula (compound interest)
- contrast simple and compound interest
- interest variables

- Continuous compounding
- the number
*e* - future value formula (continuous compounding)

- the number
- Inflation
- Present value

## 11.1 Essential Ideas

Variables used in this chapter:

*A *= FUTURE VALUE: This is the principal plus interest.

*P *= PRESENT VALUE : This is the same as the principal.

*r *= INTEREST RATE: This is the *annual *interest rate.

*t *= TIME: This is the time in *years*.

*n *= NUMBER OF COMPOUNDING PERIODS EACH YEAR

*N = nt: *This is the number of compounding periods.

*i = r/n: *This is the rate per period

**Important Formulas**

Simple interest formula: *I = Prt
*Future value formula (simple):

*A = P*(1 +

*rt*)

Future value formula (compound):

*A = P*(1 +

*rt*)

^{N }Future value formula (simple):

*A = Pe*

^{rt }For present value solve for *P.*