Section 11.1: Interest

11.1 Outline

  1. Amount of simple interest
    1. interest/interest rate
    2. principal/present value
    3. time
    4. simple interest formula
  2. Future value
  3. Interest for part of a year
    1. exact interest
    2. ordinary interest
    3. time ordinary interest
    4. future value formula (simple interest)
  4. Compounding interest
    1. compound interest
    2. compounding annual
    3. other compounding periods
    4. future value formula (compound interest)
    5. contrast simple and compound interest
    6. interest variables
  5. Continuous compounding
    1. the number e
    2. future value formula (continuous compounding)
  6. Inflation
  7. 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 = 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 = Pert

For present value solve for P.