Section 5.1 – Simple Interest, Future Value, Present Value, and Effective Rate
1
Section 5.1
Simple Interest, Future Value, Present Value, and Effective Rate
Interest that is computed on the original principal only is called
simple interest.
Formula:
t
I
Pr
=
where
P = principal
r = rate
t = time (in years)
The sum of the principal and interest after
t
years is called the
accumulated amount.
Formula:
)
1
(
rt
P
A
+
=
Example 1:
Find the simple interest on a $1,000 investment made for 3 years at an
interest rate of 5% per year.
What is the accumulated amount?
Example 2:
Find the simple interest rate at which $1,000 will grow to $1,050 in 9
months.
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View Full DocumentSection 5.1 – Simple Interest, Future Value, Present Value, and Effective Rate
2
Earned interest that is periodically added to the principal and thereafter itself earns
interest at the same rate is called
compound interest.
Future Value with compound interest Formula:
n
i
P
A
)
1
(
+
=
where
m
r
i
=
and
mt
n
=
.
A
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 Spring '08
 CONSTANTE
 Math, Future Value

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