Transcript Lesson 3.2 Simple Interest

Lesson 3.2
Simple Interest
Introduction
Simple interest is a method of calculating the interest on money
that is borrowed or loaned
Simple Interest is not typically used when you deal with a bank
or other financial institution
Simple interest is a great way to become familiar with the
concept of interest
Understanding simple interest will help you understand
compound interest
February 15, 2011
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Lesson 3.2
Simple Interest
Objectives
You should be able to do the following after completing this lesson.
• Define simple interest, nominal interest rate and period interest rate
• Explain when simple interest is and is not used
• List the common interest calculation periods for simple interest
• Indicate how many times simple interest is calculated each
year for different calculation periods
• Calculate simple interest using both the nominal interest rate
and period interest rate
February 15, 2011
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Lesson 3.2
Simple Interest
3.2.1 – Simple interest
In this section, you will learn:
• What simple interest is
• How simple interest is calculated using the formula below
SI = P x R x Y
• What the principal is for a simple interest loan
• What is unique about the principal for a simple interest loan
• What must be repaid to clear a simple interest loan
February 15, 2011
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Lesson 3.2
Simple Interest
3.2.2 – When is Simple Interest Used?
In this section, you will learn:
• When simple interest is typically used
• Examples of when simple interest is used
• How you can use simple interest to estimate the
interest for a bank loan
• When simple interest is less than or greater than the
interest for a bank loan
February 15, 2011
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Lesson 3.2
Simple Interest
3.2.3 – Specifying Interest Rates
In this section, you will learn:
• How the interest rate for simple interest loans is expressed
• What the nominal interest rate is
• What the period interest rate is
• What the common calculation periods are for simple interest
• How many times the interest is calculated each year for each
calculation period
• Why the calculated interest is the same when using both the
nominal interest rate and the period interest rate
February 15, 2011
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Lesson 3.2
Simple Interest
3.2.4 – Calculating Simple Interest
In this section, you will learn:
• How to calculate simple interest using the standard formula
below and the nominal and period interest rates
SI = P x R x Y
• How to determine the number of interest calculation periods
for a simple interest loan
• How to determine how much must be repaid for a simple
interest loan
You will run the following Interactive Example:
• Simple Interest Saving Example
February 15, 2011
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Lesson 3.2
Simple Interest
3.2.5 – Benefits of Simple Interest
In this section, you will learn:
• How you should use your knowledge of simple interest
• When simple interest is working for you
• When simple interest is working against you
• What you must do to be financially successful
February 15, 2011
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Lesson 3.2
Simple Interest
Discussion Questions
• Will banks and other financial institutions ever begin using
simple interest in their transactions?
• Is it really necessary to understand interest since banks and
other financial institutions always calculated it for you?
February 15, 2011
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