Homeschool Zoo Annex

Learning about interest

Part of your consumer math will including things like simple interest, compound interest, fixed rate loans, and variable rate loans. These lessons will be vital when your child is grown and looking at mortgage lenders.

Simple Interest

Like it sounds, this interest rate is the same for the entire loan. For example, if you borrow $10,000 at 10% simple interest, for three years, the formula will look like this:

Year 1 - 10,000 x .1 = 1,000
Year 2 - 10,000 x .1 = 1,000
Year 3 - 10,000 x .1 = 1,000

You can also figure the simple interest with this formula:

P x I x T = Total, where P is principal, I is interest, and T is time or years of the loan duration. You then add the result to the original amount borrowed for the complete total you'll pay out.

Compound Interest

This is a bit more complicated, and lenders usually use a mortgage calculator to determine the totals and what your payments will be. There are a variety of variables to be taken into account, such as: is the interest applied annually or monthly?

B = balance after t years
A = amount borrowed
n = number of payments per year
P = amount paid per payment
r = annual percentage rate (APR)

Now you can see why a calculator is used.

Labels: Economics, Finances, Math

posted by Ann crum @ 11:13 PM