Appendix A.9 Comparison of Simple and Compound Interest Resource: Exploring Compound Interest. Foundations of Mathematics 12 (2012). p. 19 Example: Sebastian invests $2000 at 3.5% interest, compounded annually for 4 years. Determine the interest earned. I = P r t Simple Interest A = P + P r t Year End Investment Value ***Because we are calculating compound interest, we need to calculate the interest every year separately.** Determine the difference in the future value of simple interest compared to compound interest. Compound Interest Simple Interest Year Principle Year End Principle at Interest at Investment Beginning I = P r t I = P r t Beginning Value A = P of the Year
Appendix A.9 Comparison of Simple and Compound Interest Resource: Exploring Compound Interest. Foundations of Mathematics 12 (2012). p. 19 Example: Sebastian invests $2000 at 3.5% interest, compounded annually for 4 years. Determine the interest earned. I = P r t Simple Interest A = P + P r t Year End Investment Value ***Because we are calculating compound interest, we need to calculate the interest every year separately.** Determine the difference in the future value of simple interest compared to compound interest. Compound Interest Simple Interest Year Principle at Beginning Interest I = P r t Year End Investment Value A = P Principle at Beginning of the Year I = P r t