Interest Rate Formula Math Is Fun

Pv 900 1 10 3.

Interest rate formula math is fun. Interest 1 000 6 x 7 years 420. Luckily there is a neat formula. Interest principal rate of interest time. Compound interest a p 1 r n nt.

A 3 year loan of 1 000 at 10 costs 3 lots of 10. Interest calculated as a percent of the original loan. Pv p 1 1 r n r. The principal is the amount of money you borrow or invest.

Finds the future value where. The future value fv is 900 the interest rate r is 10 which is 0 10 as a decimal and. Use a monthly interest rate of 1. N number of periods.

For the above calculation you have 4 500 00 to invest or borrow with a rate of 9 5 percent for a six year period of time. 12 months a year 5 years that is 60 payments. Pv 676 18 to nearest cent notice that 676 18 is a lot less than 900. Simple interest is almost never used in the real world with compound interest being preferred see.

We need an easier method. The basic formula for compound interest is. Plus the principal of 1 000 means alex needs to pay 1 420 after 7 years. Alex borrows 1 000 for 7 years at 6 simple interest.

To find the interest you can use this formula. Fv pv 1 r n. Fv future value pv present value r interest rate as a decimal value and. So the interest is 3 1 000 10 300.

And by rearranging that formula see compound interest formula derivation we can find any value when we know the other three. P the principal investment amount the initial deposit or loan amount r the annual interest rate decimal n the number of times that interest is compounded per year. Present value of annuity. Pv fv 1 r n.

There is a formula for simple interest. And a lot of calculations. R is the interest rate per period as a decimal so 10 is 0 10. Pv 900 1 0 10 3.

The number of years n is 3. When you know the principal amount the rate and the time the amount of interest can be calculated by using the formula. So the present value of 900 in 3 years is. The rate of interest is the percent charged for the use of money.

Pv fv 1 r n.