Homeschool Math Blog

Photo courtesy of Mooster Someone sent me in a question concerning compound interest... Please send me the formula for compound interest and explain line by line. p(1 + rate) 3 What does the 1 stand for and must you add it to the rate of say 10%? 100(1+10) 3 years = ??? Obviously I am looking for a basic course? The formula that this person is using is correct... the formula for compound interest is A = p(1 + r) t but this formula doesn't give us the amount of interest -- it gives us the amount of money you would withdraw after t years. In the formula, p is the original principal, r is the interest rate, and t is the time in years. However, we cannot put the interest rate in as he did. If r = 10%, then r = 0.1 must be used in this formula. In other words, FIRST convert your percentage into a decimal. For example, if the principal is $5000 and r = 10% = 0.1, then we get A = $5000 × 1.1 t The number 1 in the formula p(1 + r) t doesn...

Considering the crisis taking place within U.S. financial institutions, it's a good reminder of how we MUST teach our kids how to work out the math with credit cards, mortgages, and any type of loans. Murray Bourne from squareCircleZ has taken this matter to heart and has written a good lesson about math that goes into taking a loan. He's also analyzed several misleading credit card ads and figured out the TRUE interest rate (which you find out after reading the fine print). First go here: Credit Cards - a simplified discussion on how banks make money on credit cards. This is a must read for all people (young or old) who even consider taking a credit. Then check these posts and warn your youngsters: Misleading Credit Card Advertising . This ad advertises "a attractive interest rate of 5% p.a." (p.a. means per annum or yearly interest rate), but has a "small" administration fee of 6%. And then check another misleading credit card ad which advertises a 0% ...