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• We all like money, but how do you calculate things like interest income? Hi, I'm Jimmy

• Chang, I've been teaching college math for almost a decade and we're here to figure out

• how to calculate interest income. Now the root of how you do that though is in the famous

• interest formula, the simple interest formula i equals prt. Now if you remember what they

• stand for, i is our interest, p is your principle, how much you're putting in, r is your rate

• of interest and t is time. Now what we're going to be focusing on though is calculating

• interest income from day to day. So the t is going to be a rather small number. Now,

• here's a little scenario for you. Suppose you want to invest three thousand dollars

• at five percent and you want to figure out how much the interest is going to be from

• day to day. Now because we are talking about day to day, daily, the t is going to be one

• over three hundred and sixty-five, where three-sixty-five of course is the number of days and you'll

• be plugging in those numbers back in the simple interest formula. The only thing you have

• to keep in mind is that with interest rates, make sure you take the percent and always

• convert it to a decimal, so in the case of five percent, you're going to turn it into

• point zero five. Now, when you have your calculator, plug it in exactly like this, three thousand

• times point 05, times one, divided three sixty five, and what you will get rounded to the

• nearest cent is going to be forty one cents. So that's the amount of interest you're going

• to earn on day one. But how do figure out what day two is? Well, since you're calculating

• interest, interest that you earned is interest plus principle, so what you want to do is

• because you already have forty one cents at the end of the first day, you actually need

• to add it to the three thousand to figure out how much interest you're going to earn

• for day two. So your new principle on day two is going to be three thousand dollars

• and forty one cents. The other two numbers are still going to be the same, but your principle

• is going to slowly increase. So, plug in the new balance in the simple interest formula.

• Three thousand point forty one times point 05, times one over three-sixty-five and you

• will get - and this is strictly a coincidence - another forty one cents. You're going to

• take that forty one cents and add it to three thousand dollars and forty one cents for a

• grand total of three thousand dollars and eighty two cents, and that will be the principle

• you will use for day three and the pattern repeats itself. So, I'm Jimmy Chang and that

• is how you calculate interest income.

We all like money, but how do you calculate things like interest income? Hi, I'm Jimmy

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A2 BEG interest principle day formula income calculate

# Math in Daily Life : How to Calculate Interest Income

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