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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

Subtitles and keywords

A2 BEG interest principle day formula income calculate

Math in Daily Life : How to Calculate Interest Income

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    Hhart Budha   posted on 2014/06/12
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