Your test will cover 3 topics:

1) Simple vs. Compound Interest

2) Net Worth

3) Personal Budgets​

Simple v. Compound Interest

Compound interest is earned on the principal AND on any earned interest.

Compound Interest

Simple interest is interest that is only earned on the initial investment or amount borrowed (principal).

Simple Interest

What's the difference?

Calculating SIMPLE interest

To calculate simple interest use the formula:

I=PRT​ (interest = principal x rate x time)

This formula will calculate the amount of interest earned. To find the total after interest, add the interest to the principal.​

If you are looking for the other variables, you have to move the formula around.​

For example, when looking for the P, divide the interest by RxT​.

When looking for the T, divide the interest by PxR.​

This formula will calculate the total amount after interest.

If interest is compounded annually, n=1. If it is monthly, n=12. ​If it is quarterly, n=4.

Calculating Compound Interest

Net Worth

What is net worth?

Net worth = Assets- Liabilities

Net worth is a calculation of everything you own (assets) minus everything you owe (liabilities).

Remember, assets are things that have a positive value (like a car you own or a stamp collection) and liabilities (like a car loan or a mortgaage) have a negative value.​

Personal Budgets

Personal Budgets:

A personal budget is a plan for anticipated expense that a person or a family might have.

Circle graphs are often used to show the percentages of a budget that are spent on different expenses.​

When solving problems involving budgets, there are two types of problems. Let's look at each one. ​

Tyler makes $4,000 each month. He spends $1,000 on his mortgage. What percent of his income is this?

1000 divided by 4000 = 0.25​

​0.25 x 100 = 25%

Example

To calculate percent of the budget spent on specific expenses, divide.

Part / Whole. Then, multiply by 100 to turn the decimal to a %.

Calculating Percent

Problem Type #1

Calculating Minimum Income

The second type of problem you'll be asked to solve is problems involving calculating minimum income.

One way to do this is to look at the answer choices, calculate the amount of tax that will be removed (Turn % into decimal and multiply. Subtract your answer from the amount of income.) Find the answer choice that will cover all expenses after the taxes are subtracted.

Example

Find 20 of each answer choice and subtract the answer:

4250.75 x 0.2 = ​850.15

4250.75-850.15 = 3400.60 (NOT ENOUGH)​

​

4375 x 0.2 = 875

4375-875=3500 (ENOUGH)

The correct answer is B​

A) $4250.75 B) $4375.00

Tyler has expenses that total $3,500 each month. If he has 20% of taxes taken out of each check, what is the minimum income he can make to cover his expenses?