COMPOUND AND SIMPLE INTEREST

COMPOUND AND SIMPLE INTEREST
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  • Hmmmm. It's a great morning. Today, I'm planning to go to a bank to know how much I will pay if I borrow money from them.
  • Hey Francis ! Would you mind if you accompany me to the bank?
  • Actually my uncle, Mr. Mon works at the bank nearby. 
  • No, it's fine. 
  • Good Morning ! How can I help you?
  • I just want to make sure and to know how much interest that I will be paying before borrowing or having a loan from your bank.  
  • Mr. Mon, I'm with my friend, Sebastian. He wants to borrow money form your bank. 
  • Yeah, sure. 
  • I see. Let's go to the other room and I'll show you how we compute the interest rate of your desired loan or borrowing amount. 
  • So basically, simple interest essentially works when you're a borrower, but against you when you're an investor. 
  • Now, let's get started. Okay ! Lets get started. 
  • We assume that you will borrow $500,000 for three years from our bank, and we will give you simple interest at 5% annually. How much would you have to pay in interest charges every year, and what will be your total interest charges be after three years? I'll show you. 
  • ($500,000 x 5% x 1) is equals to $25,000 . So, you would have to pay $25,000 in interest charges every year. Multiply it by three is equals to $75,000 in total interest charges after three years.
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