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Simple Interest

Simple Interest. Formula I = PRT. I = PRT. I = interest earned (amount of extra money the bank pays you or the amount of extra money that you owe) P = Principle amount invested or borrowed.

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Simple Interest

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  1. Simple Interest Formula I = PRT

  2. I = PRT • I = interest earned (amount of extra money the bank pays you or the amount of extra money that you owe) • P = Principle amount invested or borrowed. • R = Interest Rate usually given as a percent (must be changed to a decimal before plugging it into the formula) • T = Time (must be measured in years) or converted to years by dividing by 12 months

  3. Solving for I Plug in numbers for P, R, & T. Then multiply I = PRTSolve for one of variables:

  4. I = PRT I= I=$450 Interest paid by bank is unknown Principle (invested) Rate changed to decimal Time is 2 years Multiply 1. A savings account is set up so that the simple interest earned on the investment is moved into a separate account at the end of each year. If an investment of $5,000 is invested at 4.5%, what is the total simple interest accumulated in the checking account after 2 years. (5,000) (.045) (2)

  5. I = PRT I= I=$1575 Interest paid by bank is unknown Principle (invested) Rate changed to decimal Time is 3 years Multiply 2. A savings account is set up so that the simple interest earned on the investment is moved into a separate account at the end of each year. If an investment of $7,000 is invested at 7.5%, what is the total simple interest accumulated in the checking account after 3 years. (7,000) (.075) (3)

  6. 3. Tina borrowed $850 from a bank at 5% simple interest. After 6 months she paid back the loan. How much interest will be paid and how much will she pay back in total? • Interest paid by bank - Unknown • Principle (borrowed) • Rate is .05 • Time is 6 months (divide by 12) • Multiply • Now, since the money is being borrowed, add the interest to the principal. • I=PRT • I= (.05) (850) (6/12) I=21.25 $21.25 + $850 = $871.25 $871.25 will be paid back

  7. 4. An investment earns 4.5% simple interest in one year. If the money is withdrawn before the year is up, the interest is prorated so that a proportional amount of the interest is paid out. If $2400 is invested, what is the total amount that can be withdrawn when the account is closed out after 2 months? • Interest paid by bank - Unknown • Principle (invested) • Rate is .045 • Time is 2 months (divide by 12) • Multiply • Now, since the money is being withdrawn, add the interest to the principal. • I=PRT • I= (.045) (2400) (2/12) I=$18 $18 + $2400 = $2418 $2418 will be withdrawn

  8. Practice

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