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Computing Simple Interest

Computing Simple Interest. Mr. Swaner. Notes. The formula for computing simple interest is: I = P r t. I = interest. t = time (years). P = principle. r = rate (decimal form). Example. What is the interest on a $500 loan at 5% interest paid back in 1 year?. I = P r t.

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Computing Simple Interest

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  1. Computing Simple Interest Mr. Swaner

  2. Notes • The formula for computing simple interest is: I = Prt I = interest t = time (years) P = principle r = rate (decimal form)

  3. Example • What is the interest on a $500 loan at 5% interest paid back in 1 year? I = Prt Can we identify the parts? Do we know the interest?

  4. Example • What is the interest on a $500 loan at 5% interest paid back in 1 year? I = Prt Do we know the principle?

  5. Example • What is the interest on a $500 loan at 5% interest paid back in 1 year? I = Prt Do we know the principle?

  6. Example • What is the interest on a $500 loan at 5% interest paid back in 1 year? I = Prt What about the rate?

  7. Example • What is the interest on a $500 loan at 5% interest paid back in 1 year? I = Prt What about the rate?

  8. Example • What is the interest on a $500 loan at 5% interest paid back in 1 year? I = Prt And the time?

  9. Example • What is the interest on a $500 loan at 5% interest paid back in 1 year? I = Prt And the time?

  10. Example • What is the interest on a $500 loan at 5% interest paid back in 1 year? I = Prt Now that we have all of the parts, we can write an equation

  11. Example • What is the interest on a $500 loan at 5% interest paid back in 1 year? I = Prt I = 500(.05)(1) I = $25

  12. Example • Now that we know how much interest must be paid, what is the total cost of the loan? • $500 loan at 5% interest paid back in 1 year? Principle = $500 Interest = $25 Total cost $500 + $25 = $525

  13. You Try • You take out a loan for your first car which costs $8,000. The interest rate is 6% and you must pay it back in 5 years. How much interest must be paid and how much is the cost of the loan?

  14. You Try • P = $8,000 • R = 6% • T = 5 years. I = 8,000(.06)(5) I = $2,400 $8,000 + $2,400 = $10,400

  15. Notes • What happens if the time is in months not in years? years 1 month = 6 months = years 20 months = years

  16. Example • You take out a loan on your paycheck (which is a reallybad idea) for $800. The interest rate is 12% and must be paid back in 3 months. What is the total cost? I = 800(.12)( ) = .25 I = $24 $800 + $24 = $824

  17. Notes • When computing total savings, we use the same formula I = Prt

  18. Let’s do one together • You put $200 in a savings account for 10 years at 8% interest. How much is in the account when you go to collect the money?

  19. Let’s do one together • You put $200 in a savings account for 10 years at 8% interest. How much is in the account when you go to collect the money? I = Prt I = 200(.08)(10) I = $160 $200 + $160 = $360

  20. Your Turn • You invest $500 in an account for 15 months at 10% interest. What is the value of the account? I = 500(.10)( ) I = $62.50 $500 + $62.50 = $562.50

  21. Notes • We can use our formula to find other missing parts: I = Prt

  22. Example • Interest = $50 Rate = 8% Time = 5 years Can we find the principle? I = Prt 50 = P(.08)(5) 50 = P(.40) P = $125 = P

  23. Your Turn • Find the rate • Interest = $30 Principle = $200 Time = 9 months …….remember I = Prt 30 = 200(r)( ) 30 = 150r = r r = .20 or 20%

  24. One More • Find the time • Interest = $12 Principle = $200 Rate = 3% 12 = 200(.03)t t = 2 years 12 = 6t = t

  25. Closure • What is our formula? • How do we find the total value? • How do we find missing parts? I = Prt Add the principle and the interest Fill in the parts we know and solve for the missing value

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