Simple Interest Word Problems

Front

What is Simple Interest?

Back

Simple Interest is the interest calculated on the principal amount, or the original amount of money borrowed or invested, over a specific period of time.

Front

What is the formula for calculating Simple Interest?

Back

The formula for Simple Interest is: I = P * r * t, where I is the interest, P is the principal amount, r is the rate of interest per year, and t is the time in years.

Front

If you borrow $1000 at a 5% interest rate for 2 years, how much interest will you pay?

Back

$100. (I = 1000 * 0.05 * 2 = 100)

Front

What does the term 'Principal' mean in finance?

Back

Principal refers to the original sum of money borrowed or invested, before interest.

Front

How do you convert a percentage to a decimal?

Back

To convert a percentage to a decimal, divide the percentage by 100. For example, 12.5% becomes 0.125.

Front

What is the relationship between interest rate and the amount of interest earned?

Back

The higher the interest rate, the more interest will be earned on the principal over the same period of time.

Front

If you earn $200 in interest on a $2000 investment over 4 years, what is the interest rate?

Back

The interest rate is 2.5%. (I = P * r * t; 200 = 2000 * r * 4; r = 0.025 or 2.5%)

Front

What is the total amount to be paid back if you borrow $500 at a 6% interest rate for 3 years?

Back

$590. (Interest = 500 * 0.06 * 3 = 90; Total = Principal + Interest = 500 + 90 = 590)

Front

How much interest is earned on $1500 at a 4% interest rate over 5 years?

Back

$300. (I = 1500 * 0.04 * 5 = 300)

Front

What is the interest earned on a loan of $2000 at a 3% interest rate for 2 years?

Back

$120. (I = 2000 * 0.03 * 2 = 120)