Simple Interest -

Simple Interest

A Tale of Growing Money

Objectives

• TEKS - 7.13e "Calculate & compare interest and compund interest earnings."

• To understand that interest is a form of income.

• To calculate the expected interest earned for a savings account for one term.

• To calculate the simple interest earned for an investment over many terms.

• To differentiate between simple and compound interest.

Vocabulary

• Principal - The amount of money that was originally invested by an investor.

• Term - The length of time that the investment will be held, or when money lent should be all paid back.

• Rate - The amount of interest expressed as a percentage.

• Interest - Percentage of the value of an investment that is paid to the investor.

Vocabulary

• Investment - Money used to purchase something that is expected to grow in value, or money lent to an individual/business in hopes to be paid back more money than what was lent.

• Investor - THE PERSON who purchases something that is expected to grow in value, or money lent to an individual/business in hopes to be paid back more money than what was lent.

Interest

The "price" of borrowing money. There is always a borrower and a lender. The borrower can be a person or business and the person lending the money can also be a person or a business.

Interest is paid by the borrower and received by the lender.

Calculating Interest.

Interest is a percentage (rate) of the amount that is borrowed or lent and can be calculated using a percent proportion.  Where 'part' is the interest, 'whole' is the amount borrowed/lent and '%' is the rate.

                                             $\frac{Part}{Whole}=\frac{\%}{100}$  

Interest with key words.....

The interest problem in the video was, 5% of $400. Instead of using the part/whole proportion, the problem can be solved as follows.

5% as a decimal 

 $5\%=\frac{5}{100}=.05$  

"of" in a percentage problem  means  multiplication.
So, the problem can be re-written as the expression below.

.05 x $400

After simplifying, the answer is the same..... $20

Interest Has Two Sides

Interest, if one is the lender, is income. A person who lends money to a business in hopes that they will get back more money than they lent the business is called an investor. An investor expects their money to be paid back plus a percentage of the money they lent.

Putting money in a savings account will earn a person interest from the bank. The reason is that the money in a savings account is being lent to the bank and they are paying a price (interest) to use your money.

The Rate

It is the PERCENTAGE of the loan amount that is paid by the borrower to the lender. In the video example, the loan amount is $400. The interest on the loan is 5%...after doing the math, the interest on this loan is $20.

The $20 is added to the loan amount and is paid by the borrower to the lender.

Fill in the Blank

What would the interest be (in dollars) on $793 with a percentage rate of 5.3% ? Round your answer to the nearest penny and don't forget the dollar sign.

Multiple Choice

The interest on a loan is the:

• Cost of borrowing money

• Money charged by the government

• Money owed to the borrower

Interest as a Lender

A lender is an organization or person that has the money to lend. When a person puts money in the bank, they are lending the money to the bank and the interest rate paid by the bank is what they are paying a person to use their money.

When a person lends money to a business/person or deposits money into the bank, this is known as an investment.

An investment is lending money with the expectation that all the money will be paid back along with the interest.

Loan/Investment parts

• Principal - The money borrowed.

• Rate - The interest (percentage) rate on the amount borrowed or invested.

• Term - The period of time that interest will be paid/earned.

Term

The period of time that the interest is due. The wording to look for is:

.................Per...................For.................

.........8% Per week......For 6 weeks

If the loan/investment is $100,

8 dollars will be added each week for 6 weeks.

$8 x 6 = $32 <-- Total Interest

$32 + $100 (original amount) = $132

If a loan - $132 due in 6 weeks.

If an investment - Collect $132

The Interest Rate Formula- Part 1

A quick recap of the relationship between borrower and lender. Keep in mind that the lender is anyone that provides money to someone in hopes that they get paid back all their money, plus a little more.

The Interest Rate Formula- Part 2

How interest in calculated for the length of a loan or investment. The three parts are:

How much - PRINCIPAL

How much in interest - RATE

For how long - TIME (Years)

The Interest Rate Formula- Part 3

The formula and a sample solution.

Multiple Choice

Write the percent as a decimal.

4.3%

• 4.3

• .43

• .043

• 4300

Multiple Choice

What does the "p" in the interest formula stand for?

• Principal

• Interest

• rate

• time

Multiple Choice

Emilio borrows $1200 from a bank with 8% simple interest per year. How much will he have to pay back total in 2 years?

• $150

• $192

• $1350

• $1392

Multiple Choice

What does the "r" in the interest formula stand for?

• Principal

• Interest

• rate

• time

Multiple Choice

Find the simple interest earned for principal of $2,000 at and 8% rate for 5 years.

• $160

• $800

• $80,000

• $16

Multiple Choice

What does the "I" in the interest formula stand for?

• Principal

• Interest

• Rate

• Time

Multiple Choice

Jerry borrowed $4,000 for 5 years at 6% simple interest rate. How much interest is that?

• $800
• $1,000
• $1,200
• $1,500

Multiple Choice

The simple interest formula is I=Prt. What does the t represent?

• Principle

• Interest

• Time, in hours

• Time, in years

Fill in the Blank

Ann puts $300 in a bank account earning 4% interest. How much will she earn in interest in 1 year?