6-6 Simple Interest

Simple Interest

Chapter 6 Lesson 6

What is simple interest?

Interest is the amount of money paid or earned for the use of money by a bank or other financial institution.

Simple interest is paid only on the initial principal of a savings account or a loan

Example #1

• Find the simple interest. Round to the nearest cent, if necessary.

• $1000 at 4.5% for 2 years.

• p = 1000; r = 4.5% or 0.045; t = 2

• I = 1000 * 0.045 * 2 = 90

• So the simple interest in $90!

Multiple Choice

Find the simple interest and round to the nearest cent, if necessary: $2500 at 6.75% for 3 years

• $50,625

• $506.25

Example #2

• Lucas is taking out a car loan for $5,000. He plans on paying off the car loan in 2 years. At the end of 2 years, Lucas will have paid $300 in interest. What is the simple interest RATE on the car loan?

• I = 300; p = 5000; r = ?; t = 2

• 300 = 5000 * r * 2

• 300 = 10,000 * r

• r = 0.03 --> 3%!!

Multiple Choice

Maggie is taking out a student loan for $2,600. She plans on paying off the loan in 3 years. At the end of the 3 years, Maggie will have paid $390 in interest. What is the simple interest RATE on the student loan?

• 0.05%

• 5%