Simple Interest

Simple Interest

Lesson Objectives

​At the end of the lesson, you will be able to

• understand and define what is simple interest.

• understand and apply the formula for simple interest.

• decide which financial institute provides a better value during investment / loans.

Open Ended

What do you understand about simple interest?

Interest is a fee paid by a borrower to a lender for the use of money over a period of time.

​On the other hand, if you save money in an interest-bearing account,

the bank pays you interest as a reward for keeping your money in the account.

​What is Simple Interest?

​There are 3 components involved in the calculation of Simple Interest

1. Principle - The amount borrowed / saved

2. Rate - The percentage of the principle

   as reward / fee

3. Time - The duration of the

   investment / loan (in years)

Open Ended

Using I = simple interest,

P = principle amount

R = interest rate

T = time (years),

write down a possible formula to calculate the simple interest for

a loan of $P, at R% interest rate for a duration of T years.

​I = PRT

Multiple Choice

You deposit $1,000 into a savings account with an annual interest rate of 3%.

How much interest will you earn after one year?

• $3,000

• $300

• $30

• $3

Multiple Choice

You borrow $5,000 from a bank and agree to pay 6% annual interest.

If you pay back the loan after two years, how much interest will you owe?

• $300

• $600

• $30000

• $60000

Multiple Choice

If you have $10000 to invest, will you choose to deposit the money in

Bank A which gives 5% simple interest or Bank B which gives 4.2% simple interest?

• Bank A!!

• Bank B!!

Multiple Choice

If you wish to take up $20,000 loan, will you choose to borrow money from

Bank A which charges you at 4.8% simple interest or

Bank B which charges you at 3.5% simple interest?

• Bank A!!

• Bank B!!