Simple Interest Lesson

Simple Interest

and compound interest

Learning Objectives

• 7.13 E - Calculate and compare simple and compound interest

• 8.12 D Calculate and compare simple and compound interest

simple interest (interest that is calculated once per period on the principal and not on any interest) 

Simple Interest Formula

I = prt

Multiple Choice

True or False

The simple interest equation is I = prt

• True

• False

I = prt

p = principal
r = rate % (in decimal form)
t = time (in years)

*when there is no operation between variables, multiplication is implied.

Multiple Select

In the simple interest equation, I = prt , the p respresents what?

• positive

• principal

• parenthesis

• puppies

Multiple Choice

If a $5000 loan earns 7.5% annual interest for 3 years, which is the correct equation?

• I = 5000(7.5)(3)

• I = 5000(0.75)(3)

• I= 5000(0.075)(3)

Multiple Choice

If a $5000 loan earns 7.5% annual interest for 3 years, how much interest is earned?

• $1125

• $125

• $6125

Compound Interest is interest earned on the principal and the accumulated interest. 

A = p(1+r)^t

(In other words, compound interest is interest upon interest upon interest. Compound interest increases exponentially, due to the exponent in the equation)

Multiple Choice

A $4,000 initial deposit earns 2.04% interest compounded for 5 years, which is the correct equation

• A = 4000(2.04)(5)

• A = 4000(1 + 0.0204)⁵

• A = 4000(1 + 2.04)⁵

Multiple Choice

A $4,000 initial deposit earns 2.04% interest compounded for 5 years. How much is the interest earned, rounded to the nearest cent?

• $4,424.99

• $424.99

• $4,000