Unit 3: Lesson 1 Simple Interest

​Simple Interest

Business Math

What is Simple Interest

Interest = Principle x Rate x Time (in years)
I = P x R x T

R = Interest Rate
T = Time in years
P = Principle (amount your are borrowing or deposit)

​FORMULA

When you deposit money in a bank, or take out a loan, you get or pay interest. This is the cost for borrowing, or what you get from the bank for giving them your money.

​Definition

a) I = P x R x T
I = (2000) x (4%) x (3)
I = $240


b) Total = Principle + Interest
= 2000 + 240 = 2,040

Solution

$2,000 is deposited in an account paying 4% interest. How much money will be paid in:

a) Interest
b) How much total will be in thier account after 3 years?

EXAMPLE 1:

How to compute

I = P x R x T

I = 3000 x 7% x (8/12) <-- Remember, time must be in years

I = 140


Total Amount to pay back: 3,000 + 140 = 3, 140

Solution:

Joe John takes a loan out for $3,000. His interest rate is 7%. He plans on taking out the loan for 8 months.

a) How much interest will he pay?

b) What is the total amount he will pay back?

When you don't have full years to compute

Another Example:

Multiple Choice

If you are calculating the simple interest and you are given the time in months, how can you find the time in years?

• Add 12 to the months
• divide the months by 12
• multiply 12 times the months
• You cannot change it to months.

Multiple Choice

When Loofa was born, her parents put $8,000 into a college fund account that earned 9% simple interest. What will her account total after 18 years?

• $720

• $20,960

• $1,080

• $12,960