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:

Fill in the Blanks

The Henley’s took out a new home loan for $195,000 at a simple interest rate of 4.3%. How much will they pay in interest after 30 years?

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.

Fill in the Blanks

Principal = $800
Interest Rate = 3.5%
Time = 6 months
Find the interest earned.

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