Simple Interest

Vocabulary(Section 5.8 in book )

• The simple interest formula is I = prt where

I = interest

P = principal, or the amount of money borrowed or invested

r = annual interest rate, or the percent of interest, expressed as a decimal

t = time in years

• Simple interest is:– the amount paid or earned for the use of

money.

Ex 1) Find the simple interest for $2,000 invested at 5.5% for 4 years.

)4(100

5.5)000,2($

I

For simple interest,

In 4 years, $440 would be earned in simple interest.

prtI

440$

)4)(055.0)(000,2($

I

I

To get the interest rate as a decimal,

divide by 100.

Ex 2) Peggy borrowed $2,600 from a bank to help pay for her college tuition. The interest rate is 8% per year. How much simple interest will she pay if it takes her 5 years to repay the loan?

)5(100

8)600,2($

I

For simple interest, prtI

040,1$

)5)(08.0)(600,2($

I

I

Peggy will owe $1,040 in simple interest if she takes 5 years to repay

the loan.

Ex 3) Find the total dollar amount in an account where $80 is invested at 6% for 6 months.

12

6

100

6)80($I

Find the simple interest.

The total amount in the account is the principal plus the interest.

prtI

40.2$

)5.0)(06.0)(80($

I

I

Remember, the time must be in years!

Total = $80 + $2.40

Total = $82.40

Ex 4) Phil took out a car loan for $5,000. At the end of 18 months, he had repaid the loan amount and an additional $300 in interest. What was the simple interest rate on the loan?

12

18)000,5($300 r

Use the simple interest formula to find the rate.

The simple interest rate on the loan was 4%.

prtI

%4100

4

04.0

)(500,7300

)5.1)()(000,5($300

r

r

r

r

Remember, the time must be in years!