SIMPLE INTEREST
LESSON PROPER
LEARN: TO COMPUTE
SIMPLE INTEREST
VOCABULARIES
• Interest
• Simple Interest
• Principal or Maturity Value
• Rate of Interest
When you borrow money from a bank, you pay
interest for the use of the bank’s money. When
you deposit money into a savings account, you are
paid interest. Simple interest is one type of fee
paid for the use of money.
Rate of interest is the
Simple Interest percent charged or
earned
I=P r t
Time that the money
Principal is the amount of is borrowed or
money borrowed or invested invested (in years)
Additional Example 1: Finding Interest and Total
Payment on a Loan
To buy a car, Jessica borrowed $15,000 for 3
years at an annual simple interest rate of 9%.
How much interest will she pay if she pays the
entire loan off at the end of the third year?
What is the total amount that she will repay?
First, find the interest she will pay.
I=P r t Use the formula.
I = 15,000 0.09 3 Substitute. Use 0.09 for 9%.
I = 4050 Solve for I.
Additional Example 1 Continued
Jessica will pay $4050 in interest.
You can find the total amount A to be repaid on a
loan by adding the principal P to the interest I.
P+I=A principal + interest = amount
15,000 + 4050 = A Substitute.
19,050 = A Solve for A.
Jessica will repay a total of $19,050 on her loan.
Check It Out: Example 1
To buy a laptop computer, Elaine borrowed
$2,000 for 3 years at an annual simple
interest rate of 5%. How much interest will
she pay if she pays the entire loan off at the
end of the third year? What is the total
amount that she will repay?
First, find the interest she will pay.
I=P r t Use the formula.
I = 2,000 0.05 3 Substitute. Use 0.05 for 5%.
I = 300 Solve for I.
Check It Out: Example 1 Continued
Elaine will pay $300 in interest.
You can find the total amount A to be repaid on a
loan by adding the principal P to the interest I.
P+I=A principal + interest = amount
2000 + 300 = A Substitute.
2300 = A Solve for A.
Elaine will repay a total of $2300 on her loan.
Additional Example 2: Determining the Amount of
Investment Time
Nancy invested $6000 in a bond at a yearly
rate of 3%. She earned $450 in interest. How
long was the money invested?
I=P r t Use the formula.
450 = 6,000 0.03 t Substitute values into
the equation.
450 = 180t
2.5 = t Solve for t.
The money was invested for 2.5 years, or 2 years
and 6 months.
Check It Out: Example 2
TJ invested $4000 in a bond at a yearly rate of
2%. He earned $200 in interest. How long was
the money invested?
I=P r t Use the formula.
200 = 4,000 0.02 t Substitute values into
the equation.
200 = 80t
2.5 = t Solve for t.
The money was invested for 2.5 years, or 2
years and 6 months.
Additional Example 3: Computing Total Savings
John’s parents deposited $1000 into a savings
account as a college fund when he was born.
How much will John have in this account after
18 years at a yearly simple interest rate of
3.25%?
I=P r t Use the formula.
I = 1000 0.0325 18 Substitute. Use 0.0325
for 3.25%.
I = 585 Solve for I.
Now you can find the total.
Additional Example 3 Continued
P+I=A Use the formula.
1000 + 585 = A Substitute.
1585 = A Solve for A.
John will have $1585 in the account after 18 years.
Check It Out: Example 3
Bertha deposited $1000 into a retirement
account when she was 18. How much will
Bertha have in this account after 50 years at a
yearly simple interest rate of 7.5%?
I=P r t Use the formula.
I = 1000 0.075 50 Substitute. Use 0.075
for 7.5%.
I = 3750 Solve for I.
Now you can find the total.
Check It Out: Example 3 Continued
P+I=A Use the formula.
1000 + 3750 = A Substitute.
4750 = A Solve for A.
Bertha will have $4750 in the account after 50 years.
Additional Example 4: Finding the Rate of Interest
Mr. Johnson borrowed $8000 for 4 years to
make home improvements. If he repaid a total
of $10,320, at what interest rate did he
borrow the money?
P+I=A Use the formula.
8000 + I = 10,320 Substitute.
I = 10,320 – 8000 = 232 Subtract 8000
from both sides.
He paid $2320 in interest. Use the amount of
interest to find the interest rate.
Additional Example 4 Continued
I=P r t Use the formula.
2320 = 8000 r 4 Substitute.
2320 = 32,000 r Simplify.
2320 = r Divide both sides by
32,000
32,000.
0.0725 = r
Mr. Johnson borrowed the money at an annual rate
of 7.25%, or 7 1 %.
4
Check It Out: Example 4
Mr. Mogi borrowed $9000 for 10 years to
make home improvements. If he repaid a total
of $20,000 at what interest rate did he borrow
the money?
P+I=A Use the formula.
9000 + I = 20,000 Substitute.
I = 20,000 – 9000 = 11,000 Subtract 9000
from both sides.
He paid $11,000 in interest. Use the amount of
interest to find the interest rate.
Check It Out: Example 4 Continued
I=P r t Use the formula.
11,000 = 9000 r 10 Substitute.
11,000 = 90,000 r Simplify.
11,000 = r Divide both sides by 90,000.
90,000
0.12 = r
Mr. Mogi borrowed the money at an annual rate of
about 12.2%.
TRY THIS!
1. A bank is offering 2.5% simple interest on a savings
account. If you deposit $5000, how much interest
will you earn in one year? $125
2. Joshua borrowed $1000 from his friend and paid
him back $1050 in six months. What simple annual
interest did Joshua pay his friend? 10%
3. The Hemmings borrowed $3000 for home
improvements. They repaid the loan and $600 in
simple interest four years later. What simple annual
interest rate did they pay? 5%
4. Mr. Berry had $120,000 in a retirement account.
The account paid 4.25% simple interest. How much
money was in the account at the end of 10 years?
$171,000
