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Simple Interest Math 8

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Simple Interest Can be interest gained (earned) or interest paid Interest paid- costs you money * loans * credit cards Interest earned- you receive money –Savings accounts –Investments

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Interest Formula I = prt (Interest = principle x rate x time) I = interest amount ($) p= principle – original amount ($) r = rate- interest percent (%) –Turn into a decimal to calculate t = time- in years –If not given in years, divide the number of months by 12, you may get a decimal

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So… Basically, you are just substituting in numbers and solving for the missing variable. Make sure to… –Change % to decimal –Change months to years (if necessary) –Check what the question is asking for ( I, p, r, or t)

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Example Emily buys a car for $19,500. The interest is 5% and the loan is for 5 years. What is the interest Emily will pay on the car AND what is the total amount she will have paid at the end of the five years?

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Example #1 Emily buys a car for $19,500. The interest is 5% and the loan is for 5 years. What is the interest Emily will pay on the car AND what is the total amount she will have paid at the end of the five years? I = prt I =x p= 19,500 r=.05 (5% converted to decimal) t= 5

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Calculate I = prt I =x p= 19,500 r=.05 (5% converted to decimal) t= 5 x = (19,500) (.05) (5) x =

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Calculate I = prt I =x p= 19,500 r=.05 (5% converted to decimal) t= 5 x = (19,500) (.05) (5) x = 4,875 The interest she will pay is $4875. Add that to the principle for the total amount she will have paid at the end of 5 years. $19,500 + $4,875 = $24,375

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Example #2 Darren wants to buy a house for $245,00. The current interest rate is 4.5% and the mortgage is for 30 years. Find the interest Darren will pay at the end of 30 years.

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Example #2 continued Darren wants to buy a house for $245,00. The current interest rate is 4.5% and the mortgage is for 30 years. Find the interest Darren will pay at the end of 30 years. What is the formula you will use? _________________________ I = p = r = t =

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Example #2 Darren wants to buy a house for $245,00. The current interest rate is 4.5% and the mortgage is for 30 years. Find the interest Darren will pay at the end of 30 years. I = prt (Interest = principle x rate x time) I = x p = 245,000 r =.045 t = 30

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Example #2 Darren wants to buy a house for $245,00. The current interest rate is 4.5% and the mortgage is for 30 years. Find the interest Darren will pay at the end of 30 years. I = prt (Interest = principle x rate x time) I = x p = 245,000 r =.045 t = 30 x = (245,000)(.045)(30) x = $330,750

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Example #3 Rachel needs to buy new furniture for her apartment. The furniture costs $3500. She is taking out a loan to pay for the furniture and she will pay $ in interest during the 3 year loan period. What is the interest rate on her loan?

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Example 3 Rachel needs to buy new furniture for her apartment. The furniture costs $3500. She is taking out a loan to pay for the furniture and she will pay $ in interest during the 3 year loan period. What is the interest rate on her loan? I = prt I = p= 3500 r= x t= = (3500)(x)(3) = 10,500x.115= x *** Change back into a % for the rate Her interest rate is 11.5%.

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A helpful hint If it helps you to remember what you are trying to solve, use the first letter of the “missing” chunk of info as the variable. So, if I want to find out the rate of interest like we did in the last example, I would set up my equation like this: I = prt = (3500)(r)(3) Then solve for r

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