2Vocabulary Interest Principal Simple Interest Money paid or earned for the use of moneyPrincipalThe amount of money borrowed or investedSimple InterestMoney paid or earned only on the principal
3Simple Interest Formula I = PrtAnnual Interest Rate (in decimal form)Simple InterestPrincipalTime (in years)
4Finding Interest Earned You put $500 in a savings account. The account ears 3% simple interest per year.What is the interest earned after 3 years?I = PrtI = 500 · .03 · 3I = 45What is the balance after 3 years?= $545
5Check YourselfYou put $200 in a savings account. The account earns 2% simple interest annually.What is the interest earned after 5 years?What is the balance after 5 years?
6Finding Annual Interest Rate You put $1000 in an account. The account earns $100 simple interest in 4 years.What is the annual interest rate?I = Prt100 = 1000 · r · 4100 = 4000 · rr = becomes 2.5%
7Check YourselfYou put $700 in an account. The account earns $224 simple interest in 8 years.What is the annual interest rate?
8Finding an Amount of Time A bank offers an annual simple interest rate of 2.0% for balances between $500 and $5000.How long will does it take an account with a principal of $800 to earn $100 interest?I = Prt100 = 800 · .02 · t100 = 16 · tt = 6.25 or 6 years 3 months
9Check YourselfA bank offers an annual simple interest rate of 1.5% for balances under $500.How long does it take an account with a principal of $400 to earn $36 interest?
10Finding Amount Paid on a Loan You borrow $600 to buy a violin. The simple interest rate is 15%. You pay off the loan after 5 years.How much do you pay for the loan?I = PrtI = 600 · .15 · 5I = 450 (this is just interest)Principal + Interest = Total Paid= $1050
11Check YourselfYou borrow $300 to buy a guitar. The simple interest rate is 12%. You pay off the loan after 4 years.How much do you pay for the loan?