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Simple Interest Formula I = PRT

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I = PRT I = interest earned (amount of extra money the bank pays you or the amount of extra money that you owe) P = Principle amount invested or borrowed. R = Interest Rate usually given as a percent (must be changed to a decimal before plugging it into the formula) T = Time (must be measured in years) or converted to years by dividing by 12 months

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**I = PRT Solve for one of variables:**

Solving for I Plug in numbers for P, R, & T. Then multiply

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**Interest paid by bank is unknown Principle (invested) **

1. A savings account is set up so that the simple interest earned on the investment is moved into a separate account at the end of each year. If an investment of $5,000 is invested at 4.5%, what is the total simple interest accumulated in the checking account after 2 years. I = PRT I= I=$450 Interest paid by bank is unknown Principle (invested) Rate changed to decimal Time is 2 years Multiply (5,000) (.045) (2)

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**Interest paid by bank is unknown Principle (invested) **

2. A savings account is set up so that the simple interest earned on the investment is moved into a separate account at the end of each year. If an investment of $7,000 is invested at 7.5%, what is the total simple interest accumulated in the checking account after 3 years. I = PRT I= I=$1575 Interest paid by bank is unknown Principle (invested) Rate changed to decimal Time is 3 years Multiply (7,000) (.075) (3)

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**Interest paid by bank - Unknown Principle (borrowed) Rate is .05 **

3. Tina borrowed $850 from a bank at 5% simple interest. After 6 months she paid back the loan. How much interest will be paid and how much will she pay back in total? Interest paid by bank - Unknown Principle (borrowed) Rate is .05 Time is 6 months (divide by 12) Multiply Now, since the money is being borrowed, add the interest to the principal. I=PRT I= (850) (.05) (6/12) I=21.25 $ $850 = $871.25 $ will be paid back

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**Interest paid by bank - Unknown Principle (invested) Rate is .045 **

4. An investment earns 4.5% simple interest in one year. If the money is withdrawn before the year is up, the interest is prorated so that a proportional amount of the interest is paid out. If $2400 is invested, what is the total amount that can be withdrawn when the account is closed out after 2 months? Interest paid by bank - Unknown Principle (invested) Rate is .045 Time is 2 months (divide by 12) Multiply Now, since the money is being withdrawn, add the interest to the principal. I=PRT I= (2400) (.045) (2/12) I=$18 $18 + $2400 = $2418 $2418 will be withdrawn

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Practice

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Simple and Compound Interest Simple Interest I = Prt Compound Interest A = P(1 + r)

Simple and Compound Interest Simple Interest I = Prt Compound Interest A = P(1 + r)

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