7.6.7 Simple Interest

Vocabulary Interest – Percentage of money paid or earned Principal – Starting dollar amount Simple Interest – Percentage based on principal only

How much interest does the U.S. pay on it’s debt per year? Some Financial Facts Average U.S. household credit card debt = $16,000 Typical credit card interest is 14% - 16% (referred to as annual percentage rate In 2012, the U.S. National Debt was around $16 trillion or $16,000,000,000,000 The interest rate on the U.S. National Debt is 1% per year. How much interest does the U.S. pay on it’s debt per year?

If the question asked about 3 months, the decimal would be .25 Formula Simple Interest can be savings earned or cost of borrowing money You have $100 in a savings account. The account earns 6% simple interest per year. How much simple interest is earned in six months? What is the balance of the account after six months? Simple Interest = Principal x Annual Interest Rate x Time ($) = ($) x (% per year) x (years) Simple Interest = $100 x .06 x .5 Simple Interest = $3 Account Balance = Simple Interest + Principal Amount Account Balance = $3 + $100 Account Balance = $103 NOTE: “Time” is .5 because six months is half of a year. One half as a decimal is .5 If the question asked about 3 months, the decimal would be .25

How Much Money Did I Earn? $500 with 3% simple interest per year. What is the interest earned after 3 years? What is the total dollar amount after 3 years? Simple Interest = Principal x Annual Interest Rate x Time I = P x R x T I = $500(.03)(3) I = $45 Balance = Simple Interest + Principal B = I + P B = $45 + $500 B = $545

Your Turn! Principal = $700 Annual Interest Rate = 5% every 10 years What is the simple interest earned after 5 years? What is the balance after 5 years?

What’s The Annual Interest Rate? $1000 earns $100 in simple interest in 4 years. How much does it earn each year? I = P x R x T $100 = ($1000)(R)(4) $100 = $4000R .025 = R The Annual Interest Rate is .025 or 2.5%

Your Turn! Principal = $2000 Earnings = $50 after 2 years How much does the account earn in 1 year?

How Long Is This Going to Take?! $800 in my account. I need to earn $100 in interest with my 2% simple interest. How long is this going to take me? I = P x R x T $100 = ($800)(.02)(T) $100 = $16T 6.25 = T It will take me 6.25 years or six years and three months

Your Turn! Principal = $5000 Interest Rate = 5% Want to Earn = $200 How long will it take me?

How Much Did I REALLY Pay? Borrowed $600. The simple interest rate is 15%. It takes 5 years to pay off the loan. How much did I spend in total? I = P x R x T I = ($600)(.15)(5) I = $450 Add the $450 of interest to the original cost of $600 to find out how much was REALLY spent. $450 + $600 = $1050

Your Turn! Loan= $1000 Interest Rate = 16% Time To Pay Off Loan = 7 years How much did you REALLY spend?

Homework Page 256 (#1, 2, 4, 9, 12, 13, 16, 17, 20, 21, 24, 27, 32, 36)