2 Vocabulary 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
3 Simple Interest Formula I = PrtAnnual Interest Rate (in decimal form)Simple InterestPrincipalTime (in years)
4 Finding 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
5 Check 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?
6 Finding 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%
7 Check YourselfYou put $700 in an account. The account earns $224 simple interest in 8 years.What is the annual interest rate?
8 Finding 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
9 Check 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?
10 Finding 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
11 Check 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?