 # SIMPLE INTEREST Interest is the amount paid for the use of money.

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SIMPLE INTEREST Interest is the amount paid for the use of money.

FORMULA I=PRT

INTEREST EQUALS PRINCIPAL - the amount of money invested or borrowed. RATE - is in the annual interest converted to a decimal. TIME - in years. BALANCE – the sum of the principal and interest earned.

SAVINGS ACCOUNT You can also use the formula to find the simple interest when you deposit money in a savings account.

INVESTING Angie has \$500 in a savings account that pays 5% simple interest. How much interest will she earn in 2 years? Note: 5% equals 0.05 as a decimal.

I=PRT Balance = 500 + 50 = \$550

How much interest will she earn if she withdraws the money after 9 months? 9 months equals 9/12 of a year or 0.75 as a decimal.

Your turn. How much interest would you earn on \$1000, at 6¾% a year for 4¼ years? Balance = 1000 + 286.88 = \$1286.88

When invested at an annual interest rate of 6% an account earned \$180.00 of simple interest in one year. How much money was originally invested in account? I = PRT 180= 180 =.06P.06.06 3,000 = P Interest paid by bank Principle (invested) is unknown Rate changed to decimal Time is 1 year Multiply Divide P(.06)(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 \$2,000 accumulate \$360 of interest in the account after 4 years, what was the annual simple interest rate on the savings account? I = PRT 360= 360 = (2,000)(4)R 360 = 8,000 R 8,000 8,000 0.045 = R 4.5% = R Interest paid by bank Principle (invested) Rate is unknown Time is 4 years Regroup & Multiply Divide Change to % (2,000)(R)(4)

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