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SECTION 5-4 Simple Interest pp

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Section Objective Calculate: simple interest

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**Key Words to Know interest (p. 205)**

The amount of money paid for the use of a lender’s money. simple interest (p. 205) Interest paid only on the principal in a bank account.

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**Key Words to Know principal (p. 205)**

The amount of money put into an account, on which interest is based. annual interest rate (p. 205) The percent of the principal in a bank account earned as interest based on one year.

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**Formula Interest = Principal × Rate × Time**

(Important Note: In this formula, rate is expressed as a decimal, fraction, or percent; time is expressed in years or a fraction of a year.)

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Example 1 Joyce Tyler deposits $900 in a savings account. The account pays an annual interest rate of 5½ percent. She makes no other deposits or withdrawals. After three months, the interest is calculated. How much simple interest does her money earn?

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**Example 1 Answer Step: Find the interest at 5½ percent.**

Interest = Principal × Rate × Time $ × 5½% × 3/12 $ × × 0.25 = $ = $12.38

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Example 2 Lena Green’s bank computes 4 percent interest on a daily basis. She has $1,000 in the account for 10 days. She makes a deposit of $600 and it is in the account for 15 days. She withdraws $400 and the balance earns interest for 6 days. How much interest does she earn? What is the amount in the account at the end of the month?

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Example 2 Answer Step: Find the interest at 4 percent for each set of days. Principal × Rate × Time (Note: Remember that the time has to be a fraction of a year, so divide the number of days by 365.)

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**Practice 2 Answer (cont.)**

$1,000 × 4% × 10/365 = $ = $1.10 ($1,000 + $600) × 4% × 15/365 = $2.630 = $2.63 ($1,600 – $400) × 4% × 6/365 = $0.789 = $0.79 Total interest for the month is $4.52 Total amount in the account is $1,200 + $4.52 = $1,204.52

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Practice 1 Victoria Wright deposited $1,500 in a savings account. No other deposits or withdrawals were made. The account paid an annual interest rate of 2 percent. How much simple interest did her money earn after 6 months?

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Practice 1 Answer $15.00

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Practice 2 Rodolfo Ortega deposited $4,200 in a new savings account. The bank pays 5¼ percent simple interest computed on a daily basis. He made no other deposits or withdrawals. How much simple interest will his money earn after 214 days?

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Practice 2 Answer $129.28

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END OF SECTION 5-4 Simple Interest

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