# Computing Simple Interest Mr. Swaner Notes The formula for computing simple interest is: I = Prt P = principle r = rate (decimal form) t = time (years)

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Computing Simple Interest Mr. Swaner

Notes The formula for computing simple interest is: I = Prt P = principle r = rate (decimal form) t = time (years) I = interest

Example What is the interest on a \$500 loan at 5% interest paid back in 1 year? I = Prt Can we identify the parts? Do we know the interest?

Example What is the interest on a \$500 loan at 5% interest paid back in 1 year? I = Prt Do we know the principle?

Example What is the interest on a \$500 loan at 5% interest paid back in 1 year? I = Prt Do we know the principle?

Example What is the interest on a \$500 loan at 5% interest paid back in 1 year? I = Prt What about the rate?

Example What is the interest on a \$500 loan at 5% interest paid back in 1 year? I = Prt What about the rate?

Example What is the interest on a \$500 loan at 5% interest paid back in 1 year? I = Prt And the time?

Example What is the interest on a \$500 loan at 5% interest paid back in 1 year? I = Prt And the time?

Example What is the interest on a \$500 loan at 5% interest paid back in 1 year? I = Prt Now that we have all of the parts, we can write an equation

Example What is the interest on a \$500 loan at 5% interest paid back in 1 year? I = Prt I = 500(.05)(1) I = \$25

Example Now that we know how much interest must be paid, what is the total cost of the loan? \$500 loan at 5% interest paid back in 1 year? Interest = \$25Principle = \$500 \$500\$25+= \$525 Total cost

You Try You take out a loan for your first car which costs \$8,000. The interest rate is 6% and you must pay it back in 5 years. How much interest must be paid and how much is the cost of the loan?

You Try P = \$8,000 R = 6% T = 5 years. I = 8,000(.06)(5) I = \$2,400 \$8,000 + \$2,400 = \$10,400

Notes What happens if the time is in months not in years? 1 month = 6 months = 20 months = years

Example You take out a loan on your paycheck (which is a really bad idea) for \$800. The interest rate is 12% and must be paid back in 3 months. What is the total cost? I = 800(.12)( ) =.25 I = \$24\$800 + \$24 = \$824

Notes When computing total savings, we use the same formula I = Prt

Let’s do one together You put \$200 in a savings account for 10 years at 8% interest. How much is in the account when you go to collect the money?

Let’s do one together You put \$200 in a savings account for 10 years at 8% interest. How much is in the account when you go to collect the money? I = Prt I = 200(.08)(10) I = \$160 \$200 + \$160 = \$360

Your Turn You invest \$500 in an account for 15 months at 10% interest. What is the value of the account? I = 500(.10)( ) I = \$62.50 \$500 + \$62.50 = \$562.50

Notes We can use our formula to find other missing parts: I = Prt

Example Interest = \$50 Rate = 8% Time = 5 years Can we find the principle? I = Prt 50 = P(.08)(5) 50 = P(.40) = P P = \$125

Your Turn Find the rate Interest = \$30 Principle = \$200 Time = 9 months …….remember I = Prt 30 = 200(r)( ) 30 = 150r = r r =.20 or 20%

One More Find the time Interest = \$12 Principle = \$200 Rate = 3% 12 = 200(.03)t 12 = 6t = t t = 2 years

Closure What is our formula? How do we find the total value? How do we find missing parts? I = Prt Add the principle and the interest Fill in the parts we know and solve for the missing value

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