Simple interest is calculated by multiplying the principal amount by the annual interest rate and time in years. Compound interest is calculated using the compound interest formula, which takes into account interest earned on prior interest. Several examples are provided to demonstrate calculating simple and compound interest for scenarios involving loans, investments, credit cards, and savings accounts over various periods of time.

1. LEE MARIE M. MARFIEL
BasayNHS
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2. Simple interest is interest that is computed on
the original sum.
Formula:
Principal amount * Annual Interest
rate* Number of years
Simple Interest is used commonly in variable
rate consumer lending and mortgage loans
where a borrower pays interest on funds used
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3. 3
Interest
Time

4. I = ?
P= 8000
r =7% = 0.07
t= 90 days= 3 months= 0.25 Year
I = P * r * t
I = 8000 *0.07*0.25= $140
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5. 5
Ex) Max borrows $30,000 to buy a car at 4.2% interest.
How much interest will Max pay if the loan is for 3
years?
I =P * r * t
I = 30,000 (.042)(3) = $3780 interest
How much total will Max pay for the car (Maturity Value)?
A=Principal + Interest
A= 30,000 + 3780 = $33,780.
How much will Max have to pay each month to the bank for the
car?
3 years * 12 months = 36 months
33,780 ÷ 36 = $938.33

6. 6
Ex) Marjorie has a credit card that she uses for most of
her purchases. The monthly interest rate on the card is
11.2%. If she charges $1000 in a month, how much
interest will she pay on the balance?
I = P * r * t
I = 1000(.112)(1) = $112
If she can only pay $500 on the credit card, what is her
new credit card balance?
1000 + 112 – 500 = $612

7. 7
Ex) Felisha wants to buy a new
computer. She wants to borrow $2500
for 3 years. She will pay an interest rate
of 5%. How much will she owe at the
end of the 3 years?
I = P*r*t
I = $2,500 * .05 * 3
I = $375
The cost of the loan is $375
Making the cost of the computer
$2,500 + $375 = $2,875

8. 8
Ex) Tammy borrows $55,000 to buy a car at 2.2% interest.
How much interest will she pay if the loan is for 5 years?
I = P * r * t
I = 55,000 (.022)(5) = $6050 interest
How much total will Tammy pay for the car?
55,000 + 6050 = $61050.
How much will Tammy have to pay each month to the
bank for the car?
5 years • 12 months = 60 months
61,050 ÷ 60 = $1017.5

10. Simple interest: I=prt
I = interest
p = principal: amount you start with
r = rate of interest
t= time in years

11. If you invest $3,000 at 5% for one year, how much will you make for the year?
I = prt
= 3000  0.05  1
= 150
You made $150 for the year.

12. A = p(1+r)t
A = balance p = principal
r = rate t = time in years
Compound interest formula:

13. Find the total amount in your account if you
start with $750 at 7.5% interest for 2.5 years.
A = p(1+r)t
= 750(1+0.075)2.5
= 750(1.075)2.5 (use a calculator here!)
= $898.63

14. How much should you invest at 7% to
have $200 after 5 years?
A = p(1+r)t (Plug in what you know.)
200 = p(1.07)5 (get p alone, then use a calculator.)
142.60= p

15. If you put $100 in the bank at 4%
interest and leave it until you are 60,
how much money will you have?
A = p(1+r)t
= 100(1.04)46 (This assumes you are currently 14)
= 607.48

16. What about a mutual fund that
pays 10% interest?
A = p(1+r)t
= 100(1.10)46
= 8017.95