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
2
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
4
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
9.
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
