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Simple Interest pp. 205-2075-4SECTIONSECTION
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Section ObjectiveSection ObjectiveCalculate:
• simple interest
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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.
Key Words to KnowKey Words to Know
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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.
Key Words to KnowKey Words to Know
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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.)
FormulaFormula
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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?
Example 1Example 1
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Step: Find the interest at 5½ percent.
Interest = Principal × Rate × Time
$900.00 × 5½% × 3/12
$900.00 × 0.055 × 0.25 = $12.375 = $12.38
Example 1 AnswerExample 1 Answer
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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?
Example 2Example 2
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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.)
Example 2 AnswerExample 2 Answer
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$1,000 × 4% × 10/365 = $1.0958 = $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
Practice 2 Answer (cont.)Practice 2 Answer (cont.)
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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?
Practice 1Practice 1
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Practice 1 AnswerPractice 1 Answer
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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?
Practice 2Practice 2
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Practice 2 AnswerPractice 2 Answer
Simple Interest5-4END OF SECTIONEND OF SECTION
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