Computing Simple Interest

Mr. Swaner

Notes

The formula for computing simple interest is:

I = Prt

P = principler = 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

years

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 = Prt50 = P(.08)(5)

50 = P(.40)

= P P = $125

Your Turn

Find the rate Interest = $30 Principle = $200

Time = 9 months …….remember

I = Prt30 = 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