Simple Interest

Essential Skill: Explicitly Assess Information and Draw Conclusions

 Simple Interest
What is interest and why does it exist?

When you deposit money into a savings account, the bank invests
your money and pays you interest based on an interest rate

When you take out a loan, you will have to pay interest on the
money you borrow
 There are two types of interest:

Simple Interest:

When interest is earned or paid only on the principal.

Compound Interest:

When interest is earned or paid on both the principal and any

interest that has been earned or accrued previously.
 Simple Interest Terminology

Principal- the original amount of money you deposit

Interest- the amount of money you earn from the bank

Rate- the percent of interest

Time- the amount of time (in years) you invest for

Balance- the principal plus the interest

 Here is how to calculate simple interest

Interest = (principal)(rate)(time)

I= Prt

1.) Suppose you deposit $400 in a savings account. The interest rate is 5% per year. 
 A.) What is the amount of interest in six years?

 B.) What is the balance in six years?

 I= Prt

2.) Johnny deposited $575 in a savings account for 3 years at an interest rate of
8%. How much interest will he earn? What is his new Balance?

3.) I = ____ , P = $225, r = 3% , t = 2 years

4.) I = ____ , P = $1000, r = 6% , t = 3 months

5.) I = $300 , P = $1000, r = ___ , t = 5 years

6.) Sammie earned $204 in interest when she deposited $1,700 in a

bank account for six years. What is her rate of interest?
7.)Emily deposits $7000 in an account that earns 7% simple interest. About how long will it
take for her account balance to reach $8,000?

8.) Sarah deposits $4500 in an account. Four years later there is $5250 in the
account. What was the simple interest rate she earned on the account?
9.) You get a summer job at a bakery. Suppose you save $1,400 of your pay and deposit it
into an account that earns simple annual interest. After 9 months, the balance is $1,421.
Find the annual interest rate.