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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