Simple Interest

Simple Interest When you deposit money in a bank account, the bank pays you interest for the right to use your money for a period of time. Simple Interest Formula: I = p · r · t Principal (p) is the original amount of money deposited. Interest is calculated based on a percent of the principal. That percent is called the interest rate (r). Time (t) is the number of years money is deposited. Simple interest (I) is interest calculated only on the principal.

Simple Interest

Simple Interest How does the formula for simple interest after one year relate to the percent equation? Start with the simple interest formula: After one year, t = 1. Substitute into the simple interest formula and simplify. The simple interest formula after one year is a version of the percent equation.

Suppose you deposit $400 in a savings account and keep it in the bank for 6 years. The annual interest rate is 5%. Identify each value in the simple interest formula.

Simple Interest Suppose you deposit $500 in a bank account that earns simple interest at 1.2% per year. You keep it in the bank for two years. Which of the following is/are true? I = 12 p = 1.2% r = 500 t = 2

Simple Interest The principal in an account plus the accumulated interest is the balance.

Simple Interest A bank manager wants to encourage customers to open a certificate of deposit (CD) account. He decides to make a poster to show how much interest a CD earns over time. Help the manager complete the table.

Simple Interest A new bank customer with $5,000 to deposit looks at the manager’s poster. The customer wants to open a CD to earn money for his retirement. If he wants to have $5,500 in the CD, how long does he need to keep the account?

Simple Interest In some situations, interest is accumulated on a monthly basis. When r is an annual interest rate in the formula I = p · r · t, time t is in years. To find how much interest you have after 3 months, you need to convert months to years.

Simple Interest After 8 months, does Mia still have the higher balance? Explain.

Simple Interest After 16 months, does Mia still have the higher balance? Explain.

Simple Interest Suppose your friend has earned $5.51 in interest after 9 months. If the annual interest rate is 3%, how much is the principal in the account? Round to the nearest dollar. Suppose you have two savings accounts earning simple interest. For each account, the bank will calculate the amount of the interest each month. Account A has a principal of $600 with an interest rate of 3.0%. Account B has a principal of $1,200 with an interest rate of 1.5%. Which account will earn $150 in simple interest first?

Simple Interest Worksheet HW: Simple Interest Worksheet (only the one side)