Simple Interest
When you put money in the bank, you gain interest on that money. Example: Jane puts $300 in the bank and it makes 2% interest. 𝑥 300 = 2 100 So she makes $6.00 in interest The money put in the bank - $300 is the PRINCIPAL The 2% is the INTEREST RATE The $6.00 is the INTEREST
Two kinds of interest Simple Interest and Compound Interest Simple interest – interest paid on the principal only. It is paid out and not put back in the account.
Interest over time Example: Jane puts $300 in the bank and it makes 2% interest. 𝑥 300 = 2 100 So she makes $6.00 in interest. This is for 1 year. How much will she make in interest over 10 years? $6.00 x 10 = $60
Interest = Principal x rate x time I = Prt Jane deposited $100 in her account. She makes an annual interest rate of 5% and she leaves it in the account for 8 years without making any more deposits. How much will she make in interest? P = 100 r = .05 t = 8 (100)(.05)(8) = $40 in interest
I = Prt Luisa deposited $2,000 in an account earning simple interest at an annual rate of 5%. She made no additional deposits and no withdrawals. When she closed the account, she had earned a total of $1,000 in interest. How long was the account open? P - 2000 r = .05 t = ? I = 1000 1000 = (2000)(.05)(x) 100x = 1000 x = 10 years