Simple interest Interest is paid to an investor or bank for the use of their money. Simple interest means that the same amount of interest is paid in each time period. To calculate simple interest, we use the formula: Where I is the amount of interest P is the principle, or amount invested/borrowed R is the interest rate, per time period, as a decimal. N is the number of time periods

Example 1 How much interest does Anna get if she invests $4000 at 6%pa for: a) 3 years b) 9 months a) I = PRN I = 4000 × 006 × 3 I = $720 Method 1 b) I = PRN R = 006 ÷ 12 N = 9 months R = 0005 I = 4000 × 0005 × 9 I = $180 Method 2 b) I = PRN R = 006 N = 9 ÷ 12 N = ¾ I = 4000 × 006 × ¾ I = $180

Example 2 How much money would Christina have if she invested $3000 at 4%pa for 5 years? I = PRN = 3000 × 004 × 5 = 600 Total = 3000 + 600 = 3600 She would have $3600

Example 3 Diana invested $8000 for 5 years and ended up with $11 000. What was her interest rate? Final amount = principle + interest 11 000 = 8000 + I I = 11 000 – 8000 I = 3000 I = PRN 3000 = 8000 × R × 5 3000 = 40 000R 40 000 40 000 R = 0075 the interest rate is 75% pa × 100%

Example 4 Stephanie earned $3472 in 7 years at 8% pa. How much did she invest? I = PRN 3472 = P × 008 × 7 3472 = 056P 056 056 P = 6200 Stephanie invested $6200.

Today’s work Exercise 10-01 Sheet Q1 a, c, e… Q2 to Q12