1. What is Interest?
When you keep money in a savings account, your money earns interest. Interest is an amount that is charged for borrowing or using money, or an amount of money that is earned by saving money.

2. What is Interest?
Example: Mary will lend Emily $100 this month if Emily pays her back $120 next month. This way Mary makes a profit of $20. The profit Mary makes is called interest.

3. I = P * r * t Interest Time in years that the money earns interest
Rate of interest per year
(as a decimal)‏
Interest
Principal

4. Interest Interest Rate of interest per year (as a decimal)‏
Time in years that the
money earns interest
Principal

5. Interest
A = P + I
Amount Owed
Principal
Interest

6. Step 1: Write the interest rate as a decimal
Move the decimal point 2 places to the left
6% = 0.06
Practice these in your notebook: 5%
24% 8%
75%
0.05
0.24
0.08
0.75

7. Step 2: Calculate the time in terms of years
Remember there are 12 months in a year. Example: 6 months = 6/12 or ½ year = 0.5 year Practice these in your notebook: 24 months 3 months 9 months 36 months 2
0.25
0.75 3

8. Putting it all together
Mrs. Ruderman will loan Ms. Eardley $500 to buy a new television. Ms. Eardley must pay 5% interest and return the money in 6 months. How much interest will Ms. Eardley pay?
Interest rate:
Time:
Principal:
Now multiply it all!
0.05
0.5
500
500*0.05*0.5=
$12.50

9. I = P * r * t
Ms. Rice deposits $2,000 in an account that earns 5% simple interest. How much interest will he earn in 3 years? How much interest will he earn in 9 months?
2,000 * 0.05 * 3 = $300
2,000 * 0.05 * 9 = $900

10. I = P * r * t
Kevin deposits $8,000 in an account that earns 7% simple interest. How much interest will he earn in 4 years? How much money will be in his account after 4 months?
8,000 * 0.07 * 4 = $2,240
8,000 * 0.07 * 0.33 = $184.80
A=P + I
$8,000 + $ = $8,184.80

11. I = P * r * t
Derek deposits $5,000 in an account that earns 6% simple interest.
How much money will he have in his account after 15 years?
$5,000 + $450 = $5,450

12. I = P * r * t How much will be in her account after 5 years?
Mr. James deposits $4,500 in an account that earns 6% simple interest.
How much will be in her account after 5 years?
$4,500 * 0.06 * 5 = $1,350
$4,500 + $1,350 = $5,850

13. I = P * r * t
Michael deposited $1,050 in a savings account, and it earned $ in simple interest after four years. Find the interest rate on Michael’s savings account.
r = I /(Pt)
$ / ($1,050 *4) = 5.75%

14. I = P * r * t
If $3,840 is invested in an account at 5% annual simple interest, how long will it take the account balance to grow to $4,800?
t = I / (P*r)
NOTE: Interest is the difference between
the New Balance and the Principal
$960 / ($3,840 *0.05)= 5 years