1. 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

2. 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

3. 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 =
= 3600
She would have $3600

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

5. 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
P = 6200
Stephanie invested $6200.

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