2. Computing Simple Interest Mr. Swaner

3. Notes The formula for computing simple interest is: I = Prt P = principle r = rate (decimal form) t = time (years) I = interest

4. Example What is the interest on a $500 loan at 5% interest paid back in 1 year? I = Prt Can we identify the parts? Do we know the interest?

5. Example What is the interest on a $500 loan at 5% interest paid back in 1 year? I = Prt Do we know the principle?

6. Example What is the interest on a $500 loan at 5% interest paid back in 1 year? I = Prt Do we know the principle?

7. Example What is the interest on a $500 loan at 5% interest paid back in 1 year? I = Prt What about the rate?

8. Example What is the interest on a $500 loan at 5% interest paid back in 1 year? I = Prt What about the rate?

9. Example What is the interest on a $500 loan at 5% interest paid back in 1 year? I = Prt And the time?

10. Example What is the interest on a $500 loan at 5% interest paid back in 1 year? I = Prt And the time?

11. Example What is the interest on a $500 loan at 5% interest paid back in 1 year? I = Prt Now that we have all of the parts, we can write an equation

12. Example What is the interest on a $500 loan at 5% interest paid back in 1 year? I = Prt I = 500(.05)(1) I = $25

13. Example Now that we know how much interest must be paid, what is the total cost of the loan? $500 loan at 5% interest paid back in 1 year? Interest = $25Principle = $500 $500$25+= $525 Total cost

14. You Try You take out a loan for your first car which costs $8,000. The interest rate is 6% and you must pay it back in 5 years. How much interest must be paid and how much is the cost of the loan?

15. You Try P = $8,000 R = 6% T = 5 years. I = 8,000(.06)(5) I = $2,400 $8,000 + $2,400 = $10,400

16. Notes What happens if the time is in months not in years? 1 month = 6 months = 20 months = years

17. Example You take out a loan on your paycheck (which is a really bad idea) for $800. The interest rate is 12% and must be paid back in 3 months. What is the total cost? I = 800(.12)( ) =.25 I = $24$800 + $24 = $824

18. Notes When computing total savings, we use the same formula I = Prt

19. Let’s do one together You put $200 in a savings account for 10 years at 8% interest. How much is in the account when you go to collect the money?

20. Let’s do one together You put $200 in a savings account for 10 years at 8% interest. How much is in the account when you go to collect the money? I = Prt I = 200(.08)(10) I = $160 $200 + $160 = $360

21. Your Turn You invest $500 in an account for 15 months at 10% interest. What is the value of the account? I = 500(.10)( ) I = $62.50 $500 + $62.50 = $562.50

22. Notes We can use our formula to find other missing parts: I = Prt

23. Example Interest = $50 Rate = 8% Time = 5 years Can we find the principle? I = Prt 50 = P(.08)(5) 50 = P(.40) = P P = $125

24. Your Turn Find the rate Interest = $30 Principle = $200 Time = 9 months …….remember I = Prt 30 = 200(r)( ) 30 = 150r = r r =.20 or 20%

25. One More Find the time Interest = $12 Principle = $200 Rate = 3% 12 = 200(.03)t 12 = 6t = t t = 2 years

26. Closure What is our formula? How do we find the total value? How do we find missing parts? I = Prt Add the principle and the interest Fill in the parts we know and solve for the missing value