Calculating Interest
• Interest = the cost of ___________
• Simple Interest:
– only uses the original _____________amount
to determine interest
– formula to determine interest:
Interest = Principal • Rate • Time
– Principal = ____________ amount borrowed
– rate = interest rate expressed as a ___________
– time = number of __________ the money is
being _______________
Determining Simple Interest
Example #1
Find the interest amount on $3,000 at 8%
interest for one year.
• Step 1: Interest = principal • rate • time
• Step 2: Interest = 3,000 • .08 • 1
– Convert 8% to _______ form (.08) for formula.
• Step 3: Interest = $240 paid for the ______
of $3,000 for one __________.
Determining Simple Interest
Example #2
Find the future value of $5,000 invested at 6%
for three years using simple interest.
– Step 1: Interest earned = principal • rate • _____
– Step 2: Interest earned = 5,000 • .06 • 3 =$900
• Convert 6% to ___________form (.06) for formula.
– Step 3: Future value = interest earned + principal
• FV = $900 + $5,000
• FV = $____________
Determining Simple Interest
Example #3
Find the interest on $2,000 borrowed
at 9% for 73 days.
• Step 1: Interest = principal • ______ • time
• Step 2: Interest = 2,000 • .09 • (73/365)
– Convert 9% to _______form (.09) for formula.
– Convert 73 days to _________by dividing by
365 days/year.
• Step 3: Interest = 2,000 × .09 × .20
– Interest = $________
If you invested $200.00 in an account that paid
simple interest, find how long you’d need to
leave it in at 4% interest to make $10.00.
enter in formula
as a decimal
I = PRT
10 = (200)(0.04)T
1.25 yrs = T
Insert
this in
your
notes!
Typically interest is NOT simple interest but is paid semi-annually (twice a year),
quarterly (4 times per year), monthly (12 times per year), or even daily (365 times
per year).