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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).