3-1 Simple Interest
You invest $100.00 for at 10% simple interest.
How much do you have at the end of 2 years?
We can do this in our heads:
 10% of $100 is $10
 that's $10 interest earned per year
 for 2 years for a total of $20 interest
 plus the $100 original investment . . .
 for a new amount of : $120
P = principal invested
(also called present value)
r = annual interest rate
(expressed as a decimal)
t = time in years
I = interest earned
A = total amount after t years
(also called future value)
($100)
(10%)
(2 years)
($20)
($120.00)
Simple Interest formulas
I = Prt
A = P + Prt = P(1 + rt)
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If you know any 3 of the variables, the formula (plus some
algebra) can be used to solve for the 4th variable:
Example:
$100 is invested (simple interest) for 10 years, and the
investment doubled in value. What was the interest rate?
The equation:
200 = 100(1 + r(10))
Solve: r = .10 (10%)
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