7.8 Simple Interest

```6.7 Simple Interest
Definitions:





Interest (I): Money paid for the use of money
Principal (P): Amount of money you deposit or
borrow
Interest Rate (r): The percent of increase in
the principal
Time (t): # of years the money is in the “bank”
Simple Interest: When interest is only paid on
the principal.
Formulas:
Finding the simple interest:
 Interest = Principal x Rate x Time (in years)
Short-cut: I = Prt
Finding the BALANCE or Principal in the account:
 Balance = Principal + Prt
Short-cut: A = P + Prt
“A” stands for Balance
Example #1:

Nick borrowed \$7150, to be repaid after 5 years at
an annual simple interest rate of 6.25%. How much
interest will be due after 5 years? How much will
Nick have to repay?
I = Prt
A = P + Prt
I = 7150 • 6.25% • 5
A = 7150 + 2234.38
I = 7150 • 0.0625 • 5
A = \$9384.38
I = 2234.375
I = \$2234.38 The interest was \$2234.38 and he had to repay
\$9384.38
Ex. #2: Mr. Wong invested \$4000 in a bond
with a yearly interest rate of 4%. His total
interest on the investment was \$800. What
was the length of the investment?

I = Prt
800 = 4000 • 4% • t
800 = 4000 • 0.04 • t
800 = 160t
160 160
5=t
The length of the investment was 5 years.
Ex. #3: Tom borrowed \$35,000 to remodel
his house. At the end of the 5 year loan, he
had repaid a total of \$46,375. At what simple
interest rate did he borrow the money?

A = P + Prt
46375 = 35000 + 35000 • r • 5
46375 = 35000 + 175000r
-35000 -35000
11375 = 175000r
175000 175000
0.065 = r
The simple interest rate was 6.5%
Note:
Time is in YEARS!!

3
1
3 months =
 year
12
4

6 months =

7
year
7 months =
12
6
1
 year
12 2
```