Simple Interest

SIMPLE

INTEREST

Since this section involves what can happen to your money, it should be of INTEREST to you!

IMPLE INTEREST DEFINITION

Interest paid on the principal only

and NOT on any accumulated interest

Annual interest rate

IMPLE INTEREST FORMULA

Interest paid

Principal(Amount of money invested or borrowed)

Time (in years)I = PRT

If you invested $200.00 in an account that paid simple interest of 4%, find the interest earned after 1 years.

I = (200)(0.04)(1.5)

I = $12

enter in formula as a decimal I = PRT

If you invested $300.00 in an account that paid simple interest, find how long you’d need to leave it in at 2% interest to make $15.00.

15 = (300)(0.04)T

1.25 yrs = T

Solving for Time

enter in formula as a decimal I = PRT

The Value of an asset at a specific date

Maturity Value

MV

FV

A

S

Variables for Maturity Value

Future Value

Amount

S = Principal + Interest

S= P + I

Calculating Maturity Value

If you invested $200.00 in an account that paid simple interest of 4%, find the maturity value after 1 years.

S = Principal + Interest

S = P + I

S = P + PRT

S = 200 + (200)(.04)(1.5)

S = 200 + 12

S = $212

Example

S = P (1+rt)

Calculating Maturity Value

If you invested $200.00 in an account that paid simple interest of 4%, find the maturity value after 1 years.

S = P(1+rt)

S = 200(1+.04•1.5)

S = 200(1.06)

S = $212

Example