Using PercentsPart 2

What is interest?When you borrow money from a bank, you pay interest for the use of the bank’s money. When you deposit money into a savings account, you are paid interest. Simple interest is one type of fee paid for the use of money.

I = P r t

Simple Interest

Principal is the amount of money borrowed or invested

Rate of interest is the percent charged or earned

Time that the money is borrowed or invested (in years)

Calculate Simple Interest

To buy a car, Jessica borrowed $15,000 for 3 years at an annual simple interest rate of 9%. How much interest will she pay if she pays the entire loan off at the end of the third year? What is the total amount that she will repay?

First, find the interest she will pay.

I = P r t Use the formula.

I = 15,000 0.09 3 Substitute. Use 0.09 for 9%.

I = 4050 Solve for I.

Calculate Simple Interest…

Jessica will pay $4050 in interest.

P + I = A principal + interest = amount

15,000 + 4050 = A Substitute.

You can find the total amount A to be repaid on a loan by adding the principal P to the interest I.

Jessica will repay a total of $19,050 on her loan.

Nancy’s grandmother opened a savings account for her and put in $1,250. The account pays 3% simple interest.

How much interest will the account earn in 5 years?

How much will be in the account after 5 years?

Calculate Simple Interest

First, find the interest she will earn.

I = P r t Use the formula.

I = 1,250 0.03 5 Substitute. Use 0.09 for 9%.

I = $187.50 Solve for I.

Nancy will earn $187.50 in interest.

P + I = A principal + interest = amount

1,250 + 187.50 = A Substitute.

You can find the total amount A in her account by adding the principal P to the interest I.

Nancy will have a total of $1,437.50 in her savings account.

Calculate Simple Interest

A bank is offering 2.5% simple interest on a savings account. If you deposit $5000, how much interest will you earn in one year?

Practice

$125