SIMPLE INTEREST Jessica will pay $4050 in interest.

LEARN: TO COMPUTE SIMPLE INTEREST P + I = A principal + interest = amount

VOCABULARIES 15,000 + 4050 = A Substitute.

•Interest 19,050 = A Solve for A.

• Simple Interest You can find the total amount A to be repaid on a loan by adding the
principal P to the interest I.
• Principal or Maturity Value
Jessica will repay a total of $19,050 on her loan.
•Rate of Interest
Check It Out: Example 1
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 First, find the interest she will pay.
paid interest. Simple interest is one type of fee paid for the use of money.
I=Prt Use the formula.
I=P r t
I = 2,000  0.05  3 Substitute. Use 0.05 for 5%.
I - Simple Interest
I = 300 Solve for I.
P - Principal is the amount of money borrowed or invested
Check It Out: Example 1 Continued
r - Rate of interest is the percent charged or earned
Elaine will pay $300 in interest.
t - Time that the money is borrowed or invested (in years)
P + I = A principal + interest = amount
Additional Example 1: Finding Interest and Total Payment on a Loan
2000 + 300 = A Substitute.
To buy a car, Jessica borrowed $15,000 for 3 years at an annual simple
2300 = A Solve for A.
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 You can find the total amount A to be repaid on a loan by adding the
repay? principal P to the interest I.
First, find the interest she will pay. Elaine will repay a total of $2300 on her loan.
I=P r t Use the formula. Additional Example 2: Determining the Amount of Investment Time
I = (15,000) (0.09) (3) Substitute. Use 0.09 for 9%. I=P r t Use the formula.
I = 4050 Solve for I. 450 = 6,000  0.03  t Substitute values into the equation.
Additional Example 1 Continued 2.5 = t Solve for t.
Nancy invested $6000 in a bond at a yearly rate of 3%. She earned $450 in Check It Out: Example 3
interest. How long was the money invested?
Bertha deposited $1000 into a retirement account when she was 18. How
450 = 180t much will Bertha have in this account after 50 years at a yearly simple
interest rate of 7.5%?
The money was invested for 2.5 years, or 2 years and 6 months.
I=Prt Use the formula.
Check It Out: Example 2
I = 1000  0.075  50 Substitute. Use 0.075 for 7.5%.
I=Prt Use the formula.
I = 3750 Solve for I.
200 = 4,000  0.02  t Substitute values into the equation.
Now you can find the total.
2.5 = t Solve for t.
Check It Out: Example 3 Continued
TJ invested $4000 in a bond at a yearly rate of 2%. He earned $200 in
interest. How long was the money invested? P+I=A Use the formula.

200 = 80t 1000 + 3750 = A Substitute.

The money was invested for 2.5 years, or 2 years and 6 months. 4750 = A Solve for A.

Additional Example 3: Computing Total Savings Bertha will have $4750 in the account after 50 years.

John’s parents deposited $1000 into a savings account as a college fund Additional Example 4: Finding the Rate of Interest
when he was born. How much will John have in this account after 18 years
Mr. Johnson borrowed $8000 for 4 years to make home improvements. If he
at a yearly simple interest rate of 3.25%?
repaid a total of $10,320, at what interest rate did he borrow the money?
I=Prt Use the formula.
P+I=A Use the formula.
I = 1000  0.0325  18 Substitute. Use 0.0325 for 3.25%.
8000 + I = 10,320 Substitute.
I = 585 Solve for I.
I = 10,320 – 8000 = 232 Subtract 8000 from both sides.
Now you can find the total.
He paid $2320 in interest. Use the amount of interest to find the interest
Additional Example 3 Continued rate.

P+I=A Use the formula. Additional Example 4 Continued

1000 + 585 = A Substitute. I=Prt Use the formula.

1585 = A Solve for A. 2320 = 8000  r  4 Substitute.

John will have $1585 in the account after 18 years.

2320 = 32,000  r Simplify. 2. Joshua borrowed $1000 from his friend and paid him back $1050 in six
months. What simple annual interest did Joshua pay his friend? 10%
2320/32,000 = r Divide both sides by 32,000.

0.0725 = r

Mr. Johnson borrowed the money at an annual rate of 7.25%, or 7 1/4 %.

Check It Out: Example 4

Mr. Mogi borrowed $9000 for 10 years to make home improvements. If he

repaid a total of $20,000 at what interest rate did he borrow the money?

P+I=A Use the formula.

9000 + I = 20,000 Substitute. 3. The Hemmings borrowed $3000 for home improvements. They repaid the
loan and $600 in simple interest four years later. What simple annual
I = 20,000 – 9000 = 11,000 Subtract 9000 from both sides.
interest rate did they pay? 5%
He paid $11,000 in interest. Use the amount of interest to find the interest
rate.

Check It Out: Example 4 Continued

I=Prt Use the formula.

11,000 = 9000  r  10 Substitute.

11,000 = 90,000  r Simplify.

4. Mr. Berry had $120,000 in a retirement account. The account paid 4.25%
11,000/90,000 = r Divide both sides by 90,000.
simple interest. How much money was in the account at the end of 10
0.12 = r years? $171,000

Mr. Mogi borrowed the money at an annual rate of about 12.2%.

TRY THIS!

1. 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? $125