SIMPLE

INTEREST
 What is the interest?
• Interest: how much is paid for the use of money (as a percent or an amount)
Money is Not Free to Borrow
People can always find a use for money, so it costs to borrow money.
How Much does it cost to borrow money?
Different places charge different amounts at different times!
But they usually charge this way:
 Example
• Alex wants to borrow $1,000. The local bank says "10% Interest".
So to borrow the $1,000 for 1 year will cost:

Alex will have to pay back the original $1,000 after one year, so this is what
happens:
• Wanda borrowed $3,000 from a bank at an interest rate of 12% per
year for a 1-year period. How much interest does she have to pay the
bank at the end of 1 year?
Solution: . She has to pay the bank at the end of 1 year.
What if Alex wanted to borrow the money for 2 Years?
If the bank charges "Simple Interest" then Alex just pays another 10% for the extra
year.
 Formula of Simple Interest

where
• = interest
• = amount borrowed (called "Principal")
• = interest rate (decimal form)
• = time
 Examples
• Jan borrowed $3,000 for 4 Years at 5% interest rate, how much interest is that?
Solution:

• Sarah deposits $4,000 at a bank at an interest rate of 4.5% per year. How much simple
interest will she earn at the end of 3 years?
Answer: She earns $540 at the end of 3 years.
• A 2-year loan of $500 is made with 4% simple interest. Find the interest earned.
Answer: The interest earned is $40.
• Ian is investing $4,000 for 2 years. The interest rate is 5.5%. How much interest
will Ian earn after 2 years?
Answer: The interest earned is $440.
• Doug made a 3 year investment. The interest rate was 4.5%. After 3 years, he
earned $675 in interest. How much was his original investment?
Answer: The original investment is $5000.
• If you invest $3,500 in savings account that pays 4% simple interest, how much
interest will you earn after 3 years?
Answer: The interest earned is $420.
• You borrow $6000 from a loan shark. If you will owe $7200 for 2
years, what would be the simple interest rate?
Answer: The interest rate is 10%.
• I invested $200 in a bank account. The account gives me 4% simple
interest per annum. If I leave the money alone in the account for 5
years, how much interest will I earn?
Answer: The interest earned is $40.