Lesson 7.

8: Simple Interest
If someone borrows money, what factors influence
how much is paid back?

Principal -How much was borrowed.

Time - How long it was borrowed for.
(in years)
Rate - What interest was charged.
(annual % rate)

Amount to Payback = Principal + Interest

Interest = Principal  Rate  Time
I  P r  t
Joe borrows $200 from the bank at 6% simple
interest for 3 years. What interest does he owe,
and what is his total balance (amount to payback)
P  200
r  6%  0.06
t3
Interest Balance
I  P r  t Balance = P + I
I  (200)(0.06)(3) Balance = 200 + 36
I  36 Balance = 236
Interest owed  $36 Balance = $236
Juan invests $5000 in bonds for 6 months at an
annual interest rate of 7%. How much interest
did he earn, and what is the balance in his account
P  5000
r  7%  0.07
t  6 months  0.5 years
Interest Balance
I  P r  t Balance = P + I
I  (5000)(0.07)(0.5) Balance = 5000 + 175
I  175 Balance = 5175

Interest owed  $175 Balance = $5175

 Find the simple interest and the balance.
1) $2000 at 4% for 9 mos.
P  2000
r  4%  0.04
t  9 mos.  0.75 yrs.
I  P r  t
I  (2000)(0.04)(0.75)
I  $60

Balance = P + I
Balance = 2000 + 60
Balance = $2060
Find the annual simple interest rate.
1) $2000 earns $420 simple interest over 3 years.
P  2000
I  420
t  3 years
I  P r  t
420  (2000)(r)(3)
420  6000r
6000 6000
0.07  r
Annual Interest Rate  7%
Find the annual simple interest rate.
2) $625 simple interest is earned on a 2 year loan
of $5000. P  5000
I  625
t  2 years
I  P r  t
625  (5000)(r) (2)
625  10,000r
10,000 10,000
0.0625  r
r  6.25% or 6 %1
4
Find the principal amount invested.
1
3) Interest of $1650 is earned over 4 years at 5 %.
2
I  1650
t  4 years
r  5.5%  0.055
I  P r  t
1650  (P)(0.055)(4)
1650  0.22P
0.22 0.22
7500  P
Principal  $7500
 Quick Draw for Points

• You will have 60 seconds to solve each

problem

• The text is Simple Interest Problems

 Example 1: Finding Interest on a Loan

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?

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.
 Example 1A: Finding Total Payment on a Loan

What is the total amount that she will repay?

You can find the total amount A to be repaid on a
loan by adding the principal P to the interest I.
Jessica will pay $4050 in interest.

P+I=A principal + interest = total amount

15,000 + 4050 = A Substitute.
19,050 = A Solve for A.

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

 Example 2

TJ invested $4000 in a bond at a yearly rate of

2%. He earned $200 in interest. How long was
the money invested?
I=P 
r 
t Use the formula.

200 = 4000 
0.02 
t Substitute values into
the equation.
200 = 80t
2.5 = t Solve for t.
The money was invested for 2.5 years, or 2
years and 6 months.
 Example 3
Bertha deposited $1000 into a retirement
account when she was 18. How much will
Bertha have in this account after 50 years at a
yearly simple interest rate of 7.5%?

I=P 
r 
t Use the formula.

I = 1000 
0.075 
50 Substitute. Use 0.075
for 7.5%.
I = 3750 Solve for I.

The interest is $3750. Now you can find the total.

 Example 3 Continued

P+I=A Use the formula.

1000 + 3750 = A Substitute.
4750 = A Solve for A.

Bertha will have $4750 in the account after 50 years.

 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.
I = 20,000 – 9000 = 11,000 Subtract 9000
from both sides.
He paid $11,000 in interest. Use the amount of
interest to find the interest rate.
 Example 4 Continued

I=P 
r 
t Use the formula.
11,000 = 9000 
r 
10 Substitute.

11,000 = 90,000 
r Simplify.

11,000= r Divide both sides by 90,000.

90,000

0.12 = r

Mr. Mogi borrowed the money at an annual rate of

about 12.2%.
 Summary

• I = __________
• P=__________
• r = __________
• t = __________
• A=__________

• Interest Formula: I = ( )( )( )
• Amount Formula: A = ___ + ___
 SUMMARY

Principal -How much was __________.

Time - How _____it was borrowed for.
(in_____)
Rate - What _______was charged.
(annual % rate)

Amount to Payback = Principal + Interest

Interest = ________ ____  ______
I  P r  t