Download Simple Interest:

Simple Interest:
Principal (P) is the sum of money you borrow from or lend to a person.
The Interest rate (r) is the fee you earn from lending money or a fee you pay for
borrowing money. The interest rate, unless otherwise stated, is an annual rate.
Simple Interest
I  Prt
where P = Principal
r = Annual simple interest rate (written as a decimal)
t = Time in years (in a proportion of 12 months or 360 days)
Example
Eric deposits $100 into a Bank One at the interest rate of 3% a year.
The total interest he earns for one year is _____________________.
The total interest he earns for six months is __________________.
Total money he can withdraw from the bank after six months is _____________.
Amount or Future Value – Simple Interest
A  P  Prt  P(1  rt )
A = Amount, or future value
Example2
1. If $5,000 is loaned at a 15% annual rate, how much is the amount due at the end of 10
months?
P = _________
r = _________
t = _________
A = ________
2. Find the total amount due on a loan of $500 at 12% simple interest at the end of 30
months.
3. If you want to earn an annual rate of 10% on your investments, how much (to the
nearest cent) should you pay for a note that will be worth $5,000 in 9 months?
P = _________
t = _________
A = ___________
r = _________
4. If you must pay $952 for a note that will be worth $1,000 in 6 months, what annual
simple interest rate will you earn?
P = _________
t = _________
A = ________
r = _________
5. If you buy a 13 week T-bill with a maturity value of $10,000 for 9776.94 from the U.S.
Treasury Department, what annual interest rate will you earn?
6. Suppose after buying a new car you decide to sell your old car to a friend. You accept
a 270 day note for $3,500 at 10% simple interest as a payment. (Both principal and
interest will be paid at the end of 270 days.) Ninety days later you find that you need the
money and sell the note to the third party for $3,500. What annual interest rate will the
third party receive for the investment?
Step1: Find the amount that will be paid at the end of 270 days to whomever has the note.
Step 2: Find the annual interest rate that the third party receives for P=$3,500.