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Understanding Simple Interest: Formula, Applications, and Examples

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Simple interest is the amount paid for the use of money, calculated using the formula I = PRT, where I is interest, P is principal (the amount invested or borrowed), R is the annual interest rate, and T is time in years. This concept is essential for savings accounts and investments. For instance, if Angie deposits $500 at 5% interest, she can calculate her earnings over time. Also, knowing how to compute discounts and sales tax helps you understand your spending. Explore practical applications of simple interest in everyday finance.

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Understanding Simple Interest: Formula, Applications, and Examples

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  1. SIMPLE INTEREST Simple interest is the amount paid for the use of money.

  2. FORMULA I=PRT

  3. INTEREST EQUALS • PRINCIPAL - the amount of money invested or borrowed • RATE - in the annual interest • TIME - in years

  4. SAVINGS ACCOUNT • You can also use the formula to find the simple interest when you deposit money in a savings account

  5. INVESTING • Angie has $500 in a savings account that pays 5% simple interest. • How much interest will she earn in 2 years? • How much interest will she earn if she withdraws the money after 9 months?

  6. HOME IMPROVEMENT • If you borrow $5,000 at 11.5% for 3 years to make home repairs and improvements. How much will you have to pay back, including interest?

  7. DISCOUNT & SALES TAX • WHEN AM I EVER GOING TO USE THIS? • Knowing how to calculate discounts and sales tax will help you determine how much money you’re actually spending when you shop.

  8. MONEY MATTERS • A $53 racquet at Sports Galore is on sale for 20% off the regular price. • What is the amount of the discount? • What is the sale price ?

  9. PERCENT OF CHANGE • When shopping for roses the originally cost was $36 dollars before Valentines Day is now on sale for $18 dollars. • What is the percent of decrease of the roses? Created By:Lynn Husen & Pat Layton Maury Middle Dandridge, TN

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