Simple Interest Math 8
Simple Interest • Can be interest gained (earned) or interest paid • Interest paid- costs you money * loans * credit cards • Interest earned- you receive money • Savings accounts • Investments
Interest Formula • I= prt (Interest = principle x rate x time) • I= interest amount ($) • p= principle – original amount ($) • r = rate- interest percent (%) • Turn into a decimal to calculate • t = time- in years • If not given in years, divide the number of months by 12, you may get a decimal
So… • Basically, you are just substituting in numbers and solving for the missing variable. • Make sure to… • Change % to decimal • Change months to years (if necessary) • Check what the question is asking for (I, p, r, or t)
Example • Emily buys a car for $19,500. The interest is 5% and the loan is for 5 years. What is the interest Emily will pay on the car AND what is the total amount she will have paid at the end of the five years?
Example #1 • Emily buys a car for $19,500. The interest is 5% and the loan is for 5 years. What is the interest Emily will pay on the car AND what is the total amount she will have paid at the end of the five years? • I= prt I =x p= 19,500 r= .05 (5% converted to decimal) t= 5
Calculate • I= prt I =x p= 19,500 r= .05 (5% converted to decimal) t= 5 x = (19,500) (.05) (5) x =
Calculate • I= prt I =x p= 19,500 r= .05 (5% converted to decimal) t= 5 x = (19,500) (.05) (5) x = 4,875 The interest she will pay is $4875. Add that to the principle for the total amount she will have paid at the end of 5 years. $19,500 + $4,875 = $24,375
Example #2 • Darren wants to buy a house for $245,00. The current interest rate is 4.5% and the mortgage is for 30 years. Find the interest Darren will pay at the end of 30 years.
Example #2 continued • Darren wants to buy a house for $245,00. The current interest rate is 4.5% and the mortgage is for 30 years. Find the interest Darren will pay at the end of 30 years. • What is the formula you will use? • _________________________ • I= p = r = t =
Example #2 • Darren wants to buy a house for $245,00. The current interest rate is 4.5% and the mortgage is for 30 years. Find the interest Darren will pay at the end of 30 years. • I = prt (Interest = principle x rate x time) • I= x p = 245,000 r = .045 t = 30
Example #2 • Darren wants to buy a house for $245,00. The current interest rate is 4.5% and the mortgage is for 30 years. Find the interest Darren will pay at the end of 30 years. • I = prt (Interest = principle x rate x time) • I= x p = 245,000 r = .045 t = 30 x = (245,000)( .045)(30) x = $330,750
Example #3 • Rachel needs to buy new furniture for her apartment. The furniture costs $3500. She is taking out a loan to pay for the furniture and she will pay $1207.50 in interest during the 3 year loan period. What is the interest rate on her loan?
Example 3 • Rachel needs to buy new furniture for her apartment. The furniture costs $3500. She is taking out a loan to pay for the furniture and she will pay $1207.50 in interest during the 3 year loan period. What is the interest rate on her loan? • I= prtI = 1207.50 p= 3500 r= x t= 3 1207.50 = (3500)(x)(3) 1207.50= 10,500x .115= x *** Change back into a % for the rate Her interest rate is 11.5%.
A helpful hint • If it helps you to remember what you are trying to solve, use the first letter of the “missing” chunk of info as the variable. • So, if I want to find out the rate of interest like we did in the last example, I would set up my equation like this: • I = prt • 1207.50 = (3500)(r)(3) • Then solve for r
