Interest (ing) Notes

How to Calculate Simple Interest2/11/10

Pre-Algebra

What is interest?

oAmount of money charged to borrow money

oAmount of money earned for investing money

PRINCIPAL (P)PRINCIPAL (P) What is the name of the amount of

money that you start with? (either borrowed or invested money)

For example, Phillip invested $2,000 in the bank.

P = ________$2,000

Rate ( r ):Rate ( r ):the yearly interest rate (written as a

decimal) Example: Wells Fargo has a savings

interest rate of 6% or ___________ (decimal)

**find the decimal by 6 100, moves the decimal 2 places to the ________

0.06%

Left

Time ( t ):Time ( t ):

the amount of time in years If time is given in months, it must be

written as a fraction or decimal in years. For example, 6 months is = ________ years (fraction)

Also 6 months is = _________ years (decimal)

6/12 or 1/2

0.5

Equation for Interest in words:

_________ =

_______ x _______ (as a decimal) x _____ (in years)

Interest

Principal Rate Time

Equation for Interest in symbols:

I = (P)(r)(t)

Loan officer at the bankLoan officer at the bank

Needs to know how to calculate interest in order to inform the customer how much money will need to be paid back to the bank each month to satisfy the loan for house, car, boat etc.

What happens if you don’t pay off the house payments to the bank for several years?

Credit card company employeeCredit card company employee

Needs to know how to calculate interest so when customers buy something with the credit card, they can charge the customer that amount above the cost of the purchase.

What happens if you don’t pay off the total credit card bill every month? (there is a minimum price to pay at least)

Car salesmanCar salesman

Needs to know how to calculate interest in case a customer asks for clarification on their bills as they are paying off the car.

What happens if you don’t pay off the car payments for several years?

practice problem:

oKristen deposits $200 in an account at his bank. The interest rate is 6%. How much interest will she earn in three (3) years? o** it might be easier to keep 6% as a fraction (6/100)

oI = P r tI = ($200) (.06) (3)I =

Fernando borrows $900 to fix his car. The bank charges 7% interest for two years. Find the total amount of interest.

I = P r t

Kiera needs to borrow $500 for only nine months. The bank charges 5½% interest. How much interest was gained?

** turn the % into a fraction or decimal first.** turn the months into a fraction of years

or decimal. (divide 9 by 12)