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Simple Interest Formula

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Simple Interest Formula

Use the simple interest formula I = P × r × t. Here, I is the interest, P is the principal (starting amount), r is the annual rate written as a decimal, and t is the time in years. Show your working and write money answers in dollars and cents where needed.

Understanding Simple Interest

1.In the formula I = P × r × t, match each symbol to its meaning.

Interest earned or paid
Time in years
Starting amount invested or borrowed
Annual interest rate as a decimal

2.Write each percentage as a decimal to use in the simple interest formula: 7%, 14%, and 2.8%.

3.Which investment earns more simple interest: $900 at 4% per year for 3 years, or $1,100 at 3% per year for 2 years?

$900 at 4% for 3 years
$1,100 at 3% for 2 years
They earn the same interest

Calculate Simple Interest

4.A savings account starts with $2,400 and earns 5.5% simple interest each year. How much interest will it earn in 3 years?

5.Xavier borrows $1,750 at 6% simple interest per year for 2 years. Calculate the interest he must pay.

6.For each investment, calculate the simple interest and the total amount after the stated time.

Principal

Rate per year

Time

Interest

Total amount

$640

2 years

________

$1,500

4.2%

4 years

________

Simple Interest in Everyday Decisions

7.Ruby-Mae has $6,500 and wants it to grow to $7,280 using an account paying 4% simple interest per year. How many years will it take to reach her target?

8.Compare these two simple-interest investments. Which earns more interest, and by how much? Option A: $3,600 at 4.5% per year for 5 years. Option B: $3,000 at 6% per year for 4 years.

9.A credit union pays 3.6% simple interest per year. How much interest would a $2,500 deposit earn in 15 months? Convert the time to years before calculating.

10.Explain one way that knowing how to calculate simple interest could help someone make a financial decision.