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Simple Interest Formula

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Simple Interest Formula

Use I = P × r × t. Here, I is the interest, P is the principal (starting amount), r is the annual interest rate written as a decimal, and t is the time in years. Total amount = principal + interest. Show your working and use Australian dollars.

Understanding the formula

1.Match each symbol in I = P × r × t with 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: 3.2%, 9%, and 14.5%.

3.Which investment earns more simple interest: $1,200 at 5% per year for 3 years, or $900 at 7% per year for 2 years?

$1,200 at 5% for 3 years
$900 at 7% for 2 years
They earn the same interest

Calculate simple interest

4.Hamish invests $2,400 at 3.5% simple interest per year for 4 years. How much interest does she earn?

5.Ivy borrows $3,600 at 6.5% simple interest per year for 18 months. Calculate the interest he must pay. Use time in years.

6.For a principal of $750 invested at 4% simple interest per year for 5 years, find both the interest and the total amount at the end.

Apply your understanding

7.Asha puts $4,800 into an account paying 2.75% simple interest per year. How much will be in the account after 2 years?

8.Compare two ways to invest $3,000: Plan A pays 4.2% simple interest per year for 3 years; Plan B pays 5.5% simple interest per year for 2 years. Which plan gives the greater interest, and by how much?