Basics

The formula provided for Interest (aka Simple Interest) by the Mathematics Formula Sheet is straightforward, but it can be rearranged to ask questions about principal, rate, and time, too.

A question involving Interest is often a plug-in (where you end up plugging in numbers for letters).

Interest = principal × rate × time

I = Interest = additional amount of money owed (on a loan) or earned (on a deposit)

p = principal = original amount of money owed or deposited

r = rate = percentage charged for interest

t = time = period of time over which interest is charged

Formulas (provided by **Formula Sheet**)

Formulas (NOT provided by **Formula Sheet**)

**
Question
**A loan of $1000.00 is taken out at a rate of 7% for two years.

How much interest is charged over this time?

**Answer
**$140.00

**Answer Process**

I = 1000 × 7% × 2 = 140

Calculator Click |
What You See |
Comment |

blinker | clears screen | |

1000 × 7 × 2 | 1000*7%*2 | |

140 | Answer | |

## Simple Interest |

$5000.00 is deposited in a bank at a rate of 3% for six years.

Question

How much interest is earned over this time?

**Answer
**$900.00

**Answer Process**

I = 5000 × 3% × 6 = 900

Calculator Click |
What You See |
Comment |

blinker | clears screen | |

5000 × 3 × 6 | 5000*3%*6 | |

900 | Answer | |

## Simple Interest |

Question

$105.00 in interest was earned on a 5-year certificate of deposit at a rate of 3%.

What was the initial deposit?

**Answer
**$700.00

**Answer Process**

p = = 700

Calculator Click |
What You See |
Comment |

blinker | clears screen | |

105 3 × 5 |
||

700 | Answer | |

## Simple Interest |

Question

$310.00 in interest was earned on a 5-year certificate of deposit with an initial deposit of $4000.00. What was the interest rate in decimal terms?

**Answer
**0.0155

**Answer Process**

r = = 0.0155

Calculator Click |
What You See |
Comment |

blinker | clears screen | |

310 4000 × 5 |
||

0.0155 | Answer | |

## Simple Interest |

**
Question
**With reference to the above question, what was the interest rate in percent terms?

**Answer**

1.55%

**Answer Process**

**See Percent.**

To convert a decimal to percent, move the decimal point two places to the right.

0.0155 = 1.55%

Question

$320.00 in interest was earned on an initial deposit of $2000.00 at a rate of 4%.

How long was the money earning interest?

**Answer
**4 years

**Answer Process**

t = = 4

Calculator Click |
What You See |
Comment |

blinker | clears screen | |

320 2000 × 4 |
||

4 | Answer | |

## Simple Interest |

Practice – Questions**
**1. What is the interest owed on a car loan of $25000.00 at a rate of 3% for five years?

2. What is the interest owed on a credit card balance of $5000.00 at a rate of 20% for five years?

3. $215.00 in interest was earned on a 4-year certificate of deposit at a rate of 5%.

What was the initial deposit?

4. $3122.00 in interest was paid on a credit card balance of $4000.00 over five years.

What was the interest rate in percent terms?

5. $800.00 in interest was earned on an initial deposit of $2000.00 at a rate of 5%.

How long was the money earning interest?

Practice – Answers

1. $3750.00

2. $5000.00

3. $1075.00

4. 15.61%

5. 8 years