Simple Interest Equation to
Find Interest Rate
Jen Kershaw
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Printed: October 17, 2014
AUTHOR
Jen Kershaw
www.ck12.org
C HAPTER
Chapter 1. Simple Interest Equation to Find Interest Rate
1
Simple Interest Equation to
Find Interest Rate
Here you’ll learn to use the simple interest equation to find an interest rate.
Have you ever borrowed money? Look at this dilemma.
While shopping at the candy store, a woman began complaining about paying interest on a loan. She said that she
had paid $450.00 over 2 years after borrowing $2500. Taylor listened and thought about this dilemma.
Using the given information, can you figure out the interest rate?
This Concept will teach you how to do this. We’ll revisit this problem at the end of the Concept.
Guidance
This Concept is all about borrowing money, paying money back and the fees associated with borrowing money. This
is where you will learn all about interest.
What is interest?
Interest is a charge for money that is borrowed. When you borrow money, you pay the lender interest for
borrowing the money. When you deposit money into a saving account at a bank, the bank pays you interest since the
bank is borrowing money from you. So interest can be something that you have to pay or that is paid to you.
The amount of money that is invested or borrowed is called the principal. If you borrow $500.00 this is the
principal. It is the initial amount before any interest is added on.
The rate of interest is the percent charged or earned. We also have to consider the time in years that the money
is borrowed or deposited when computing interest.
How do we calculate interest?
We can calculate interest by using an equation. Here is the equation.
Interest = Principal × rate × time
I = Prt
Take a few minutes to write this equation down in your notebook.
If you know the amount of interest, the principal, and the time in years, you can find the interest rate.
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If you deposit $2,000 at USA Savings Bank, at the end of 2 years you will have received $240 in simple interest.
What is the interest rate at USA Savings Bank?
I = Prt
$240 = $2, 000 × r × 2
← Substitute values.
$240 = $4, 000 × r
← Simplify.
0.06 = r
← Solve for r.
Change 0.06 to the percent 6%.
The interest rate is 6%.
If you borrow $3,600 from USA Savings Bank for 18 months, at the end of the 18 months you will repay $4,059 to
the bank. What is the interest rate for this loan?
The amount to be repaid includes the principal plus the interest. Subtract the principal from the amount to
be repaid to find the amount of the interest.
$4, 059 − $3, 600 = $459
Since there are 12 months in a year, 18 months is
18
12
or 1 12 years.
I = Prt
$459 = $3, 600 × r × 1
$459 = $5, 400 × r
0.085 = r
Change 0.085 to the percent 8.5%.
2
1
2
← Substitute values.
← Simplify.
← Solve for r.
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Chapter 1. Simple Interest Equation to Find Interest Rate
The interest rate is 8.5%.
Find the interest rate for each problem.
Example A
Jesse borrowed $500.00. At the end of the year he paid back $50.00 in interest. What was the interest rate?
Solution:10%
Example B
Karen earned $200.00 in two years of simple interest on her initial investment of $400.00. What was the interest
rate?
Solution:25%
Example C
principal: $5,600; time: 9 months; simple interest: $357
Solution:8.5%
Here is the original problem once again.
While shopping at the candy store, a woman began complaining about paying interest on a loan. She said that she
had paid $450.00 over 2 years after borrowing $2500. Taylor listened and thought about this dilemma.
Using the given information, can you figure out the interest rate?
To figure this out, let’s use the formula for finding simple interest.
I = PRT
Now fill in the given information.
450 = 2500(2)r
Next, we multiply.
450 = 5000r
450
5000
=r
r = .09 = 9%
The woman has an interest rate of 9%.
Vocabulary
Here are the vocabulary words in this Concept.
Interest
the amount of money added to a loan or to a deposit based on an initial loan or investment and an interest rate.
Principal
the original amount of money borrowed or invested
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Interest Rate
the percent that is being given for an investment or for a loan. It depends on the amount of time the money is
invested or borrowed.
Guided Practice
Here is one for you to try on your own.
Wanda borrowed $5,000.00 from the bank. At the end of three years, she had paid $450.00 in interest. What is
Wanda’s interest rate?
Answer
To figure this out, we can use the formula for finding simple interest.
I = PRT
Next, we fill in what we know.
450 = 5000(3)r
We are trying to figure out the rate, so that is our variable.
450 = 15000r
450
15000
= .03
The interest rate was 3%.
Video Review
Here is a video for review.
MEDIA
Click image to the left for use the URL below.
URL: http://www.ck12.org/flx/render/embeddedobject/5523
This is a James Sousa video on calculating simple interest.
Practice
Directions: Find the simple interest on each amount.
1. $500.00 at 4% for 2 years
2. $200.00 at 5% for 3 years
3. $5000.00 at 2% for 2 years
4. $600.00 at 10% for 1 year
5. $1200.00 at 4% for 2 years
6. $1500.00 at 3% for 1 year
7. $2300.00 at 2% for 2 years
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Chapter 1. Simple Interest Equation to Find Interest Rate
8. $500.00 at 4% for 2 years
9. $2500.00 at 5% for 5 years
10. $1500.00 at 11% for 2 years
11. $3500 at 3% for 5 years
12. $3500 at 4% for 15 years
13. $13,000 at 4.5% for 6 years
14. $23,000 at 3.5% for 10 years
15. $50,000 at 2.5% for 20 years
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