5.4 Simple Interest.notebook October 02, 2014 5.4 Simple Interest Calculating Simple Interest: When you deposit money into a savings account, you are permitting the bank to use the money. The bank pays interest, the amount of money pad for the use of the lender's money. The most common method for calculating interest is simple interest formula. This interest if paid on the original principal, the amount of money earning interest. Simple Interest based on three factors: 1. The principal 2. Annual Interest (the percent of the principal earned as interest in one year) 3. the amount of time for which the principal is borrowed or invested. Simple Interest formula: Principal x Rate x Time (or I = prt) Note that this formula expresses the rate as a percent and time in years or a fraction of a year. If this interest is computed then deposited into the account, you have a new quantity called the amount. Amount = Principal + Interest (or A = P + I) Remember: # months in a year _____ # days in a year ______ 1 5.4 Simple Interest.notebook October 02, 2014 Ex. 1: Joyce Tyler deposits $9,000 in an account that pays an annual 5.5% interst rate. Determine the simple interest and the amount in the account for: a.) 3 years b.) 3 months c.) 3 days 2 5.4 Simple Interest.notebook October 02, 2014 Determine the interest and amount for indicated time. Ex. 2: Principal is $4,000 at 6% for: Ex.3: Principal is $6,580 at 6.5% for: a.) 4 years a.) 10 years b.) 4 months b.) 10 months c.) 4 days c.) 10 days 3

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