# Simple Interest

## What is Simple Interest?

I = PRT is a formula to figure out the cost of borrowing money or the amount you earn when you put money in a savings account.

I = Interest

P = Principal - How much you invest or borrow

R = Rate - Percentage

T = Time - In years, if months make it a decimal or make a fraction over 12

## Example

You want to buy a used car. You borrow \$11,000 you need from the bank. The bank will charge you interest on the \$11,000. If the simple interest rate is 4% for six years, you can figure the cost of the interest with this formula.

I = \$11,000 x 4% x 6 years

I = \$11,000 x 0.04 (convert to decimal) x 6 (always want years)

I = \$2,640

## Example

Bobby borrowed \$700 to buy a television from his parents. His parents charged 3% simple interest for 3 months. How much interest did he pay his parents?

I = \$700 x 3% x 3 months

I = \$700 x 0.03 (convert to decimal) x 3/12 or 1/4 (If in months, put number over 12)

I = \$5.25

## Practice?

For some practice, visit the next site in the Google Drive!