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Simple Interest is a fixed percent of the principal amount that was borrowed, lent, or invested. Simple interest is commonly used for mortgages, car loans, or savings accounts.
Why is this concept useful?
Where does this concept fit into the curriculum?
How can we use the concept:
We can use this concept to understand one of the ways interest is commonly calculated for loans or investments.
Simple Interest Formula: P(1+ rt) = A
P = initial principal balance
r = annual interest rate
t = time (in years)
A = final amount
1. Lexxie bought a car for $20,000 at 4% interest with a loan term of 5 years. Using the Simple Interest formula, we find that Lexxie will owe $800 per year for interest which equates to a total of $4,000 over the term of the loan.
Solution:
P(1+ rt) = A
$20,000 (1 + .04x5) = A
$20,000 (1 + .2) = A
$20,000 (1.2) = A
$24,000 = A
$20,000 (principal) + $4,000 (simple interest)
$4,000 (total interest) ÷ 5 (number of years) = $800 (yearly interest)
2. Lemmie bought a new washing machine, dryer, and refrigerator for his home. After his cash down payment, he financed a total of $3,000.00 at 6% interest for 3 years. Using the SImple Interest formula, we find that Lemmie owes a total of $540.00 in interest charges. Per year that total is $180.00.
Solution:
P(1+ rt) = A
$3,000(1 + .06 x 3) = A
$3,000(1 + .18) = A
$3,000(1.18) = A
$3540 = A
$3,000 (Principal) + $540 (Simple Interest)
$540 (total interest) ÷ 3 (number of years) = $180 per year
3. Lemmie put $5,000.00 in a CD at the bank with 3.2% interest per year. Calculate the interest.
Solution:
P(1 + rt) = A
$5,000.00 (1 + .032) = A
$5,000 ( 1.032) = A
$5,160 = A
$5,000 (principal) + $160 (simple interest)
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Get PDF1. Lexxie bought a car for $30,000 at 3% interest for 4 years. When she calculated her interest for the first year she got $900. Is she correct? Show your work.
2. Lemmie financed a riding lawn mower for his lawn care business. The principal amount he borrowed was $10,000 and the term of the loan was 3 years at 8% interest. Calculate his interest. Show your work.
3. Lexxie re-financed a portion of her college tuition. The total amount financed was $25,000 for 5 years at 4% interest. Calculate Lexxie’s interest amount. Show your work.
4. Lemmie put $10,000 in a 3-year bank CD at 2.7% yearly interest. Calculate his total interest at the end of the 3-year period. Show your work.