CM30S - 1.2

Consumer Math 30SUnit 1 – Income & Debt

Simple Interest

Unit 1 – Income & Debt

Paying Interest Charges and Earning Interest Income

Financial institutions borrow and lend money. When you deposit money in a financial institution, you are lending the financial institution money for a period of time. The financial institution pays interest to you for borrowing your money.

In turn, the financial institution lends your money to individuals who need it. These individuals are charged interest for the money they borrow.

http://www.aaamath.com/g84-commission.html

Paying Interest Charges and Earning Interest Income

The interest rate investors receive when they deposit their money with a financial institution is less than the interest rate they must pay when they borrow from the same financial. In this way, the financial institution makes a profit on these transactions.



Simple Interest

What is interest?

A fee paid for borrowing money or earned for lending money.

What is simple interest?

The amount of money paid or earned as calculated as a percentage of the principal using the formula

I = Prt


Simple Interest I = Prt

I amount of interest earned or payedP amount of principal or loan or depositr rate per year – expressed as a decimalt time in years

What affect will there be on the interest if . . . .

. . . the amount of time is increased?

. . . the principal was doubled? . . . the interest rate was halved?


Simple Interest Triangle


I = Prt

P = I rt

R = I Pt

t = I Pr

Example Problem:


Ross deposited $400, earning simple interest of %4 per year. Calculate the simple interest at the end of one year and at the end of 5 months.

Example Problem:


What interest rate does Phoebe have to get from a bank if she has $5000 to invest and she wants to get $5500 back after five years?


Simple InterestOnline mental math activity

http://www.aaamath.com/B/g84_six1.htm

Textbook Assignment:

Page 32 – 33Questions 1 - 7


Simple Interest Review Worksheet

Questions 1 - 8


Education

CM30S - 1.2