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Notes 9.8 Name_________________ How do I calculate simple interest? Example Your turn Bill's parents loan him $120 for a new iPod. They charge 5% simple interest. How much does he owe after 1 year? 1. To find the interest use the formula: I = Prt Fill in the values. 2. Change the percent into a decimal and solve. 3. Add /subtract your answer and the original amount. Formula for simple interest: I - interest P - principal r- interest rate ( as a decimal) t - time in years I = Prt I =P r n = 120 · 5% · n = 120 · .05 · t 1 You deposit $400 into a 6 month certificate of deposit. After 6 months the balance is $412. What is the simple interest? I =P r t 1 n=6 6 + 120 = $126 Vocabulary: interest- the amount paid for the use of money principal - amount of money borrowed or deposited simple interest - interest is paid only on the principal annual interest rate - percent of principal paid per year balance - sum of principal and interest