Page 803 - Algebra 1

L E S S O N Solving Simple and Compound Interest
116
Problems
Warm Up
1. Vocabulary Two equivalent ratios form a . (31)
2. Change 24% to a fraction and a decimal. (SB 7)
3. Change _1 to a decimal and a percent. (SB 7) 40
4. Find 25% of 250. (42)
5. 36 is what percent of 1125? (42)
Money that is borrowed or invested is called principal. Interest is money paid for the use of that money. If money is borrowed, interest is paid. If money is invested, interest is earned.
Simple interest is interest paid on the principal only. To find simple interest, use the formula I = Prt.
Finding Simple Interest
a. An account is opened with $4000. The bank pays 5% simple interest annually. How much interest will be earned in 3 years?
SOLUTION
Use the simple interest formula.
The principal P is 4000. The rate r is 5%, or 0.05. The time t is 3.
New Concepts
Simple Interest Formula
I = Prt
I
the amount of interest
P
the principal
r
the annual rate, a percent expressed as a decimal
t
the time in years
Example
1
Math Language
Even though the account value grows as interest is earned, simple interest is only paid on the original amount deposited into the account.
Online Connection www.SaxonMathResources.com
I = Prt
= 4000(0.05)(3) = 600
Write the formula, then evaluate. Substitute the values of the variables. Simplify.
788 Saxon Algebra 1
The account will earn $600 interest in 3 years.