Mathematics
Grade 8
15 min
Simple interest
Simple interest
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1
Introduction & Learning Objectives
Learning Objectives
Define key terms related to simple interest, including principal, interest rate, time, and total amount.
Identify the principal, interest rate, and time from a given word problem.
Convert interest rates from percentages to decimals and time from months to years.
Apply the simple interest formula ($I = Prt$) to calculate the interest earned or paid.
Calculate the total amount (principal plus interest) after a given period.
Solve for an unknown variable (Principal, Rate, or Time) when the other variables and simple interest are known.
Ever wondered how banks make money or how much extra you pay when you borrow money? 💰 It all starts with interest!
In this lesson, you'll learn about simple interest, a fundamental concept in personal finance. We'l...
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Key Concepts & Vocabulary
TermDefinitionExample
Principal (P)The initial amount of money borrowed or invested. It's the starting sum.If you deposit $500 into a savings account, $500 is the principal.
Interest (I)The extra money earned on an investment or paid for borrowing money. It's the 'cost' of using someone else's money.If you borrow $100 and pay back $110, the $10 is the interest.
Interest Rate (r)The percentage charged or earned on the principal over a specific period, usually per year. It's always expressed as a decimal in calculations.A bank offers a 3% annual interest rate on savings. In calculations, this would be 0.03.
Time (t)The duration for which the money is borrowed or invested. It must always be expressed in years for simple interest calculations.If you invest money...
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Core Formulas
Simple Interest Formula
$I = Prt$
This formula calculates the simple interest (I) earned or paid. 'P' is the principal, 'r' is the annual interest rate (as a decimal), and 't' is the time in years.
Total Amount Formula (Principal + Interest)
$A = P + I$
This formula calculates the total amount (A) at the end of the period by adding the principal (P) to the simple interest (I) earned or paid.
Combined Total Amount Formula
$A = P(1 + rt)$
This formula combines the simple interest and total amount calculations into one step. It directly calculates the total amount (A) using the principal (P), rate (r), and time (t).
5 more steps in this tutorial
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Challenging
The total amount paid back for a loan after 30 months was $6,000. If the simple annual interest rate was 8%, what was the original principal of the loan?
A.$4,800
B.$5,000
C.$4,500
D.$5,200
Challenging
Two investments are made. Investment A is $1,000 at 4% simple interest. Investment B is $500 at an unknown rate. After 5 years, the total interest earned from both investments is $350. What was the interest rate for Investment B?
A.5%
B.5.5%
C.6%
D.7%
Challenging
If an investment of $800 earns $96 in simple interest over a certain period, how much interest would an investment of $1,200 earn in the same period at the same interest rate?
A.$96
B.$120
C.$128
D.$144
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