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Year 8 · Money

Simple interest

Interest is money earned or paid on an amount. Simple interest is the same each year; compound interest grows on itself.

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How to do it

  1. Simple: I = principal × rate × time.
  2. Compound: amount = principal × (1 + rate)ᵗ.

Worked example

$2000 is borrowed at 6% simple interest per year for 1 year. How much interest is paid, in dollars?
I = P × R × T = 2000 × 0.06 × 1 = 120.
Answer: 120

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Write the rate as a decimal: 5% = 0.05.

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