PSAT Math : How to find simple interest

Study concepts, example questions & explanations for PSAT Math

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Example Questions

Example Question #1 : How To Find Simple Interest

Dan took out a $1200 loan at a rate of 3% simple interest a year. What is the amount of interest accrued for one month?

Possible Answers:

Correct answer:

Explanation:

$1200 is the amount that he took out.

3% annually would yield an interest amount of $36.

Therefore, each month, he would be paying $3 a month.

Example Question #2 : How To Find Simple Interest

Peter wanted to buy a car and borrowed $2,500 from the bank at 5% simple interest per year.  He was able to pay back the loan in one lump sum at six months.  What was the total amount he paid the bank?

Possible Answers:

\$3000

\$3250.75

\$2625.50

\$2562.50

\$2750.25

Correct answer:

\$2562.50

Explanation:

Simple interest is given by i=prt where i = interest, p = principal, r = rate, and t = time in years.

i=2500\cdot (0.05)(0.5)=\$62.50

Remember, six months is the same as half of a year.  The total paid back to the bank is the principle plus the interest, or $2,562.50.

Example Question #3 : How To Find Simple Interest

I have $100 in my bank. After one year, I have withdrawn a total of $20 and I still have $85 in the bank. What is the yearly interest rate of my bank account?

Possible Answers:

Correct answer:

Explanation:

Since I have withdrawn $20, that means I only have $80 in my account.

 imples that

which is 6.25%.

Example Question #1 : How To Find Simple Interest

You really want to buy a car that costs $15,000 but you only have $5,000 saved. Rather than getting a bank loan, your parents offer to lend you the extra money but will require you to pay them back with 4.3% interest. How much will car cost in total after you have paid your parents back?

Possible Answers:

Correct answer:

Explanation:

Amount borrowed = $15,000  $5,000 = $10,000

Interest of 4.3% = $10,000 * 0.043 = $430

Total cost of car = $5000 + $10000 + $430 = $15,430

Example Question #2 : How To Find Simple Interest

Ted works over the summer and makes $9 per hour.  He works for 20 hours each week for 10 weeks.  After paying 10% in taxes, he buys a bike for $500 and puts the rest of his money in the bank.

If Ted's bank pays 5% interest on the total sum once per year, and Ted doesn't add or remove anything from the account, how much money (rounded to the nearest cent) will Ted have in 5 years?

Possible Answers:

Correct answer:

Explanation:

To start, we see that Ted works for 20 hours per week for 10 weeks.  This means he works a total of 200 hours over the summer.  He is paid $9 dollars each hour.  Therefore he makes $9 x 200 hours = $1800 total over the summer.  He then has to pay 10% in taxes, or .1 x $1800, leaving him with .  He buys the bike for $500, so he has $1620 - $500 = $1,120 to deposit at the bank.

Now we have to find out how much he will have 5 years later.  Since the bank pays 5% interest each year, we know that he will make 5% of what he has each year.  He starts with $1,120.  5% of this value is .  Adding this to the original $1,120 gives us $1,176.

This is also the same as multiplying instead by 1.05.  We repeat this step 5 times, giving us:

Example Question #6 : How To Find Simple Interest

Jane borrows  dollars from the bank.  Her loan has an annual interest rate of  percent. How much interest will she owe after  years? (Use a simple interest calculation)

Possible Answers:

Correct answer:

Explanation:

Use the simple interest formula:

Interest equals the initial amount multiplied by the annual interest rate multiplied by the number of years:

Let = interest owed

Let = principal (aka the initial amount of the loan)

Let  = interest rate

Let  = years passed

Therefore:

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