# Simple Interest

When you put money in a bank you may earn interest, and when you borrow money, you may pay interest. The amount of money is called the principal.
**
Simple interest
**
refers to the amount of money that is paid for a specific amount of time called the term.

To determine the
**
simple interest,
**
multiply the original principal by the interest rate by the number of time periods.

Formula: $I=prt$ where $I$ is the interest earned, $p$ is the principal (money either invested or borrowed), $r$ is the annual interest rate written in decimal form, and $t$ is the time in years for which the interest is paid.

**
Example 1:
**

You invest $\$200$ at $8\%$ simple interest for $6$ years. How much interest have you earned at the end of that time?

$I=prt$

$I=200\left(.08\right)\left(6\right)=\$96$

**
Example 2:
**

You borrowed $\$10,000$ for $3$ years at $5\%$ simple interest. How much interest did you pay on the loan?

$I=prt$

$I=\left(10000\right)\left(.05\right)\left(3\right)=\$1500$

**
Example 3:
**

You deposit $\$2500$ in the bank. The money earns $4\%$ simple interest per year. If you withdraw all your money and close the account after $18$ months, how much money will you have?

Note that here, the
*
annual
*
interest rate is given, but we're asked about
$18$
*
months
*
... that is,
$1.5$
years.

$I=prt$

$I=\left(2500\right)\left(.04\right)\left(1.5\right)=\$150$

Also note that the problem asks about the total amount -- that is, the principal plus the interest. When you take all your money out of the account, you'll have $\$2500+\$150=\$2650$ .