Consumer Math (Calculating Simple Interest)
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What is interest? We seem to hear it all the time such as when we put money in the bank we can earn an “interest” rate on it or when you borrow money, you have to pay back the principal with “interest.” Well, simply put, “interest” is a percentage of money that one can earn on a set amount of money such as if you put $25.00 into a savings account at a bank, the bank may pay you a 2% interest rate on that $25.00 per month. Why would they do that? Simply put, your money doesn’t just sit there and do nothing.
The bank uses your money to make investments, including giving loans such as car loans or mortgages. Because you allow the bank to use your money, they pay you for the use of that money in the form of making interest payments to you.
The same thing happens when you borrow money. If you borrow money from a lender, which is also what you do when you use credit cards, the lender expects you to pay them for the use of that money so they assess a monthly interest amount. Say if you buy a car for $6,000.00, the bank may want you to pay an interest rate of 4% per month until you pay the lender back the entire $6,000.00.
There are two basic forms of interest, i.e., simple interest and compound interest. For this quiz you will only be dealing with simple interest.
Like with most math problems, there is a basic formula to follow in order to calculate the interest. For simple interest the formula is:
I = PRT (interest equals principal, interest rate and time)
The principal is the actual amount of money you borrow or put into a savings account. Let’s say you borrow $1,500.00. Your principal is 1,500.
Your interest rate is 3% which must then be put into a decimal form so 3% = .03.
The time is for how long you borrow the money and must pay it back. In this case, let’s say you borrow the money for 2 years.
Now we must multiply the principal with the interest rate and then with the time as follows:
1,500 x .03 x 2 =
1,500 x .03 = 45
45 x 2 = 90
Solution: The interest paid on $1,500.00 for 2 years at 3% is $90.00. In other words, you will have to pay the lender a total of $1,590.00 to pay off the amount borrowed.
11.64 x .10 x 3
11.64 x .10 = $1.16
1.16 x 3 = 3.48
$11.64 + $3.48 = $15.12
Solution: Joey will earn $3.48 in interest over the 3 months and will have a total of $15.12 in his piggy bank.
Answer (a) is the correct answer
200,000,000 x .0336 x 3
200,000,000 x .0336 = 6,720,000
6,720,000 x 3 = 20,160,000
$200,000,000.00 + $20,160,000.00 = $220,160,000.00
Solution: The movie studio will pay interest in the amount of $20,160,000.00 over the 3 year period and they will pay back a total of $220,160,000.00.
Answer (b) is the correct answer
2,560,000 x .0285 x 20
2,560,000 x .0285 = 72,960
72,960 x 20 = 1,459,200
$2,560,000.00 + $1,459,200.00 = $4,019,200.00
Solution: The amusement park will pay interest in the amount of $1,459,200.00 over the 20 year period and it will pay back a total of $4,019,200.00.
Answer (d) is the correct answer
1,800,000 x .025 x 30
1,800,000 x .025 = 45,000
45,000 x 30 = 1,350,000
$1,800,000.00 + $1,350,000.00 = $3,150,000.00
Solution: The school district will pay interest in the amount of $1,350,000.00 and pay back a total of $3,150,000.00 over the 30 year period.
Answer (b) is the correct answer
89,700 x .0412 x 25
89,700 x .0412 = 3,695.64
3,695.64 x 25 = 92,391.00
$89,700.00 + $92,391.00 = $182,091.00
Solution: Peter will pay interest in the amount of $92,391.00 over the 25 year period and pay back a total of $182,091.00 to the lender.
Answer (c) is the correct answer
2,600 x .0675 x 3
2,600 x .0675 = 175.50
175.50 x 3 = 526.50
$2,600.00 + $526.50 = $3,126.50
Solution: Grace and Gwen will pay interest in the amount of $526.50 and they will pay back a total of $3,126.50 to the lender over a 3 year period.
Answer (c) is the correct answer
1,725 x .058 x 4
1,725 x .058 = 100.05
100.05 x 4 = 400.20
$1,725.00 + $400.20 = $2,125.20
Solution: Sarah will earn $400.20 in interest over the 4 years and will have a total of $2,125.20 in her college account after 4 years.
Answer (b) is the correct answer
3,200 x .018 x 3
3,200 x .018 = 57.60
57.60 x 3 = 172.80
$3,200.00 + $172.80 = $3,372.80
Solution: Max will pay interest in the amount of $172.80 and pay back his uncle a total of $3,372.80 over a 3 year period.
Answer (a) is the correct answer
14,500 x .0325 x 5
14,500 x .0325 = 471.25
471.25 x 5 = 2,356.25
$14,500.00 + $2,356.25 = $16,856.25
Solution: Nelly will pay interest in the amount of $2,356.25 and pay back a total of $16,856.25 to the lender over a 5 year period.
Answer (d) is the correct answer
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400 x .02 x 1
400 x .02 = 8
8 x 1 = 8.00 per month
$8.00 x 12 (months) = $96.00
$400.00 + $96.00 = $496.00
Solution: Kathy will earn $96.00 in interest and will have a total of $496.00 in her savings account after 1 year.
Answer (c) is the correct answer