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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.

1.

Kathy opened up a new savings account at her local bank. She put in $400.00. The bank will pay a monthly interest of 2%. How much interest will Kathy earn in one year and how much money will she have in the bank at that time?

Interest earned: $960.00, Total Amount in Savings Acct.: $1,360.00

Interest earned: $960.00, Total Amount in Savings Acct.: $1,360.00

Interest earned: $960.00, Total Amount in Savings Acct.: $1,360.00

Interest earned: $960.00, Total Amount in Savings Acct.: $1,360.00

2.

The school district needs to build a new high school. It will cost $1,800,000.00 to build the school. The lender will give them the money at 2.5% over 30 years. How much interest will the school district have to pay over the thirty years and how much will they have to actually pay back to the lender for borrowing the money?

Interest: $13,500.00, Total Pay Back: $1,813,500.00

Interest: $1,350,000.00, Total Pay Back: $3,150,000.00

Interest: $135,000.00, Total Pay Back: $1,935,000.00

Interest: $1,350.00, Total Pay Back: $1,801,350.00

The principal amount being borrowed is $1,800,000.00 at an interest rate of 2.5% or .025. The time value is 30 years. Now we have our formula for I = PRT which is:

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

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

Answer (b) is the correct answer

3.

Nelly wanted to buy a new car that cost $14,500.00. Her local bank will give her a five year loan at 3.25% interest so she can buy the car. How much interest will Nelly have to pay over the five years and how much will she have to actually pay back to the bank for borrowing the money?

Interest: $2,326.25, Total Pay Back: $16,826.25

Interest: $2,336.25, Total Pay Back: $16,836.25

Interest: $2,346.25, Total Pay Back: $16,846.25

Interest: $2,356.25, Total Pay Back: $16,856.25

The principal amount being borrowed is $14,500.00 at an interest rate of 3.25% or .0325. The time value is 5 years. Now we have our formula for I = PRT which is:

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

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

Answer (d) is the correct answer

4.

Max borrowed $3,200.00 from his uncle at an interest rate of 1.8% for 3 years. How much interest will Max have to pay his uncle over the three year period and how much will he pay back in total?

Interest: $172.80, Total Pay Back: $3,372.80

Interest: $182.80, Total Pay Back: $3,382.80

Interest: $1,720.80, Total Pay Back: $4,920.80

Interest: $17.28, Total Pay Back: $3,217.28

The principal amount being borrowed is $3,200.00 at an interest rate of 1.8% or .018. The time value is 3 years. Now we have our formula for I = PRT which is:

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

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

Answer (a) is the correct answer

5.

Sarah opened up a college savings account at her local credit union. She put in $1,725.00. The bank will pay an annual interest of 5.8%. How much interest will Sarah earn on her college account if she leaves it alone for 4 years and how much money will she have in her account at the end of the 4 years?

Interest earned: $4,802.40, Total Amount in Savings Acct.: $6,527.40

Interest earned: $400.20, Total Amount in Savings Acct.: $2,125.20

Interest earned: $420.00, Total Amount in Savings Acct.: $2,145.00

Interest earned: $480.20, Total Amount in Savings Acct.: $2,205.20

The principal amount being put into savings is $1,725.00 at an annual interest rate of 5.8% or .058. The time value is 4 years. Now we have our formula for I = PRT which is:

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

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

Answer (b) is the correct answer

6.

The movie studio needs a loan of $200,000,000.00. The lender will give them the loan at 3.36% for a period of 3 years. How much interest will the movie studio have to pay over the 3 years and how much will they have to actually pay back to the lender for borrowing the money?

Interest: $2,160,000.00, Total Pay Back: $202,160,000.00

Interest: $20,160,000.00, Total Pay Back: $220,160,000.00

Interest: $21,600,000.00, Total Pay Back: $221,600,000.00

Interest: $216,000.00, Total Pay Back: $200,216,000.00

The principal amount being borrowed is $200,000,000.00 at an interest rate of 3.36% or .0336. The time value is 3 years. Now we have our formula for I = PRT which is:

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

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

Answer (b) is the correct answer

7.

Joey put $11.64 in his piggy bank. If he doesn’t touch his money for 3 months, his parents will give him 10% interest on his money. How much interest will Joey earn on savings if he doesn’t touch it for 3 months and how much will he have in total after his parents pay him the interest?

Interest earned: $3.48, Total Amount in Piggy Bank: $15.12

Interest earned: $3.58, Total Amount in Piggy Bank: $15.22

Interest earned: $3.68, Total Amount in Piggy Bank: $15.32

Interest earned: $3.78, Total Amount in Piggy Bank: $15.42

The principal amount being put into the piggy bank is $11.64 at an interest rate of 10% or .10. The time value is 3 months. Now we have our formula for I = PRT which is:

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

11.64 x .10 x 3

11.64 x .10 = $1.16

1.16 x 3 = 3.48

$11.64 + $3.48 = $15.12

Answer (a) is the correct answer

8.

Grace and Gwen want to go on a cruise but don’t have enough money to do so. They need $2,600.00 so they took out a small personal loan. The interest on the loan is 6.75% and they have to pay the loan back in 3 years. How much interest will they have to pay over the three years and how much will they have to actually pay back to the bank for borrowing the money?

Interest: $506.50, Total Pay Back: $3,106.50

Interest: $486.50, Total Pay Back: $3,086.50

Interest: $526.50, Total Pay Back: $3,126.50

Interest: $436.50, Total Pay Back: $3,036.50

The principal amount being borrowed is $2,600.00 at an interest rate of 6.75% or .0675. The time value is 3 years. Now we have our formula for I = PRT which is:

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

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

Answer (c) is the correct answer

9.

Peter bought his first condo for $89,700.00. A lender will give him the money at 4.12% for 25 years. How much interest will Peter have to pay the lender over the 25 year period and how much will he pay back in total?

Interest: $9,239.10, Total Pay Back: $98,039.10

Interest: $92,381.00, Total Pay Back: $182,081.00

Interest: $92,391.00, Total Pay Back: $182,091.00

Interest: $92,291.00, Total Pay Back: $181,991.00

The principal amount being borrowed is $89,700.00 at an interest rate of 4.12% or .0412. The time value is 25 years. Now we have our formula for I = PRT which is:

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

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

Answer (c) is the correct answer

10.

The amusement park wants to put in two new rides that cost $1,200,000.00 and $1,360,000.00. A lender will lend them the total amount at 2.85% over 20 years. How much interest will the amusement park have to pay over the 20 years and how much will they have to actually pay back to the lender for borrowing the money?

Interest: $1,389,200.00, Total Pay Back: $3,949,200.00

Interest: $1,409,200.00, Total Pay Back: $3,989,200.00

Interest: $1,419,200.00, Total Pay Back: $3,979,200.00

Interest: $1,459,200.00, Total Pay Back: $4,019,200.00

The principal amount being borrowed is $1,200,000.00 + $1,360,000.00 for a total amount of $2,560,000.00 at an interest rate of 2.85% or .0285. The time value is 20 years. Now we have our formula for I = PRT which is:

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

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

Answer (d) is the correct answer

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