Simple Interest Formula

TL;DR

Learn how to use the simple interest formula to solve word problems and calculate interest and total account value.

Transcript

in this video we're going to talk about how to use the simple interest formula to solve word problems so let's start with this problem john invests 5 000 in a savings account at an annual interest rate of seven percent for five years how much money did he earn in interest so what's the total interest that he received in the course of these five yea... Read More

Key Insights

• 🔑 The simple interest formula (i = prt) is used to calculate interest earned in word problems involving investments.
• 💁 Converting an interest rate from percentage form to decimal form is necessary for using the formula accurately.
• 🍹 The total value of a savings account is the sum of the principal and the interest earned.
• ☠️ Rearranging the simple interest formula can help find the annual interest rate offered by an account.

Questions & Answers

Q: How can the simple interest formula be used to solve word problems?

The simple interest formula, i = prt, can be used by substituting the known variables (p, r, and t) to solve for the unknown value, such as interest earned, principal, or time.

Q: How is the interest rate converted to decimal form in the formula?

To convert a percentage interest rate to decimal form, divide it by 100. For example, 7% becomes 0.07 and 8.7% becomes 0.087.

Q: How is the total value of a savings account calculated?

The total value of a savings account is the sum of the initial principal amount and any interest earned. It can be calculated by adding the principal and the interest.

Q: How can the annual interest rate of an account be determined?

By rearranging the simple interest formula to isolate the variable for interest rate (r), the annual interest rate can be found by dividing the interest earned (i) by the product of the principal (p) and time (t).

Summary & Key Takeaways

• John invests $5,000 at a 7% annual interest rate for 5 years, earning a total of $1,750 in interest.

• Sally invests $8,000 at an 8.7% annual interest rate and wants to earn $4,872 in interest, which will take her 7 years.

• Mary invests $3,000 and earns $768 in interest over 4 years, implying an annual interest rate of about 6.4%.

• James invests $25,000 and wants his account to reach $43,000, which will take 9 years at an 8% annual interest rate.