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Lesson · Grade 9 · Mathematics

Simple Interest: I = Prt

  • Grade 9
  • Mathematics
  • 2 min 14 s
  • British Columbia
  • BC9-MA-32

Using $1500 saved at 3% a year for 4 years, the video explains principal, rate and time and works out I = 1500 × 0.03 × 4 = $180, checked as $45 a year and giving $1680 at the end. It then shows the common mistake of using 3 for 0.03, and how a loan of $800 at 9% for 6 months (t = 0.5 years) costs $36 in interest.

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In one sentence

The question this lesson answers

You save 1500 dollars at 3 percent simple interest a year. How much interest do you earn in 4 years?

Interest is money paid for the use of money. Here the bank pays you.

Transcript

What the lesson says

You save 1500 dollars at 3 percent simple interest a year. How much interest do you earn in 4 years?

Interest is money paid for the use of money. Here the bank pays you.

Simple interest is I equals P r t, which means P times r times t.

P is the principal, the money you start with: 1500 dollars.

r is the rate per year as a decimal: 3 percent is 3 divided by 100, or 0.03.

t is the time in years, so t is 4.

Put the numbers in: 1500 times 0.03 times 4.

1500 times 0.03 is 45, and 45 times 4 is 180. The interest is 180 dollars.

Simple interest is worked out on the principal only, so you earn 45 dollars in year 1, year 2, year 3 and year 4: 180 in all.

So after 4 years you have 1500 plus 180, which is 1680 dollars.

A common mistake is using 3 instead of 0.03. That gives 18000 dollars, far more than you saved.

Interest also costs you when you borrow: say 800 dollars at 9 percent a year, or 0.09, for 6 months.

Time must be in years: 6 months is 6 divided by 12, which is 0.5, not 6.

So I equals 800 times 0.09 times 0.5, which is 72 times 0.5, or 36 dollars.

Remember: interest equals principal times rate times time, with the rate as a decimal and the time in years.

Curriculum

Where this fits

British Columbia, Grade 9

Mathematics, Financial literacy: financial literacy: simple budgets and transactionsBC9-MA-32

Previous: Bank Accounts: Deposits, Withdrawals, Fees and the BalanceNext: A Monthly Budget: Income, Fixed Costs and Variable Costs

The outcomes and strands follow the British Columbia curriculum.

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