# 2.6 Simple interest

## Learning outcomes

Students will use the simple interest formula to calculate and understand simple interest.

## Teacher preparation

### Time required for lesson

Approximately 60 minutes. Homework time will be needed.

### Materials needed

- Calculator for each student
- Overhead projector and pens
- Computer with internet access and projector to access the Bureau of Labor Statistics’ Occupational Outlook Handbook
- Optional: If you don’t have access to a computer and projector, you may print overviews of the careers discussed in this lesson and hand them out to students.
- “Simply Interest” activity sheet
- Transparency copy of “Simply Interest” activity sheet
- “Simply Interest” activity sheet answer key

## Activities

- Introduce vocabulary and variables for simple interest formula. (10 minutes)
- Simple Interest (I) — amount of money paid or earned for the use of money
- Principal (p) — the amount of money borrowed or invested
- Rate (r) — the annual interest rate written as a decimal
- Time (t) — the amount of time in years (If time is given in months, it must be written as a fraction. For example, 6 months would be 6/12 years or 0.5 years.)

- Demonstrate several examples to help students gain an understanding of how to solve simple interest problems. (20 minutes)
- Joe deposits $200 in an account at his bank. The interest rate is 6%. How much interest will he earn in three (3) years?
- I = prt
- I = (200)(.06)(3)
- I = $36.00. Joe will earn $36 in interest.

- Joe borrows $900 to fix his car. The bank charges 7% interest for two years. Find the total amount Joe will owe the bank.
- I = prt
- I = (900)(.07)(2)
- I = $126. Now add the $126 interest to the original amount borrowed by Joe (principal amount = $900) for a total of $1026 owed to the bank.

- Jill needs to borrow $500 for only nine months. The bank charges 5½% interest. How much will Jill owe the bank?
- I = prt
- I = (500)(.055)(.75)
- I = $20.625 (Money must always be rounded to the hundredth place)
- I = $20.63 Now add the $20.63 to the $500 borrowed. The amount Jill owes to the bank is $520.63.

- Joe deposits $200 in an account at his bank. The interest rate is 6%. How much interest will he earn in three (3) years?
- Have students brainstorm a list of careers in which people might use simple interest. (Answers may include bankers, sales representatives, retail managers, salespeople, mortgage brokers, etc.) (10 minutes)
- Access the Occupational Outlook Handbook and project it for the students. Use the website’s search function to find information about some of the careers the students brainstormed. Discuss the careers with the class, and encourage them to think of how people in those careers might use simple interest formulas. Some examples include:
**Loan officer**: Usually works at a bank dealing with customers who are interested in borrowing money for cars, homes, home improvements, etc. Needs to know how to calculate interest in order to inform the customer how much money will need to be paid back to the bank each month to satisfy the loan.**Credit card company employee**: Needs to know how to calculate interest so when customers buy something with the credit card, they can charge the customer that amount above the cost of the purchase. Most credit card companies have computer programs that will calculate this for them, but knowledge of this calculation helps when speaking to customers.**Car salesman**: Needs to know how to calculate interest in case a customer asks for clarification on his or her bills. Even though most computer programmers calculate this automatically, the salesman needs to know how this amount is calculated so that he can answer any questions the customer will have.

- Hand out the “Simply Interest” activity sheet. Have students work independently on the worksheet. Students who don’t finish the worksheet in class may complete it for homework. (20 minutes)

## North Carolina curriculum alignment

### Mathematics (2004)

#### Grade 7

**Goal 1**: Number and Operations - The learner will understand and compute with rational numbers.**Objective 1.01**: Develop and use ratios, proportions, and percents to solve problems.**Objective 1.02**: Develop fluency in addition, subtraction, multiplication, and division of rational numbers.- Analyze computational strategies.
- Describe the effect of operations on size.
- Estimate the results of computations.
- Judge the reasonableness of solutions.

**Goal 5**: Algebra - The learner will demonstrate an understanding of linear relations and fundamental algebraic concepts.**Objective 5.04**: Develop fluency in the use of formulas to solve problems.

- Common Core State Standards
- Mathematics (2010)
#### Grade 7

- Ratios & Proportional Relationships
- 7.RPR.3Use proportional relationships to solve multistep ratio and percent problems. Examples: simple interest, tax, markups and markdowns, gratuities and commissions, fees, percent increase and decrease, percent error.

- The Number System
- 7.NS.3Solve real-world and mathematical problems involving the four operations with rational numbers.1

- Ratios & Proportional Relationships