4D Simple Interest Study Guide

Key Vocabulary

Principal (P) — the starting amount of money you borrow or save. (capital)

Interest (I) — the extra money earned (savings) or paid (loan) over time. (interés)

Rate (r) — the percent charged or earned each year. (tasa)

Time (t) — how long the money is borrowed or saved, measured in years. (tiempo)

Simple Interest — interest calculated only on the original principal. (interés simple)

Visual Example

You deposit $500 at 4% for 3 years.

P = $500 | r = 4% = 0.04 | t = 3 years

I = P × r × t
I = $500 × 0.04 × 3
I = $60

Total = P + I = $500 + $60 = $560

Step-by-Step

1 Identify the three values: P (principal), r (rate), and t (time).
2 Convert the rate from a percent to a decimal (divide by 100).
3 Calculate interest: I = P × r × t.
4 Find total: A = P + I (add interest to principal).

Formula Box

I = P × r × t

A = P + I (Total Amount = Principal + Interest)

I = interest earned | P = principal | r = rate (as decimal) | t = time (in years)

Watch Out!

Rate must be a decimal! 5% = 0.05, NOT 5. Always divide the percent by 100 before multiplying.
Time must be in years. If the problem says 6 months, use t = 0.5. If it says 18 months, use t = 1.5.
Interest is NOT the total. Interest is just the extra money. Add it to the principal to get the total.
Simple interest stays the same each year. $500 at 4% earns $20 every year (not more).

Practice Problems

1. Find the simple interest: P = $200, r = 5%, t = 2 years.

2. You borrow $1,000 at 3% for 4 years. How much interest do you pay?

3. You save $600 at 2% for 5 years. What is the TOTAL amount in your account?