Page 1: Simple Interest Fundamentals

This page introduces the core concepts of simple interest and demonstrates practical applications through savings examples.

Definition: Simple interest is money earned or paid on top of a principal amount, calculated using the formula I = P × r × t.

Vocabulary:

• Principal (P): The initial amount borrowed or invested
• Rate (r): The interest percentage expressed as a decimal
• Time (t): The duration in years

Example: A $500 savings account earning 3% simple interest annually will earn $45 in interest after 3 years, resulting in a final balance of $545.

Highlight: When time is given in months, it must be converted to years by dividing by 12 for accurate calculations.

Example: A $5 million lottery win deposited for 18 months at 6% simple interest would earn $450,000 in interest, resulting in a final balance of $5,450,000.