# Actually Applicable Application Problems and Brainteasers/Simple Interest

## Overview

[edit | edit source]The simple interest formula is used by banks and lenders routinely to calculate interest payments to be deposited into savings accounts or charged against loan accounts. This is definitely a real application problem in and of itself, as well as the foundation of the compound interest formula which is used to predict growth of accounts over longer periods of time.

## General Method

[edit | edit source]The formula used to calculate simple interest is I=Prt, where the variables mean:

- I: interest
- P: Principal
- r: rate (usually APR, "annual percentage rate")
- t: time (usually in years)

The formula used to calculate the balance of an account after a simple interest payment or charge is A=P+Prt, where the other variables are the same and A means "amount," which is the total value of the account.

## Problems

[edit | edit source]### Savings Account

[edit | edit source]A savings account has $374 in it when it is time for the bank to make its scheduled monthly payment at 2% APR. How much interest will be paid? How much will be in the account afterward?

### Credit Card

[edit | edit source]A credit card user is carrying a balance of $1,347 with an 11% APR. How much will her next monthly interest charge be?

### Make Your Own Problem

[edit | edit source]Open a savings account and ask what the account's APR is. Deposit some money in it and calculate what your next interest payment will be.