# Actually Applicable Application Problems and Brainteasers/Simple Interest

## Overview

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

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

### Savings Account

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

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