Today we’re learning about simple interest calculations and why they matter for your financial future
What You Might Already Know
If your substitute teacher covered these concepts yesterday, you can skip to slide 8:
What simple interest means
The simple interest formula: I = PRT
The difference between principal, rate, and time
How to substitute values into the formula
If you’re unsure about any of these, start here and learn from scratch.
If you already know this content, you’ll get a worksheet to work on instead
The Interest Reality
Two scenarios:
Scenario A: You have $500 to save for a year → Banks pay you: 4.5% per year
Scenario B: You need to borrow $500 for car repairs → Nimble (a short-term loans financier) charges you: 47.6% per year
That’s more than 10 times the difference!
By the end of today, you’ll understand exactly how these numbers work and why this matters for your financial future.
What is Simple Interest?
Simple interest is money paid for borrowing or lending money, calculated only on the original amount (principal).
Key point: Unlike compound interest, it doesn’t grow on itself - it stays “simple.”
Real-world examples:
Term deposits (bank pays you interest)
Short-term personal loans (you pay interest)
Some car loans
Copy this definition down
The Simple Interest Formula
I = P × R × T
Where:
I = Interest earned or paid ($)
P = Principal (original amount) ($)
R = Rate per year (as a decimal)
T = Time (in years)
Copy this formula down - you’ll need it for every calculation
Converting Percentages to Decimals
Critical skill: The rate must be a decimal in the formula.
Examples:
4.5% = 4.5 ÷ 100 = 0.045
47.6% = 47.6 ÷ 100 = 0.476
12% = 12 ÷ 100 = 0.12
Practice: Convert 8.5% to a decimal
Example 1: Term Deposit
Scenario: You invest $2,000 in a term deposit at 4.5% per year for 6 months.How much interest are you paid at maturity?
Step 1: Identify the values
P = $2,000
R = 4.5% = 0.045
T = 6 months = 0.5 years
Step 2: Apply the formula
I = P × R × T = 2,000 × 0.045 × 0.5 = $45
Answer: You earn $45 interest.
Copy this example - watch the time conversion
Example 2: The Nimble Reality
Scenario: You borrow $500 from Nimble at 47.6% per year for 3 months.
Step 1: Identify the values
P = $500
R = 47.6% = 0.476
T = 3 months = 0.25 years
Step 2: Apply the formula
I = P × R × T = 500 × 0.476 × 0.25 = $59.50
Answer: You pay $59.50 interest on a $500 loan for just 3 months!
Copy this down and think about what this means
The Comparison
Term deposit: Earn $45 on $2,000 in 6 months
Nimble loan: Pay $59.50 on $500 in 3 months
Think about it:
Term deposit: 2.25% return in 6 months
Nimble loan: 11.9% cost in 3 months
If the Nimble loan ran for a full year: 47.6% cost
This is why understanding simple interest calculations can save you thousands of dollars throughout your life.
Time Conversions
Remember: Time must be in years for our formula.
Common conversions:
6 months = 6 ÷ 12 = 0.5 years
3 months = 3 ÷ 12 = 0.25 years
18 months = 18 ÷ 12 = 1.5 years
2 years = 2 years (no conversion needed)
Quick practice: Convert 9 months to years.
Work this out now
Your Turn: Guided Practice
I’ll put these problems on the board one at a time. Copy and solve each one
Problem A: Calculate the simple interest on $1,500 at 6% per year for 8 months.
Show your working:
P =
R =
T =
I = P × R × T =
Independent Practice
Work through these questions. I’ll tell you which column to focus on
Foundation Level:
Calculate interest on $900 at 5% for 6 months.
Find interest on $1,200 at 8% for 3 months.
A $2,000 loan at 12% for 1 year costs how much interest?
Convert to decimals: 7.5%, 18%, 3.25%
Extension Level:
A term deposit earns $120 interest on $4,000 over 18 months. Find the rate.
How long would it take for $500 to earn $37.50 interest at 5% per year?
Compare total repayment: $1,000 at 20% for 6 months vs $1,000 at 10% for 12 months.
Real scenario: Research current term deposit rates and calculate earnings on $5,000 for 1 year.
Real-World Applications
When you’ll use this:
Comparing loan offers (car loans, personal loans)
Understanding term deposit returns
Calculating credit card interest (if paid late)
Making informed financial decisions
Red flags to watch for:
Rates that seem “too good to be true”
Companies that don’t clearly state annual rates
Pressure to “sign now” without time to calculate costs
Financial literacy = financial freedom
Key Takeaways
Formula: I = P × R × T
Remember:
Convert percentages to decimals (divide by 100)
Convert time to years (months ÷ 12)
Simple interest = straight calculation, no compounding
Life lesson: Always calculate the true cost before borrowing, and the true return before investing.
Next lesson: We’ll explore compound interest and see how it differs from today’s calculations.
Well done today! These skills will serve you for life
Extension Challenge
For those ready for more:
Research task: Find three different financial products (loans, credit cards, term deposits) and calculate their true costs/returns using simple interest.
Present your findings: Which would you choose and why?
Bonus: Investigate what “comparison rate” means in loan advertising and why it’s often higher than the advertised rate.
This research will prepare you for real financial decisions