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 Consumer math Simple interest Banks use interest rates in the form of percentages to award interest to savings acoounts and to charge interest on loans. Simple interest is calculated by multiplying the amount of principal (or money) that is saved or borrowed, by the rate and time. Therefore, we get the following formula, where I is the interest charged or paid out, p is the principal amount, r is the percentage rate written as a decimal, and t is the time in years: I=prt (When you use the simple interest formula, you change the percent to a decimal equivalent) Find the simple interest earned on $1,700 at 8 percent interest for three years. Set up the formula I=prt. Plugging in the values, you get I=(1,700)(0.08)(3)=$408. Keisha borrows $450 at an interest rate of 17 percent for 18 months, how much will she have paid in simple interest at the end of the 18 months? First remember to convert the 18 months to years: 18 months=1.5 years. Then compute the interest owed: I=(450)(0.17)(1.5)=$114.75