Math 1 · Unit 8 · Lesson 1 · part 3 of 5
Simple interest adds the same amount every year
Simple interest pays the rate on the principal only, so you earn the same amount every year.
Simple interest adds the same amount every year
Simple interest pays the rate on the principal only, so you earn the same amount every year. The interest after t years is
and the balance is what you started with plus the interest:
Put $1,000 in an account that pays 5% simple interest. Each year earns 1,000 × 0.05 = $50.
| year, t | 0 | 1 | 2 | 3 | 4 |
|---|---|---|---|---|---|
| balance, A | $1,000.00 | $1,050.00 | $1,100.00 | $1,150.00 | $1,200.00 |
| change | + $50 | + $50 | + $50 | + $50 |
What family is this? The balance adds $50 every year: a constant difference. Lines add. So simple interest is a line, the same y = mx + b from Unit 3 wearing money names.
Build the table one year at a time and watch the constant difference.
Now a smaller account you can plot: $200 at 10% simple interest. Each year adds 200 × 0.10 = $20. Fill in the table, check it, plot the points, and draw the line.