Omar puts $250 in a bank at 4% simple interest per year. How much… Step by Step

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The question

Question: Omar puts $250 in a bank at 4% simple interest per year.

How much interest does he earn in 3 years?

1 Find what we know

What do we know?

The money put in: $250.

The rate: 4% each year.

The time: 3 years.

What do we want?

The interest.

2 Name the unknown

We don't know the interest.

So we call it x.

x = interest

4% means 4 out of 100: 4/100.

4% = 4100

Here is the rule for it.

Interest = money put in, times the rate, times the years.

interest = money in × rate × years

In short: I = P × r × t.

Interest is extra money for using money.

Simple interest is the same amount every year.

I = P × r × t

interest: extra money,

the same every year

3 Write the equation

In words: the money put in, times the rate, times the years, makes the interest.

x = 250 × 4100 × 3

So the equation is x = 250 × 4/100 × 3.

Now we solve it.

x = ~~250~~ × 4100 × 3

Careful!

4% is not 4.

It means 4 out of 100: 4/100.

Without the 100, the interest would be $3000: more than the money put in!

Careful: not 250 × 4 × 3 = 3000 ✗

4 Multiply the numbers we know

Cancel first.

250 and 100 can both be divided by 50.

250 becomes 5, and 100 becomes 2.

Write what is left.

x = 5 × 42 × 3

Multiply the whole numbers: 60.

5 × 4 × 3 = 60

So x is 60/2.

x = 602

60 divided by 2 is 30.

602 = 60 ÷ 2 = 30

So x = 30!

x = 30

5 Answer the question

So the interest is $30.

6 Check

Let's check in the story.

In 1 year: 4/100 of $250 is $10.

1 year: $250 × 4100 = $10

3 years: $30 of interest, like the story says.

3 years: 3 × $10 = $30

Does it make sense?

The interest is less than the money put in.

That makes sense for 4% a year.

So the answer is right!

makes sense: $30 < $250

Let's look back.

First: find what we know.

Then: name the unknown.

Then: write the equation.

Then: solve it.

Then: answer the question.

Last: check.

Answer