3.9 Calculating Interest

Interest paid on borrowed money is calculated as a percentage.

• Principal: the amount that is deposited.
• Term: the length of time the money is deposited.
• Interest rate: percent interest earned

Example: If $2,000 was deposited in a bank for one year at 5%, the interest earned would be:

$2,000 (principal) x 1 (term) x 0.05 (interest rate) = $100

The total money the depositor would get back would be the principal + Interest: $2,100