Example 1. Simple Interest If you deposit $600 in a bank account paying 4.5% annual interest, how much interest will the deposit earn in 1 years if the bank computes the interest using simple interest? Solution 1. P = 600 = P rt r = 4.5% = 0.045 = 600 ~ 0.045 x 1 t = 1 = 27 -Add the result from Example (1) to 600 and use simple interest to find out how much is valued after 2 years, then do the same for the next year (3 years later). -Using compound interest formula, find the amount $25,400 will amount too when the interest rate is 4.8%, compounded quarterly for 18 years