Simple Interest

Simple Interest

Calculating Simple Interest (S.I.)

Why interest?

• Sometimes we need to borrow things.

• It could be as small as a pen, a pencil or a ruler.

• You may need to borrow a phone to make a call or money to buy a snack.

• We can return the pen, the pencil, the ruler or the money borrowed to buy the snack or make the call very easily.

• Sometimes, however, you may need to borrow money on a larger scale from the bank or credit union, for example.

The cost of borrowing money

• Borrowing money from a financial institution comes at a cost.

• The cost of borrowing money is called interest.

• Interest is defined as money paid regularly at a particular rate for the use of money lent, or for delaying the repayment of a debt.

• Interest can be calculated in two ways: simple interest and compound interest.

Simple vs. Compound Interest

• Simple interest is calculated on the principal or original amount of a loan.

• Compound interest is calculated on the the principal amount and also on the accumulated interest of previous periods (interest on interest).

• It is better to borrow with a simple interest loan.

• Compound interest is best for investment (it is better to save or invest on a compound interest plan).

Terms used

• The sum of money you wish to borrow is the Principal (P).

• The agreed percentage of the amount borrowed or invested is the Rate (R).

• The time taken to repay the loan or to invest is the time (T).

• The Simple Interest (S.I.) is the percentage of the principal that accumulates over time.

Calculating Simple Interest (S.I.)

• Simple interest is calculated using the following formula:

•  $S.I.\ =\ \frac{PRT}{100}$  

• Note:- We can find any quantity represented in the formula once we have all other quantities.

Solution

P = $2500
R = 25%
T = 2 years

 $S.I.\ =\ \frac{PRT}{100}=\frac{2500\ \times25\times2}{100}=\text{}1250$  

Solution

P = $3000
R = 6%
T = 3 years

 $S.I.\ =\ \frac{PRT}{100}=\frac{3000\times6\times3}{100}=\text{540}$  

Solution

P = $5000
R = 5%
T = 6 months = 0.5 year

 $S.I.\ =\ \frac{PRT}{100}=\frac{5000\times5\times0.5}{100}=125$  

Solution

P = $37000
R =  $3\ \frac{1}{3}\%=\frac{10}{3}\%$  

T = 18 months =  $\frac{3}{2}$  years
 $S.I.\ =\ \frac{PRT}{100}=\frac{37000\times\frac{10}{3}\times\frac{3}{2}}{100}=1850$  


Amount to be repaid = $37000 + $1850 = $38850

Solution

(a) P = $1500 ; R = 8% ; T = 3 years

 $S.I.=\frac{PRT}{100}=\frac{1500\times8\times3}{100}=360$  

(b) Amount repaid = $1500 + $360 = $1860

(c) Amount paid monthly =  $1860\div36=51.67$  

Note: 3 years = 3 x 12 = 36 months

Solution

(a) P = $3680 ; R = 8.75% ; T = 6 months = 0.5 year

 $S.I.\ =\frac{PRT}{100}=\frac{3680\times8.75\times0.5}{100}=161$  

(b)Total amount repaid = $3680 + $161 = $3841

(c) Amount paid monthly =  $\text{3841}\div6$  = $640.17