Simple Interest By: Dilshad Akrayee 1
Definition q. Simple interest is interest that is computed on the original sum. q. Formula: Principal amount * Annual Interest rate* Number of years q. Simple Interest is used commonly in variable rate consumer lending and mortgage loans where a borrower pays interest on funds used 2
Simple Interest Time Interest Prin cipa l Rate 3
Ex) You want to borrow $8000 at 7% for only 90 days. How much interest you would like to pay? • • • I=? P= 8000 r =7% = 0. 07 t= 90 days= 3 months= 0. 25 Year I= P * r * t I = 8000 *0. 07*0. 25= $140 4
Ex) Max borrows $30, 000 to buy a car at 4. 2% interest. How much interest will Max pay if the loan is for 3 years? I =P * r * t I = 30, 000 (. 042)(3) = $3780 interest How much total will Max pay for the car? 30, 000 + 3780 = $33, 780. How much will Max have to pay each month to the bank for the car? 3 years * 12 months = 36 months 33, 780 ÷ 36 = $938. 33 5
Ex) Marjorie has a credit card that she uses for most of her purchases. The monthly interest rate on the card is 11. 2%. If she charges $1000 in a month, how much interest will she pay on the balance? I=P*r*t I = 1000(. 112)(1) = $112 If she can only pay $500 on the credit card, what is her new credit card balance? 1000 + 112 – 500 = $612 6
Ex) Felisha wants to buy a new computer. She wants to borrow $2500 for 3 years. She will pay an interest rate of 5%. How much will she owe at the end of the 3 years? I = P*r*t I = $2, 500 *. 05 * 3 I = $375 The cost of the loan is $375 Making the cost of the computer $2, 500 + $375 = $2, 875 7
Ex) Tammy borrows $55, 000 to buy a car at 2. 2% interest. How much interest will she pay if the loan is for 5 years? I=P*r*t I = 55, 000 (. 022)(5) = $6050 interest How much total will Tammy pay for the car? 55, 000 + 6050 = $61050. How much will Tammy have to pay each month to the bank for the car? 5 years • 12 months = 60 months 61, 050 ÷ 60 = $1017. 5 8
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