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Consumer Arithmetic PART 3

Simple interest is calculated as a percentage of the principal loan amount per year. The document provides examples of calculating simple interest, principal, rate and time using the simple interest formula. It also includes practice questions for individuals to calculate simple interest in various scenarios.

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16 views4 pages

Consumer Arithmetic PART 3

Simple interest is calculated as a percentage of the principal loan amount per year. The document provides examples of calculating simple interest, principal, rate and time using the simple interest formula. It also includes practice questions for individuals to calculate simple interest in various scenarios.

Uploaded by

damijaemccalla
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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SIMPLE INTEREST

Interest is the payment or fee made to a bank for the


use of loaned money.
The borrower has to pay back:
a. The original loan
b. The interest on the loan

In the same way a bank will pay you interest on any


money you lend to (deposit in) the bank.

Simple interest is calculated as a percentage per year of the loan. This percentage is
called the rate of interest.

EXAMPLES

1. Find (a) the interest and (b) the total repayment on a loan of $10 000 for 3 years if the
rate of interest is 16% per annum.
Note : per annum means per year
Solution
Given information:
● Principal (P) = $10,000
● Rate (R) = 16% per annum
● Time (T) = 3 years
𝑃𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙 × 𝑅𝑎𝑡𝑒 × 𝑇𝑖𝑚𝑒
(a) Interest = 100
10,000 × 16 × 3
= 100
= $4,800

(b) Total Repayment = Principal + Interest


= $10,000 + $4,800
= $14,800
So,
(a) The interest on the loan is $4,800.
(b) The total repayment on the loan is $14,800.

2. $ 75, 000 is deposited ina bank for 5years which pays simple interest at 15% annum.
a. Calculate the interest the bank pays
b. Calculate the amount in the bank after the 5years.
SIMPLE INTEREST

Solution
Given information:
● Principal (P) = $75,000
● Rate (R) = 15% per annum
● Time (T) = 5 years

𝑃𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙 × 𝑅𝑎𝑡𝑒 × 𝑇𝑖𝑚𝑒


(a) Interest= 100
75,000 × 15 × 5
= 100
= $56,250

(b) the amount in the bank after 5 years:


Amount = Principal + Interest
= $75,000 + $56,250
= $131,250

So,
(a) The bank pays $56,250 in interest.
(b) The amount in the bank after 5 years is $131,250.

3. $150,000 yielded $48,000 simple interest in 4 years. Find the rate on interest.

Solution
Given information:
● Principal (P) = $150,000
● Interest (I) = $48,000
● Time (T) = 4 years

Substitute the given values into the formula:


𝑃𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙 × 𝑅𝑎𝑡𝑒 × 𝑇𝑖𝑚𝑒
Interest = 100
150, 000 × 𝑅𝑎𝑡𝑒 × 4
48,000 = 100
48,000 150, 000 × 𝑅𝑎𝑡𝑒 × 4
​ 1
= 100

Multiply both sides by 100


1 × 150,000 × R × 4 = 48, 000 × 100
600,000 × R = 4, 800, 000
SIMPLE INTEREST

4,800,000
Rate = 600,000
=8

To convert this to a percentage, multiply by 100:

Rate = 8 × 100%
=8%

So, the rate of interest is 8%

NOTES
𝑃𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙 × 𝑅𝑎𝑡𝑒 × 𝑇𝑖𝑚𝑒 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 × 100
Interest = 100
⇒ Principal = 𝑅𝑎𝑡𝑒 × 𝑇𝑖𝑚𝑒
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 × 100
⇒ Rate = 𝑃𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙 × 𝑇𝑖𝑚𝑒

𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 × 100
⇒ Time = 𝑃𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙 × 𝑅𝑎𝑡𝑒

Time (T) is alway calculated in years. If the time is given in months, time should be
converted to years by dividing by 12.
(1 year = 12 months)
𝑃𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙 × 𝑅𝑎𝑡𝑒 × 𝑇𝑖𝑚𝑒
i.e. When Time (T) is given in month: Interest = 100 × 12

4.If $6,2000.00 is invested at 12% per annum, how long will it be until it reaches $9,920.00?

Solution
Given information:
● Principal (P) = $6,200.00
● Rate (R) = 12% per annum
● Interest (I) = $9,920.00 - $6,200.00 = $3,720.00

Let's solve for time (T):

𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 × 100
Time = 𝑃𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙 × 𝑅𝑎𝑡𝑒

3, 720 × 100
= 6, 200 × 12
=5
So, it will take 5 years for the investment to reach $9,920.00.
SIMPLE INTEREST

INDIVIDUAL PRACTICE QUESTIONS

1. David puts $ 900 in his credit union. How much money does he have
Altogether after two years if the interest rate is 4% per annum?

2. Susan borrows $ 2000 from her bank whose interest rate on loans is 13%. Find:
a. The interest she pays if she keeps the money for 4 years
b. Her total repayment.

3. Using the formula to find the simple interest on a loan of:


a. $ 1000 for 2 years at 15% per annum
b. $2400 for 1½ years at 12% per annum

4. Find the simple interest paid on a loan of $ 5000


a. After 4 years at 15% per annum
b. After 2⅓ years at 16½% per annum

5. Use the formula to find P, given:


a. I = $90, T = 4 years , R = 9%
b. I = $180, T = 3 years , R = 12½ %

6. Use the formula to find T, given:


a. I = $225, P = $750 , R = 10%
b. I = $120, P = $300 , R = 16%

7. Use the formula to find R, given:


a. I = $126, P = $700 , T = 2 years
b. I = $675, P = $ 1250 , T = 4 years

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