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SIMPLE INTEREST

August 29, 2018


If someone borrows money, what factors influence
how much is paid back?

Principal -How much was borrowed.


Time - How long it was borrowed for.
(in years)
Rate - What interest was charged.
(annual % rate)

Maturity Value = Principal + Interest


Interest = Principal �Rate �Time
I = P��
r t
Joe borrows P200000 from the bank at 6% simple
interest for 3 years. What interest does he owe,
and what is his total balance (amount to payback)
P = 200,000
r = 6% = 0.06
t=3
Interest Maturity Value
I = P��
r t F= P + I
I = 200,000 (0.06) (3) F= 200000 + 3600
I = 36000 F = 236000
Juan invests $5000 in bonds for 6 months at an
annual interest rate of 7%. How much interest
did he earn, and what is the balance in his account
P = 5000
r = 7% = 0.07
t = 6 months = 0.5 years
Interest Maturity Value
I = P��r t F = P + I
I = (5000)(0.07)(0.5) F = 5000 + 175
I = 175 F = 5175

Interest owed = $175 F = $5175


Find the simple interest and the Maturity Value.
1) $2000 at 4% for 9 mos.
P = 2000
r = 4% = 0.04
t = 9 mos. = 0.75 yrs.
I = P��r t
I = (2000)(0.04)(0.75)
I = $60

F = P + I
F= 2000 + 60
F = $2060
Find the annual simple interest rate.
1) $2000 earns $420 simple interest over 3 years.
P = 2000
I = 420
t = 3 years
I = P��r t
420 = (2000)(r)(3)
420 = 6000r
6000 6000
0.07 = r
Annual Interest Rate = 7%
Find the annual simple interest rate.
2) $625 simple interest is earned on a 2 year loan
of $5000. P = 5000
I = 625
t = 2 years
I = P��r t
625 = (5000)(r) (2)
625 = 10,000r
10,000 10,000
0.0625 = r
r = 6.25% or 6 %1
4
Find the principal amount invested.
1
3) Interest of $1650 is earned over 4 years at 5 %.
2
I = 1650
t = 4 years
r = 5.5% = 0.055
I = P��r t
1650 = (P)(0.055)(4)
1650 = 0.22P
0.22 0.22
7500 = P
Principal = $7500
Quick Draw for Points

• You will have 60 seconds to solve each


problem

• The text is Simple Interest Problems


Example 1: Finding Interest on a Loan

To buy a car, Jessica borrowed P15,000 for 3


years at an annual simple interest rate of 9%.
How much interest will she pay if she pays the
entire loan off at the end of the third year?

First, find the interest she will pay.


I=P 
r 
t Use the formula.
I = 15,000 
0.09 
3 Substitute. Use 0.09 for 9%.

I = 4050 Solve for I.


Example 1A: Finding Total Payment on a Loan

What is the total amount that she will repay?


You can find the total amount A to be repaid on a
loan by adding the principal P to the interest I.
Jessica will pay P4050 in interest.

P+I=A principal + interest = total amount


15,000 + 4050 = A Substitute.
19,050 = A Solve for A.

Jessica will repay a total of P19,050 on her loan.


Example 2

TJ invested P4000 in a bond at a yearly rate of


2%. He earned P200 in interest. How long was
the money invested?
I=P 
r 
t Use the formula.

200 = 4000 
0.02 
t Substitute values into
the equation.
200 = 80t
2.5 = t Solve for t.
The money was invested for 2.5 years, or 2
years and 6 months.
Example 3
Bertha deposited P1000 into a retirement
account when she was 18. How much will
Bertha have in this account after 50 years at a
yearly simple interest rate of 7.5%?

I=P 
r 
t Use the formula.

I = 1000 
0.075 
50 Substitute. Use 0.075
for 7.5%.
I = 3750 Solve for I.

The interest is P3750. Now you can find the total.


Example 3 Continued

P+I=A Use the formula.

1000 + 3750 = A Substitute.

4750 = A Solve for A.

Bertha will have $4750 in the account after 50 years.


Example 4

Mr. Mogi borrowed P9000 for 10 years to


make home improvements. If he repaid a total
of P20,000 at what interest rate did he borrow
the money?

P+I=A Use the formula.


9000 + I = 20,000 Substitute.
I = 20,000 – 9000 = 11,000 Subtract 9000
from both sides.
He paid P11,000 in interest. Use the amount of
interest to find the interest rate.
Example 4 Continued

I=P 
r 
t Use the formula.
11,000 = 9000 
r 
10 Substitute.

11,000 = 90,000 
r Simplify.

11,000= r Divide both sides by 90,000.


90,000

0.12 = r

Mr. Mogi borrowed the money at an annual rate of


about 12.2%.
Summary

• I = __________
• P=__________
• r = __________
• t = __________
• A=__________

• Interest Formula: I = ( )( )( )
• Amount Formula: A = ___ + ___
SUMMARY

Principal -How much was __________.


Time - How _____it was borrowed for.
(in_____)
Rate - What _______was charged.
(annual % rate)

Amount to Payback = Principal + Interest


Interest = ________�____ �______
I = P��
r t