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Simple Interest

By: Dilshad Akrayee

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DefinitionSimple interest is interest that is computed

on the original sum.

Formula: Principal amount * Annual Interest rate* Number of years

Simple Interest is used commonly in variable rate consumer lending and mortgage loans where a borrower pays interest on funds used

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Simple Interest

Interest Principal Rate

Time

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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

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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 * tI = 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 months33,780 ÷ 36 = $938.33

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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 * tI = 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

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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

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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 * tI = 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 months61,050 ÷ 60 = $1017.5