Section 3-1, Simple Interest
The formula for simple interest is I = Prt where
P = principal, or present value
r = annual simple interest rate (written as a decimal)
t = time in years (assume a 360-day year)
If a principal P is borrowed or invested at a rate r, then after t years the borrower
will owe, or the investor will have earned, an amount A called the future value of
the loan or investment.
A= principal + interest
or
A=P+I
A = P + Prt or A = P(1 + rt)
Note that this formula is linear, i.e, its graph is a straight line.
Q1.
(a) (#14, page 132). Use the simple interest formula to calculate r if I = $28, P = $700, t
= 13 weeks.
(b) Use the simple interest formula to calculate P if A = $8,000; r = 12%; t = 7 months.
Q2 (#36, page 133). A department store charges an 18% annual rate for overdue
accounts. How much interest will be owed on an $835 account that is 2 months
overdue?
Section 3-1, p. 1
Q3. (#52, page 134). The buying and selling commission schedule shown below is from a
well-known online discount brokerage firm.
Transaction Size
Commission Rate
$0 - $2,500
$22 + 1.4% of principal
$2,501 - $6,000
$38 + 0.45% of principal
$6,001 - $22,000
$55 + 0.23% of principal
$22,001 - $50,000
$79 + 0.15% of principal
$50,001 - $500,000 $119 + 0.07% of principal
$500,001 +
$169 + 0.06% of principal
An investor purchases 450 shares at $64.84 a share, holds the stock for 26 weeks, and
then sells the stock for $72.08 a share. Find the interest earned by the investment.
Section 3-1, p. 2