Consumer
Math
10-1
Chapter 2
Consumer Arithmetic
10-2
#10 Simple Interest
Learning Unit Objectives
• Calculate simple interest
• Calculate the total amount of a loan and
the total value of an investment at the end
of a special term.
10-3
#10
Simple Interest
Learning Unit Objectives
Finding Unknown in Simple Interest
Formula
• Using the interest formula, calculate
the unknown when the other two
(principal, rate, or time) are given
10-4
Maturity Value
Maturity Value = Principal (P) + Interest (I)
The amount of the loan
(Face value)
10-5
Cost of
borrowing
money
Simple Interest Formula
Simple Interest (I) = Principal (P) x Rate (R) x Time (T)
Stated as a
Percent
Stated in
years
Maha borrowed $30,000. The loan was for 6 months
at a rate of 8%. What is interest and maturity value?
SI = $30,000 x.08 x 6 = $1,200
12
10-6
MV = $30,000 + $1,200 = $31,200
The Method of Calculating Simple Interest
and Maturity Value
Exact Interest (365 Days)
Time = Exact number of days
365
10-7
The Method of Calculating Simple Interest
and Maturity Value
On March 4, Ray borrowed $40,000 at 8%.
Interest and principal are due on July 6.
Exact Interest (365 Days)
I=PXRXT
$40,000 x .08 x 124
365
$1,087.12
MV = P + I
$40,000 + $1,087.12
$41,087.12
10-8
Finding Unknown in Simple Interest
Formula - Principal
Interest (I) = Principal (P) x Rate (R) x Time (T)
Principal = Interest
Rate x Time
.095 times 90
divided by
365. Do not
round answer
10-9
Christina Jones paid
the bank $19.48
interest at 9.5% for 90
days. How much did
she borrow?
$19.48
.
P = .095 x (90/365) = $831.6
How much must I pay back if I borrow $10000 for 3 years at 10% pa simple interest?
.Total amount
=P+I
.
10-10
I=PxRxT
= 10000 x 10 x 3
100
= $ 3000
I must pay back = P + I
= 10000+3000
=$ 13000
What simple interest rate would
allow $ 6000 to grow to an amount
of $ 14550 in 10 years?
Rate = Interest
Principal x Time
So the simple interest I=
14550 – 6000
=$ 8550
.I was getting
14.25%
interest rate
10-11
R=
$8550
6000x 10
= 14.25 % pa.
Finding Unknown in Simple Interest
Formula - Rate
Interest (I) = Principal (P) x Rate (R) x Time (T)
Rate =
Interest
Principal x Time
Christina Jones
borrowed $820.21
from the bank. Her
interest is $19.48 for
90 days. What rate of
interest did Christina
pay?
$19.48
.
R = $820.21 x (90/365) = 9.6%
10-12
Finding Unknown in Simple Interest
Formula - Time
Interest (I) = Principal (P) x Rate (R) x Time (T)
Christina Jones
borrowed $820.21
Time (yrs) =
Interest
from the bank. Her
Principle x Rate
interest is $19.48 for
9.5%. How much
time does Christina
Convert
have to repay the
years to
loan?
$19.48
.
days (assume
T = $820.21 x .095 = .25
365 days)
.25 x 365 = 91.25 days
10-13
Vocabulary:
Principal: an amount of money owed by an
investor and held by a financial institution such as
a bank.
Deposit: the act of establishing , or adding to ,
existing principal.
Balance: the amount of money in an account.
Interest: the amount of money you earn by leaving
deposits in a bank or financial institution Interest is
a percentage of your principal.
Term: the period of time an investment lasts.
10-14
Steps to answer simple interest question
Ahmad borrowed $ 78000 for 4 months at 12.75% pa simple
interest to pay for her new house while her old one was being sold .
How much interest did she pay? And how much was paid back
altogether?
P = $78000
Step 1. Read the problem carefully and
list the information( look for the ‘key’
words)
Step 2. Find the
interest
Step 3. To calculate
the amount paid all
together
10-15
T= 4 months or 4 /12 years
R = 12.75% or 0.1275 or 12.75
100
I= ?
I= PxRxT
= 78000 x 12.75% x 4/12
= $ 3315
The total amount = P + I
=
78000+ 3315 =$81315