10-3 Calculate simple interest Calculate the total amount of a loan and the total value of an investment at the end of a special term. Simple Interest #10 Learning Unit Objectives
10-4 Using the interest formula, calculate the unknown when the other two (principal, rate, or time) are given Simple Interest #10 Learning Unit Objectives Finding Unknown in Simple Interest Formula
10-5 Maturity Value Maturity Value = Principal (P) + Interest (I) The amount of the loan (Face value) Cost of borrowing money
10-6 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, MV = $30,000 + $1,200 = $31,200
10-7 The Method of Calculating Simple Interest and Maturity Value Exact Interest (365 Days) Time = Exact number of days 365
10-8 The Method of Calculating Simple Interest and Maturity Value Exact Interest (365 Days) I = P X R X T $40,000 x.08 x $1, MV = P + I $40,000 + $1, $41, On March 4, Ray borrowed $40,000 at 8%. Interest and principal are due on July 6.
10-9 Finding Unknown in Simple Interest Formula - Principal Principal = Interest Rate x Time Interest (I) = Principal (P) x Rate (R) x Time (T) Christina Jones paid the bank $19.48 interest at 9.5% for 90 days. How much did she borrow? $ P =.095 x (90/365) = $ times 90 divided by 365. Do not round answer
10-10 I = P x R x T = x 10 x = $ 3000 I must pay back = P + I = =$ How much must I pay back if I borrow $10000 for 3 years at 10% pa simple interest?..Total amount = P + I
10-11 Rate = Interest Principal x Time R = $8550 = % pa. 6000x 10.I was getting 14.25% interest rate What simple interest rate would allow $ 6000 to grow to an amount of $ in 10 years? So the simple interest I= – 6000 =$ 8550
10-12 Finding Unknown in Simple Interest Formula - Rate Rate = Interest Principal x Time Interest (I) = Principal (P) x Rate (R) x Time (T) Christina Jones borrowed $ from the bank. Her interest is $19.48 for 90 days. What rate of interest did Christina pay? $ R = $ x (90/365) = 9.6%
10-13 Finding Unknown in Simple Interest Formula - Time Time (yrs) = Interest Principle x Rate Interest (I) = Principal (P) x Rate (R) x Time (T) $ T = $ x.095 = x 365 = days Christina Jones borrowed $ from the bank. Her interest is $19.48 for 9.5%. How much time does Christina have to repay the loan? Convert years to days ( assume 365 days)
10-14 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.
10-15 Steps to answer simple interest question 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 Ahmad borrowed $ 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 T= 4 months or 4 /12 years R = 12.75% or or I= ? I = P x R x T = x 12.75% x 4/12 = $ 3315 The total amount = P + I = =$81315