3 Learning Unit Objectives #10Simple InterestLearning Unit ObjectivesCalculate simple interestCalculate the total amount of a loan and the total value of an investment at the end of a special term.
4 Learning Unit Objectives #10Simple InterestLearning Unit ObjectivesFinding Unknown in Simple Interest FormulaUsing the interest formula, calculate the unknown when the other two (principal, rate, or time) are given
5 Maturity Value = Principal (P) + Interest (I) Cost of borrowingmoneyThe amount of the loan(Face value)
6 Simple Interest Formula Simple Interest (I) = Principal (P) x Rate (R) x Time (T)Stated as aPercentStated in yearsMaha 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 = $1,20012MV = $30,000 + $1,200 = $31,200
7 The Method of Calculating Simple Interest and Maturity Value Exact Interest (365 Days)Time = Exact number of days365
8 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 = P X R X T$40,000 x .08 x 124365$1,087.12MV = P + I$40,000 + $1,087.12$41,087.12
9 Finding Unknown in Simple Interest Formula - Principal Interest (I) = Principal (P) x Rate (R) x Time (T)Christina Jones paid the bank $19.48 interest at 9.5% for 90 days. How much did she borrow?Principal = InterestRate x Time.095 times 90 divided by Do not round answer$P = .095 x (90/365) = $831.6
10 I = P x R x T = 10000 x 10 x 3 100 = $ 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?I = P x R x T= x 10 x 3100= $ 3000I must pay back = P + I==$ 13000.Total amount = P + I.
11 What simple interest rate would allow $ 6000 to grow to an amount of $ 14550 in 10 years? So the simple interest I= – 6000=$ 8550Rate = InterestPrincipal x Time.I was getting 14.25% interest rateR = $ = % pa.6000x 10
12 Finding Unknown in Simple Interest Formula - Rate Interest (I) = Principal (P) x Rate (R) x Time (T)Christina Jones borrowed $ from the bank. Her interest is $19.48 for 90 days. What rate of interest did Christina pay?Rate = InterestPrincipal x Time$R = $ x (90/365) = 9.6%
13 Finding Unknown in Simple Interest Formula - Time Interest (I) = Principal (P) x Rate (R) x Time (T)Christina Jones borrowed $ from the bank. Her interest is $19.48 for 9.5%. How much time does Christina have to repay the loan?Time (yrs) = InterestPrinciple x RateConvert years to days (assume 365 days)$T = $ x = .25.25 x 365 = days
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.
15 Steps to answer simple interest question 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 = $78000T= 4 months or 4 /12 yearsR = 12.75% or or 12.75100I= ?Step 1. Read the problem carefully and list the information( look for the ‘key’ words)Step 2. Find the interestI = P x R x T= x 12.75% x 4/12= $ 3315Step 3. To calculate the amount paid all togetherThe total amount = P + I= =$81315