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Consumer Math

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Chapter 2 Consumer Arithmetic

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**Learning Unit Objectives**

#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.

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**Learning Unit Objectives**

#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

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**Maturity Value = Principal (P) + Interest (I)**

Cost of borrowing money The amount of the loan (Face value)

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**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 MV = $30,000 + $1,200 = $31,200

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**The Method of Calculating Simple Interest and Maturity Value**

Exact Interest (365 Days) Time = Exact number of days 365

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**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 124 365 $1,087.12 MV = P + I $40,000 + $1,087.12 $41,087.12

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**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 = Interest Rate x Time .095 times 90 divided by Do not round answer $ P = .095 x (90/365) = $831.6

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**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 3 100 = $ 3000 I must pay back = P + I = =$ 13000 .Total amount = P + I .

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**What simple interest rate would allow $ 6000 to grow to an amount of $ 14550 in 10 years?**

So the simple interest I= – 6000 =$ 8550 Rate = Interest Principal x Time .I was getting 14.25% interest rate R = $ = % pa. 6000x 10

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**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 = Interest Principal x Time $ R = $ x (90/365) = 9.6%

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**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) = Interest Principle x Rate Convert years to days (assume 365 days) $ T = $ x = .25 .25 x 365 = days

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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.

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**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 = $78000 T= 4 months or 4 /12 years R = 12.75% or or 12.75 100 I= ? Step 1. Read the problem carefully and list the information( look for the ‘key’ words) Step 2. Find the interest I = P x R x T = x 12.75% x 4/12 = $ 3315 Step 3. To calculate the amount paid all together The total amount = P + I = =$81315

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