Consumer Math

Chapter 2 Consumer Arithmetic

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.

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

Maturity Value = Principal (P) + Interest (I) Cost of borrowing money The amount of the loan (Face value)

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

The Method of Calculating Simple Interest and Maturity Value Exact Interest (365 Days) Time = Exact number of days 365

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

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 365. Do not round answer $19.48 . P = .095 x (90/365) = $831.6

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 = 10000 x 10 x 3 100 = $ 3000 I must pay back = P + I = 10000+3000 =$ 13000 .Total amount = P + I .

What simple interest rate would allow $ 6000 to grow to an amount of $ 14550 in 10 years? So the simple interest I= 14550 – 6000 =$ 8550 Rate = Interest Principal x Time .I was getting 14.25% interest rate R = $8550 = 14.25 % pa. 6000x 10

Finding Unknown in Simple Interest Formula - Rate Interest (I) = Principal (P) x Rate (R) x Time (T) Christina Jones borrowed $820.21 from the bank. Her interest is $19.48 for 90 days. What rate of interest did Christina pay? Rate = Interest Principal x Time $19.48 . R = $820.21 x (90/365) = 9.6%

Finding Unknown in Simple Interest Formula - Time Interest (I) = Principal (P) x Rate (R) x Time (T) Christina Jones borrowed $820.21 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) $19.48 . T = $820.21 x .095 = .25 .25 x 365 = 91.25 days

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.

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 T= 4 months or 4 /12 years R = 12.75% or 0.1275 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 = 78000 x 12.75% x 4/12 = $ 3315 Step 3. To calculate the amount paid all together The total amount = P + I = 78000+ 3315 =$81315