Vocabulary
Interest- an amount of money that is charged for borrowing or using money, or an amount of money
that is earned by saving money.
Simple Interest- money paid only on the principal.
Principal- the amount of money deposited or borrowed.
Examples
Simple Interest
When money is borrowed, interest is charged for the use of that money for a certain period of time. When the money is paid back, the principal (amount of money that was borrowed) and the interest is paid back. The amount to interest depends on the interest rate, the amount of money borrowed (principal) and the length of time that the money is borrowed.http://www.aaamath.com/pct68_x8.htm
The formula for finding simple interest is: Interest = Principal * Rate * Time. If $100 was borrowed for 2 years at a 10% interest rate, the interest would be $100*10/100*2 = $20. The total amount that would be due would be $100+$20=$120.
Simple interest is generally charged for borrowing money for short periods of time. Compound interest is similar but the total amount due at the end of each period is calculated and further interest is charged against both the original principal but also the interest that was earned during that period.
When someone lends money to someone else, the borrower usually pays a fee to the lender. This fee is called 'interest'. 'Simple' interest, or ' flatrate' interest. The amount of simple interest paid each year is a fixed percentage of the amount borrowed or lent at the start.
The simple interest formula is as follows:
Interest = principal × Rate ×
Time
where:
'Interest' is the total amount of interest paid,'Principal' is the amount lent or borrowed,'Rate' is the percentage of the principal charged as interest each year. The rate is expressed as a decimal fraction, so percentages must be divided by 100. For example, if the rate is 15%, then use 15/100 or 0.15 in the formula.'Time' is the time in years of the loan.
The simple interest formula is often
abbreviated in this form:
I = P R T
Three other variations of this formula are used to find P, R and
T:
Simple interest problems can involve lending or borrowing. In
both cases the same formulas are used.
Whenever money is borrowed, the total amount to be paid back
equals the principal borrowed plus the interest charge:
total repayments = ( principal + interest )
Usually the money is paid back in regular instalments, either
monthly or weekly. To calculate the regular payment amount, you divide the total
amount to be repaid by the number of months ( or weeks ) of the loan. Like this:
OR:
To convert the loan period, 'T', from years to months, you
multiply it by 12, since there are 12 months in a year. Or, to convert 'T' to
weeks, you multiply by 52, because there are 52 weeks in a year.
The example problem below shows you how to use these formulas:
Example:
A
student purchases a computer by obtaining a simple interest loan. The computer
costs $1500, and the interest rate on the loan is 12%. If the loan is to be paid
back in weekly instalments over 2 years, calculate:
1. The amount of interest paid over the 2 years,2. the total amount to be paid back,3. the weekly payment amount.
Given: principal: 'P' = $1500, interest rate: 'R' = 12% =
0.12, repayment time: 'T' = 2 years
Part 1: Find the amount of interest
paid.
interest: 'I' = PRT= 1500 × 0.12 × 2= $360
Part 2: Find the total
amount to be paid back.
total repayments = principal + interest= $1500 + $360= $1860
Part 3: Calculate the weekly payment amount
total repayments
weekly payment amount =
---------------------------------------
loan period, T, in weeks
$1860
= -------------------
2 × 52
Video Help= $17.88 per weekhttp://www.teacherschoice.com.au/maths_library/money/simple_interest.htm
https://www.youtube.com/watch?v=ZWCXrbnMN-E
https://www.youtube.com/watch?v=KTzvzV-BgCw
https://www.youtube.com/watch?v=6AZijeJDmgY
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