* Simple interest is then calculated by this formula
I = Prt
* From the definition of the amount s we have:
S= P + I * Then by subbing I = PRT we obtain s interms of P,r,t
S= p + Prt
S= P(1 + rt) * The factor (1 + rt) in formula is called the simple interest factor and the process of calculating S from P by formula 2 is called the accumulation at simple interest
* We can also express P in terms of S,r and t and obtain
* When we calculate P from S, we call P the present value (PV) or the discounted value of S. * The factor (1+rt)-1 is called the present value discounted factor at simple interest * The time T must be in years when an annual interest rate is used. In these cases when the time is given in months, then: T = number of months/12
* And, when the time is given in days, then:
T = number of days/ 365
Note, we always use 365 days in a year.
Examples 1. Find the simple interest on a 90 day loan of $500 at 8.5% p.a.
2. A couple borrows 10,000. The interest rate is 1% per month and the paymet is $210. How much of the fist payment goes to interest and how much to reduce the loan?
3. A loan shark made a loan of $100 to be repaid with $120 at the end of one moth. What was the