Simple Interest Problems
Interest is calculated by the formula:
After the accumulation of Interest, the final amount (A) is the sum of original amount plus the interest earned: A = P + Prt
This is called Simple Interest Formula.
Where,
I = Interest earned or charged
P = Original amount (called Principal amount)
A = Final amount (Amount after acuumulation of interest)
r = Interest rate
t = Time period (in years).
NOTE: In simple interest; interest is calculated on the original principal only. Accumulated interest from prior periods is not used in calculations for the following periods.
Example 1.
Suppose $1,500 is deposited into a savings account that earns simple interest at an annual rate of 10%. How much will be in the account after:
(a) 1 year
(b) 3 years
(c) 4.5 years
(d) 5 years and 8 months
Solution:
Here, P = 1500, r = 10% (0.1)
(a) 1 year Put t = 1
As we know that the formula for calculating Simple Interesr is:
A = P (1 + rt)
= (1500)[1 + (0.1)(1)]
= $1650 Answer
(b) 3 year Put t = 3
As we know that the formula for calculating Simple Interesr is:
A = P (1 + rt)
= (1500)[1 + (0.1)(3)]
= $1950 Answer
(c) 4.5 year Put t = 4.5
As we know that the formula for calculating Simple Interesr is:
A = P (1 + rt)
= (1500)[1 + (0.1)(4.5)]
= $2175 Answer
(d) 5 years and 8 months Put t = 5 + 8/12 = 5.6667
As we know that the formula for calculating Simple Interesr is:
A = P (1 + rt)
= (1500)[1 + (0.1)(5.6667)]
= $2350 Answer
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