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

RELATED PAGES
- Interest
- Simple Interest
- Simple Interest Problems


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