**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

Basic Financial TermsBasic Financial terms in Corporate and Mathematical Finance |
Financial Portfolio AnalysisSelection of assets, risk and return, and portfolio analysis |
Financial Mathematics NotesView the online notes for Financial Mathematics (CT1) |
Financial Computing with C++Learn Financial Computing with C++ step by step |