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# Simple Interest - Part 2

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Simple Interest for Quarterly, Monthly, and Daily Calculations, including Interest on Bank Accounts

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### Simple Interest - Part 2

1. 1. Image Source: http://i.telegraph.co.uk
2. 2. I=PxRxTWhere:I = the Interest Money created in dollarsP = the “Principal” starting amount of moneyR = the Interest Rate per year (in decimal form)T = the Time the money is Invested, or Borrowed, in Years
3. 3. Interest can be calculated to be paid as Half-Yearly, Quarterly, Monthly, or Daily."T" needs to be entered as a fraction of a year, into I = PRT, because the Interest Rate is in units of years. Half Yearly : T = 1/2 Quarterly : T = 1/4 Monthly : T = 1/12 Daily : T = 1/365
4. 4. Tahli borrows \$2000 to buy a new TV at 18.5% pa Simple Interest charged 6 monthly, to be paid back over 2 years. What is the Interest each 6 months? I = PRT (T = ½ year) I = \$2 000 x 0.185 x 1/2 I = \$ 185 every 6 months Image Source: http://www.toogezer.com
5. 5. Tahli borrows \$2000 to buy a new TV and pays \$185 Interest charged every 6 months, to be paid back over 2 years. What is the Total Interest paid ?Total I = \$185 x 4 lots of 6 months (2 year Loan = 6mths + 6mths + 6mths + 6mths) = \$185 x 4 = \$740 Image Source: http://www.toogezer.com
6. 6. Tahli borrows \$2000 to buy a new TV and pays a total of \$740 Interest over 2 years. What is the Total Amount to be paid back ?Total Amount = Principal + Total I = \$2000 + \$740 = \$2740 Image Source: http://www.toogezer.com
7. 7. Alexandra borrows \$20 000 to set up a Beautician business at 16% pa Simple Interest charged Quarterly, to be paid back over 5 years and 3 months. What is the Interest each Quarter? I = PRT (T = 1/4 year) I = \$20 000 x 0.16 x 1/4 I = \$ 800 every Quarter Image Purchased by Passy World from Dreamstime.com
8. 8. Alexandra borrows \$20 000 for her business and pays \$800 Interest charged Quarterly, to be paid back over 5 years and 3 months. What is the Total Interest paid ?Total I = \$800 x 21 lots of 3 mth Quarters- 5 year 3mth Loan = (5 x 4 Quarters per year) + ¼ year = \$800 x 21 = \$16 800 Image Purchased by Passy World from Dreamstime.com
9. 9. Alexandra borrows \$20 000 for her business, and pays a total of \$16 800 Interest over 5 yrs 3 mths. What is the Total Amount she pays back ?Total Amount = Principal + Total I = \$20000 + \$16 800 = \$36 800 Image Purchased by Passy World from Dreamstime.com
10. 10. Joyce Deposits \$2 000 into an Internet Saver Account that gives her 5.4% pa Interest paid Monthly. She leaves the money there for 2 ½ years. What is the Interest she earns each Month? I = PRT (T = 1/12 year) I = \$2 000 x 0.054 x 1/12 I=\$9 every Month Image Source: http://www.mutualsavings.org
11. 11. Joyce Deposits \$2 000 into an Internet Saver Account that gives her \$9 in Interest paid Monthly. She leaves the money in the account for 2 and1/2 years. What is the Total Interest paid ?Total I = \$9 x 30 lots of One Month- 2 ½ year Loan = (2 x 12 Months per year) + 6 months = \$9 x 30 = \$ 270 Image Source: http://www.mutualsavings.org
12. 12. Joyce Deposits \$2 000 into an Internet Saver Account that gives her \$270 in Interest over 2 ½ years. What is the Total Amount now in her Account ?Total Amount = Principal + Total I = \$2000 + \$ 270 = \$2 270 Image Source: http://www.mutualsavings.org
13. 13. Interest is calculated for the month on thefollowing Bank Account’s “Minimum MonthlyBalance” using an Interest Rate of 3% pa. Calculate the Total Interest for the Month. Date Transaction Balance June 1 \$ 420 June 12 \$ 300 Withdrawal \$ 120 June 21 \$ 250 Deposit \$ 370
14. 14. Date Transaction Balance June 1 \$ 420 June 12 \$ 300 Withdrawal \$ 120 June 21 \$ 250 Deposit \$ 370The “Minimum Monthly Balance” is the lowestbalance for the month which is \$120. June is a30 day month, and so Time in Years = 30/365.Interest Rate is 3% pa = 0.03 Now Use I = PRTI = \$120 x 0.03 x 30/365 = \$ 0.29
15. 15. Interest is calculated DAILY on the followingBank Account’s current balance at the end ofeach day using a Rate of 4% pa.Calculate the Total Interest for the Month. Date Transaction Balance May 1 \$ 540 May 18 \$ 300 Deposit \$ 840 May 25 \$ 100 Withdrawal \$ 740
16. 16. For calculating Daily Interest we will need to do a separate calculation for each Balance. We also need to know how many days the account had that balance. Therefore we add a “Number of Days” Column onto our table:Date Transaction Balance Number of DaysMay 1 \$ 540 (1 to 8) = 8May 9 \$ 300 Deposit \$ 840 (9 to 19) = 11May 20 \$ 100 Withdrawal \$ 740 (20 to 31) = 12May 31 (May has 31 days) <<Count Days on your fingers>>
17. 17. Date Transaction Balance Number of DaysMay 1 \$ 540 (1 to 8) = 8May 9 \$ 300 Deposit \$ 840 (9 to 19) = 11May 20 \$ 100 Withdrawal \$ 740 (20 to 31) = 12May 31 <<Days / 365 to make Years units>> Interest Rate is 4% = 0.04 Now use Balance \$ and Days to Calculate PRT for each Balance: May 1 to 8 : PRT = 540 x 0.04 x 8/365 = \$ 0.47 May 9 to 19 : PRT = 840 x 0.04 x 11/365 = \$ 1.01 May 20 to 31 : PRT = 740 x 0.04 x 12/365 = \$ 0.97 TOTAL DAILY INTEREST FOR MONTH = \$ 2.45