2. Simple Interest (1/4)
Interest
The money paid to a borrower or investor
for the use of money.
Simple Interest
The simplest form of interest calculation.
Calculated by using only the initial investment.
Simple Formula Number of
Interest periods
I = P n r
Principal Rate of
or Money interest
2
3. Simple Interest Example (2/4)
Calculate Interest on a loan of $25 00 at
8.9% per annum for 7 years.
I=Pnr
8.9% = 8.9
100 = 25 00 x 7 x 0.089
= 0.089 = $15 57.5
Calculate return on an investment of $1 200
at 7.5% per annum for 5 years.
I=Pnr
7.5% = 7.5 = 1 200 x 5 x 0.075
100
= $450
= 0.075
3
4. Simple Interest Example (3/4)
Calculate return on an investment of $9000
at 5% per annum for 9 months.
9
9 months =
12
I=Pnr
= 3
4 = 9000 3 x 0.05
x
4
5 = $337.5
5% =
100
= 0.05
4
5. Simple Interest Example (4/4)
How long will it take to earn $100 on an
investment of $500 at 10% per annum.
I=Pnr
r = 10
100 100 = 500 x n x 0.10
= 0.10 100 = 50n
÷50 ÷50
n = 2 years
5
