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Simple Interest

Simple Interest. By: Dilshad Akrayee. Definition. Simple interest is interest that is computed on the original sum. Formula: Principal amount * Annual Interest rate* Number of years

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Simple Interest

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  1. Simple Interest By: Dilshad Akrayee

  2. Definition • Simple interest is interest that is computed on the original sum. • Formula: Principal amount * Annual Interest rate* Number of years • Simple Interest is used commonly in variable rate consumer lending and mortgage loans where a borrower pays interest on funds used

  3. Time Interest Rate Principal Simple Interest I = P*r*t

  4. Ex) You want to borrow $8000 at 7% for only 90 days. How much interest you would like to pay? • I = ? • P= 8000 • r =7% = 0.07 • t= 90 days= 3 months= 0.25 Year • I = P * r * t • I = 8000 *0.07*0.25= $140

  5. Ex) Max borrows $30,000 to buy a car at 4.2% interest. How much interest will Max pay if the loan is for 3 years? I =P * r * t I = 30,000 (.042)(3) = $3780 interest How much total will Max pay for the car? 30,000 + 3780 = $33,780. How much will Max have to pay each month to the bank for the car? 3 years * 12 months = 36 months 33,780 ÷ 36 = $938.33

  6. Ex) Marjorie has a credit card that she uses for most of her purchases. The monthly interest rate on the card is 11.2%. If she charges $1000 in a month, how much interest will she pay on the balance? I = P * r * t I = 1000(.112)(1) = $112 If she can only pay $500 on the credit card, what is her new credit card balance? 1000 + 112 – 500 = $612

  7. Ex) Felisha wants to buy a new computer. She wants to borrow $2500 for 3 years. She will pay an interest rate of 5%. How much will she owe at the end of the 3 years? I = P*r*t I = $2,500 * .05 * 3 I = $375 The cost of the loan is $375 Making the cost of the computer $2,500 + $375 = $2,875

  8. Ex) Tammy borrows $55,000 to buy a car at 2.2% interest. How much interest will she pay if the loan is for 5 years? I = P * r * t I = 55,000 (.022)(5) = $6050 interest How much total will Tammy pay for the car? 55,000 + 6050 = $61050. How much will Tammy have to pay each month to the bank for the car? 5 years • 12 months = 60 months 61,050 ÷ 60 = $1017.5

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