Dr. J's Maths.com
Where the techniques of Maths
are explained in simple terms.

Financial Maths - Simple Interest.
Test Yourself 1 - Solutions.


 

The formula for simple interest is:

REMEMBER: This calculation only provides the interest paid.
To obtain the total value of the investment, the principal invested must be added.

 

When entering the values into your calculator DO NOT change the percentage to a decimal.
Enter it as given in the question and then add the % sign.
The number then is the same as in the question and you do not make an error (often accidental)
in entering a number which is not in the question.

Many people who do not understand calculators will try to make you use decimals.

Calculating the interest - various time periods.

1.

 

2.

Your calculator will look as follows:
  3. Andy: $25,000 at 2.3% simple interest for 20 months.

Your calculator will look as follows:
  4.
  5.
Calculating the total value. 6.
  7.
  8. Hugh: $5,000 - five years - 5% p.a. simple interest.

 
  9.
  10.
Calculating the rate. 11. (i) Over 2 years Glen repays $120 pm for 24 months.

So $2,880. But he borrowed $2,500 so the amount of interest paid over 2 years is $2880 -$2500 = $380.

(ii)

  12.
  13. The graph below showing the amount of interest Ashleigh pays over a period of 5 years is a straight line.

The annual gradient is $500:1. Hence the interest rate is:
  14. (i) $27.89 × 36 - $800 = $204.04.

(ii) ($204.04)/(3× 800) = 8.5%.
  15.
Calculating the number of periods. 16.
  17.
 

18.

NOTE: don't find the decimal asa an intermediate step - just put everything in your calculator as you see it in your rearranged equation.
  19.
  20.
Simple interest loans - Instalments. 21. Virginia purchased a new set of furniture using a simple interest loan. The furniture cost $2300 and the interest rate on the loan is 12% p.a.
If she is to pay off the loan over 2 years, what will her monthly instalments be?