Simple Interest

- - Pre-Algebra, Lesson

Simple Interest HeaderInterest is an income derived from an invested capital or the amount of money paid for the use of someone’s money. Computation of interest employs the application of finding percent of a quantity since the interest on investment or debt is usually a certain percent of the capital or amount loaned over the whole term of the investment or obligation. Simple interest is the interest which is computed on the original principal during the whole time, at the stated interest rate.

To compute for simple interest, multiply the principal, rate and time (expressed in years or a fraction thereof). The sum of the interest and the original principal or amount borrowed is the amount or future value of the investment/obligation.

Consider the following examples on how to compute for interest, amount or principal:

Examples:

1.If P10,000 is invested at 6% then what will $10,000 amount to after 5 years?

Solution:

The future amount (or simply amount) of an investment is the sum of the principal and the interest earned.

\begin{array} {lcl} \text{Amount} & = & \text{principal} + \text{interest}\\ & = & $10,000+$10,000(5) \\&=&$13,000 \end{array}

Therefore, $10,000 will become $13,000 after 5 years if invested at 6% simple interest.

2. Find the interest at 5% on P5,000 and the corresponding amounts at the end 7 months.

Solution:

\begin{array}{c@{\,}c@{\,}c@{\,}c@{\,}c@{\,}c@{\,}c@{\,}c@{\,}c@{\,}c@{\,}c} &\displaystyle \text{Interest}&=&\text{principal}\times\text{rate} \times \text{time} \\ &&=&$50,000 \left ( 0.05 \right ) \left ( \displaystyle \frac{7}{12} \right ) \\ &&=&$145.83 \\ \end{array}

Therefore, the interest on $5,000 at 5% for 7 months is $145.83.

3. Mrs. Delos Santos invested P150,000 for two years. For the first year, the rate of interest was 3% and the second year it was 3.5%. How much interest was earned at the end of the two year period?

Solution:

Interest for the first year: Interest = P150,000 (0.03) = P4,500
Interest for the second year: Interest = P150,000(0.035) = P5,250

Therefore, total interest earned from the investment was PP9,750.

Simple Interest Worksheets

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