Future or Maturity Value for Simple Interest

Future or Maturity Value for Simple Interest

The future or maturity value A of P dollars at a simple interest rate r for t years is

A = P(1 + rt).

Example:-

A loan of  2500 to be repaid in 8 months with interest of 9.2%

Solution:-

The loan is for 8 months, or \frac{8}{12} = \frac{2}{3} of a year. The maturity value is

A = P( 1 + rt)

A = 2500[1 + .092(\frac{2}{3})]

A = 2500(1 + .06133) = 2653.33

or  2653.33. (The answer is rounded to the nearest cent, as is customary in financial problems.) Of this maturity value.

2653.33 –  2500 =  153.33

Represents interest.

 

Leave a Reply