Posts Tagged ‘Simple Interest’

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.

 

Simple Interest

Simple Interest

I = Prt,

where  p is the principal;

r is the annual interest rate;

t us the time in years.

Example:-

To bye furniture for a  new apartment, Jennifer Wall borrowed 5000 at 8% simple interest for 11 months. How much interest will she pay ?

Solution:-

From the formula, I = Prt, with P = 5000, r = .08, and t = \frac{11}{12}(in years). The total interest she will pay is

I = 5000(.80)(\frac{11}{12}) = 366.67

I = 366.67.