Simple Interest

Simple Interest

Published on ginnyent.net on 30th May, 2019

The formular for simple interest is:

Principal × rate × time

The rate is usually in percentage and depending the period/time which could be in month or years. So we need to take these points into cognisance while calculating simple interest.

Example 1

Mr. Okon went to Standard Bank for a loan of \$100, 000 which he would invest in his business. The loan was given to him at 5% interest rate per annum. If he paid back the loan after 5 years. What was the total amount paid the bank?

Solution

The principal money is \$100, 000.

The rate is 5% per annum.

The period/time is 5 years.

From our formular, we have:

Principal × rate × time

(Bear in mind the rate is in percentage; so we will divide later by 100).

So we have: \$100, 000 × 5 × 5
= \$2, 500000

When we divide by 100, we will have: \$ 25,000

The total money Mr. Okon paid is:

Principal + interest

= \$ 100, 000 + \$25, 000

= \$ 125, 000

Example 2

A local cooperative institution gives a loan of \$50, 000 at 3% per month. If 500 people took loan from the institution on the first of February, 2019 and 200 returned the loan and interest one month after they took the loan, and 100 returned the loan and interest after two months, while the remaining 200 just returned theirs yesterday What amount did they make from the loan?

Solution

*Stay tuned for the solution to Example 2