Simple interest
To find the simple interest, use this formula: Interest = Principal × Rate of interest × Time
The principal is the amount of money you borrow or invest.
The rate of interest is the percent charged for the use of money
The time is the duration or the time the money is invested or borrowed in years.
Exercises #1:
Compute the interest if the principal is 2000 dollars at a rate of interest of 5% for 4 years.
Using a calculator,
Interest = 2000 × 5% × 4 = 2000 × 0.05 × 4
Interest = 100 × 4 = 400
Exercises # 2
Compute the interest if the principal is 2,000,000 dollars at a rate of interest of 4% for a year
Using a calculator,
Interest = 2,000,000 × 4% × 1
Interest = 2,000,000 × 0.04 × 1
Interest = 80,000 × 1 = 80,000
If you have 2 millions dollars and your bank pay you 4% interest every year, you will earn 80,000 dollars every year.
Great, you can quit your day time job!
Exercises # 3
Compute the interest if the principal is 100 dollars at a rate of interest of 2% for 10 year
Using a calculator,
Interest = 100 × 2% × 10
Interest = 100 × 0.02 × 10
Interest = 2 × 10 = 20
With little money invested and low interest, 10 years investment gives you a mere 20 dollars
This might be a waste of time!
Take the simple interest quiz to see if you really understood this lesson. Some questions are tricky!