﻿ Simple Interest ## Simple Interest Examples

### Example 1

How much simple interest is earned if \$2,000 is invested for 15 months at a nominal interest rate of 4.2%? What is the future value of this investment?

I = Prt = 2000 * 0.042 * (15/12) = 2000 * 0.042 * 1.25 = \$105.00 2000 0.042 1.25 105.00

A = P + I = 2000 + 105 = \$2,105.00 2000 105 2,105.00

### Example 2

Tom loaned Sally \$3,000 with the understanding that she would pay him back \$3,600 in three years. How much simple interest will Sally pay and what is the annual interest rate?

Solve the equation A = P + I for I:

I = A - P (Interest is the difference between what you get out of the investment and what you put into the investment.)

I = 3600 - 3000 = \$600 3600 3000 600

Solve the equation I = Prt for r:

r = I / (Pt) = 600 / (3000 * 3) = 0.066666...
0.066666... 100 = 6.67% (rounded to two decimal places) 600  3000 3  0.0666666667 100 6.666666667

### Example 3

How long will it take an investment of \$200 to amount to \$250 at 6% simple interest?

I = A - P = 250 - 200 = 50 250 200 50

Solve the equation I = Prt for t:

t = I/(Pr) = 50/(200 * 0.06) = 4.166666 years.
4.166666 years * 12 months/year = 50 months. 50  200 0.06  4.166666667 12 50