How to solve simple interest problems.
When someone lends money to someone else, the borrower usually pays a fee to the lender. This fee is called 'interest'. 'Simple' interest, or 'flat rate' interest. The amount of simple interest paid each year is a fixed percentage of the amount borrowed or lent at the start.
The simple interest formula is as follows:
Interest = Principal × Rate × Time
The simple interest formula is often abbreviated in this form:
Three other variations of this formula are used to find P, R and T:
Simple interest problems can involve lending or borrowing. In both cases the same formulas are used.
Whenever money is borrowed, the total amount to be paid back equals the principal borrowed plus the interest charge:
Usually the money is paid back in regular instalments, either monthly or weekly. To calculate the regular payment amount, you divide the total amount to be repaid by the number of months ( or weeks ) of the loan. Like this:
To convert the loan period, 'T', from years to months, you multiply it by 12, since there are 12 months in a year. Or, to convert 'T' to weeks, you multiply by 52, because there are 52 weeks in a year.
The example problem below shows you how to use these formulas:
A student purchases a computer by obtaining a simple interest loan. The computer costs $1500, and the interest rate on the loan is 12%. If the loan is to be paid back in weekly instalments over 2 years, calculate:
Given: principal: 'P' = $1500, interest rate: 'R' = 12% = 0.12, repayment time: 'T' = 2 years
Part 1: Find the amount of interest paid.
Part 2: Find the total amount to be paid back.
Part 3: Calculate the weekly payment amount
weekly payment amount = ---------------------------------------
loan period, T, in weeks
2 × 52
Maths Helper Plus can solve many
kinds of simple interest problems. It will do calculations showing the working
steps, as well as display a labelled diagram.
Step 2 Display the parameters box
Press the F5 key to display the parameters box:
You enter the given information into these edit boxes as follows:
edit box 'A' = I, the amount of interest ($)
edit box 'B' = P, the principal lent or borrowed ( $ )
edit box 'C' = R, the interest rate (%)
edit box 'D' = T, the period of the loan (years)
Set any three of A, B, C and D to the values you are given.
Set the unknown value to zero.
Out of the four edit boxes A, B, C and D, three will not be zero, and one will be zero.
NOTE: The parameters box diagram shows the correct settings for solving the example from the 'Theory' section above.
Click the 'Update' button to refresh the diagram and calculations.