Simple Interest

Simple interest is the interest calculated on a principal sum. Principal is the sum of money invested in to, or borrowed from an institution, denoted as P. The money earned by an invested principal is called interest, and the money charged for borrowing a principal amount from an institution is also called interest, denoted as I. The amount of interest earned or charged per year is expressed as a percentage and is known as the rate of interest, denoted as R.

Therefore,

Note, the amount accruing, A  = P + I

Example1:

A person invested $5000 in a bank at 10% per annum for 4 years.

(a)What is the simple interest earned?

(b)Determine what this interest earned equals to in terms of monthly payments.

Example2:

A person borrows $12000 from a bank at 15% per annum for 3 years. Determine the sum of each monthly payment.