BarnettSimpleInterest1.doc - University of Modern Sciences...

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University of Modern Sciences & Arts (MSA) Simple Interest Prof. Adel Hamdy Mathematics of Finance MTH-112 Lecture Notes 1 SIMPLE INTEREST 1. Simple Interest : An investment that pays Simple Interest gives interest directly to the investor, perhaps in the form of a monthly check. The interest is computed on the original principal or present value . It is used on short-term notes, often of duration less than 1 year. The two formulas used for these problems are: t I Pr And ) 1 ( rt P I P A Where: P = principal (also called present value). It is the amount of money invested (deposited in an account in a bank) or borrowed (taken as a loan from a bank) in $. r = interest rate per year (expressed as a decimal). t = time in years. I = Interest earned by you if you deposit money in a bank (or paid by you to the bank if you borrow money from the bank) in $. A = Amount (or future value). It is the amount of money you will have in your account in the future after earning interest (or returned to the bank in the future with interest charged on you to repay a loan) in $.
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