MGF 1107 – EXPLORATIONS IN MATHEMATICS
LECTURE 26
Simple Interest
Interest is the money the borrower pays for the use of the lender’s
money. One type of interest is called simple interest
. Simple interest is
based on the entire amount of the loan for the total period of the loan.
The formula used to calculate simple interest is
Interest = Principal x Rate x Time
i = P x r x t
where the principal, P, is the amount of money lent, the rate, r, is the
interest rate expressed as a decimal, and the time, t, is the period for
which the money will be lent. Time is expressed using the same period
as the interest rate. So if the interest rate is 5% per month, then the time
must be expressed in months.
Ex.
If $5000 is borrowed at a rate of 10% annual simple interest, and the
loan is for 9 months, what is the total amount that must be paid back at
the end of this period?
We first calculate the interest using the formula above, and then add this
to the principal to get the full amount due.

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