Mat205

The Simple Interest Formula Concept

The Simple Interest Formula Concept

Amanda Spinks

MAT/205

October 7, 2012

The simple interest formula, [pic] , is very important in every day life and can serve as many purposes, it is not just used to help someone to find the simple interest on a short term loan. If an individual is contiplating a short term loan or even an investment of some sort the simple interest calculation can help that individiual figure out the answers to their questions like what would the total amount that will be paid over the life of the loan, the present value of a investment, interest rate earned on a note, interest rate earned on an investment , or even the interest earned on the investment. All of these are key questions that many individuals may have when it comes to making a loan or even investing their money so by knowing this formula they can do the calculation themselves without having to depend on their banker/accountant to do it for them.

In the simple interes formula, [pic], the A represents the amount , or future value of the loan or investment, P represents the Principal amount of the loan or investment, r is the annual simple interest rate (written as a decimal), and the t is the time in years.

For instance if an individual wants to make a small tuition loan in the amount of $1100 for school and the terms of the loan read the interest rate is 6% for 9 months. If the individual wants to find out exactly how much interest would be paid over this 9 month period they would use the simple interest formula, [pic]. The equation would be as follows:

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The total amount that will be paid back over the life of the loan would be $1149.50. If you subtract the orginal $1100.00 principal balance from that total, you will get $149.50 which is the interest that will be paid over the life of the loan.

This formula can be used...