Simple Interest

Simple interest

Simple interest is interest that is earned only on the original principle.
Simple interest increases linearly over time.

Formula

I = Prt
F = P(1 + rt)

where

P = principal
I = interest
F = future value OR accumulated amount
r = annual interest rate (a.p.r.)
t = time in years

Example: Suppose $1,000 is deposited in an account earning simple interest at
an annual rate of 8%. Compute the interest earned and the amount
accumulated after 10 years.

I = Prt = 1,000(.08)(10) = $800
F = P(1 + rt) = 1,000(1 + .08(10)) = $1,800

Example: Suppose some money is deposited in an account earning simple interest at
an annual rate of 8%. How much money must be invested now in order to
accumulate $1,000 in 10 years ?

P = F/(1 + rt) = 1000/(1 + .08(10)) = $555.56

Exercises


(1) Find the amount of money accumulated if $10,000 is deposited 
    in an account paying simple interest at the rate of 6% per year
    for 10 years.
     $16,000.00
     $17,908.48
     $18,140.18
     $18,221.19 


(2) Find the present value of $10,000 due in 10 years invested
    at an annual interest rate of 6% simple interest. 
     $5,488.12 
     $5,512.62
     $5,583.95
     $6,250.00

Calculator

Amount
Annual interest rate as a decimal
Length of the investment in years

Future value
Present value