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Simple Interest
CHAPTER
1
ESSENTIAL NOTES
DEFINITIONS
1 The sum of money saved, borrowed or invested is called the Principal
or the “Capital”.
2 Simple interest is interest earned on the Principle alone through out the
entire life of the transactions. The principle remains fixed; it does not
increase or decrease.
3 Rate of interest is the interest earned relative to the Principle invested.
It is expressed a percentage of the principle. The rate is calculated for a
period of one year.
4 The time involved in simple interest maybe in terms of years, months
or days.
5 Exact Simple Interest and Ordinary Simple Interest
P means Principal
I means Simple Interest or Interest Received
r means rate of interest per annum
t means time in years
S means total sum of principal and Interest or the accumulated
amount
I = P.r.t
WORKED EXAMPLES
QUESTION 1
A man applies for a loan of $5,000 from a bank which charges
simple interest at 12% per annum. Find the exact simple interest
charged if the man borrows the money for (a) 3 years, (b) 9
months, (c) 150 days.
SOLUTION
(a) I = P.r.t
= $5,000 x 0.12 x 3
= $1,800
(b) I = P.r.t / 12
= $5,000 x 0.12 x 9 / 12
= $450
(c) I = P.r.t / 12
= $5,000 x 0.12 x 150 / 365
= $246.58
QUESTION 2
Find the ordinary simple interest of a loan of $6,500 at 15% p.a
for (a) 2 years, (b) 4 months, (c) 200 days.
SOLUTION
(a) I = P.r.t
= $6,500 x 0.15 x 2
= $1,950
(b) I = P.r.t / 12
= $6,500 x 0.15 x 11 / 12
= $325
S = P+I
= P + P.r.t
or S = P (1 + r.t)
S = P (1+r.t)
WORKED EXAMPLES
QUESTION 3
A man invested $20,000 in a business project that earned simple
interest at a rate of 15% p.a for 3 years. Find the amount of
investment at the end of 3 years.
SOLUTION
S = P (1 + 0.15 x 3)
= $20,000 (1 + 0.15 x 3) = $29,000
QUESTION 4
A bank paid simple interest at a rate of 9 ½ p.a. A man deposited
a sum of $12,000 on March 10, 2004 in the bank. Find the
accumulated amount on September 15, 2004.
SOLUTION
S = P (1 + r.t)
= $12,000 (1 + 0.095 x 189 / 365 )
= $12,590.30
I
t = -------
P.r
WORKED EXAMPLES
QUESTION 5
How long will it take a sum of $3,200 to amount to $1,500 at a
simple interest rate of 10% p.a.?
SOLUTION
Since I=S–P
I = $3,200 - $1,500
= $1,700
I
and t = --------
P.r
1,700
t = --------------------- = 11.33 years
1,500 x 0.10
QUESTION 6
How long will it take a sum of $2,000 to amount to $4,500 at a
simple interest of 10% p.a ? (Months?)
SOLUTION
Since I=S–P
I = $4,500 - $2,000
= $2,500
I
and t = --------
P.r
2,500
t = --------------------- = 12.50 years = 150 ms
2,000 x 0.10
Page 5 of 12 CHEA Sopheap, MBA
Department of Business and Economics Western University
S = P (1 + r.t)
S
==> P = ----------------
(1 + r.t)
0r P = S (1 + r.t) -1
S
P = ------------ or P = S (1 + r.t) -1
(1 + r.t)
WORKED EXAMPLES
QUESTION 7
A sum of money invested today will amount to $2,500 in 10
months at simple interest rate of 10 ¼ % p.a. Find the sum of
money invested.
SOLUTION
Since S = P (1 + r.t)
א P = S (1 + r.t) -1
= $2,500 (1 + 0.1025 x 10 / 12) –1
= $2,303.26
QUESTION 8
A sum of money invested on February 27, 2004 will amount to
$3,000 on August 18, 2004 at simple interest rate of 11% p.a.
Find the sum of money invested.
SOLUTION
Page 6 of 12 CHEA Sopheap, MBA
Department of Business and Economics Western University
Since S = P (1 + r.t)
א P = S (1 + r.t) -1
= $3,000 (1 + 0.11 x 172 / 365) –1
= $2,852.16
I
r = --------
r.t
WORKED EXAMPLES
QUESTION 9
Calculate the rate of simple interest that will give $8,000 interest
on a principle of $20,000 at the end of 4 ½ years.
SOLUTION
Since I = P.r.t
I
r = ------
P.t
8,000
= -------------------
20,000 x 4.5
= 0.8888
= 8.89%
QUESTION 10
Page 7 of 12 CHEA Sopheap, MBA
Department of Business and Economics Western University
SOLUTION
I = S–P
= $4,000 - $3,500
= $500
I
and r = ------
P.t
500
= -----------------------
3,500 x 282 / 366
= 0.1854 = 18.54%
Saving Account is the non-term account that account owner can be Deposit
or Withdrawal money in the time that they wanted. The account owner can
not withdraw money by check, but they can use Passbook for Withdrawal or
Deposit money. This account received interest less than Fixed Deposit.
ESSENTIAL NOTES
WORKED EXAMPLES
QUESTION 11
A man has a saving account in your bank and the he made the
transaction as belong:
(a) 13-02-2004 Deposit $100,000
(b) 30-05-2004 Deposit $150,000
(c) 10-07-2004 Withdrawal $10,000
(d) 01-08-2004 Deposit $50,000
(e) 20-09-2004 Withdrawal $100,000
(f) 25-10-2004 Withdrawal $10,000
Calculate his balance on 01 January 2005 which include interest
rate 4% p.a.
SOLUTION
QUESTION 12
A man has a saving account in your bank and the he made the
transaction as belong:
(a) 16-03-2004 Deposit $600,000
(b) 01-04-2004 Deposit $350,000
(c) 16-06-2004 Withdrawal $30,000
(d) 16-08-2004 Deposit $40,000
(e) 01-10-2004 Withdrawal $600,000
(f) 16-11-2004 Withdrawal $20,000
Calculate his balance on 01 January 2005 which include interest
rate 3% p.a.
SOLUTION
WORKED EXAMPLES