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Consumer Math

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Chapter 2Chapter 2

Consumer ArithmeticConsumer Arithmetic

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• Calculate simple interest

• Calculate the total amount of a loan and the total value of an investment at the end of a special term.

Simple Interest#10#10Learning Unit Objectives

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• Using the interest formula, calculate the unknown when the other two (principal, rate, or time) are given

Simple Interest#10#10Learning Unit ObjectivesFinding Unknown in Simple Interest Formula

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Maturity Value

Maturity Value = Principal (P) + Interest (I)

The amount of the loan(Face value)

Cost of borrowing

money

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Simple Interest Formula

Simple Interest (I) = Principal (P) x Rate (R) x Time (T)

Stated as aPercent Stated in

years

Maha borrowed $30,000. The loan was for 6 months at a rate of 8%. What is interest and maturity value?

SI = $30,000 x.08 x 6 = $1,200 12

MV = $30,000 + $1,200 = $31,200

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The Method of Calculating Simple Interest and Maturity Value

Exact Interest (365 Days)

Time = Exact number of days 365

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The Method of Calculating Simple Interest and Maturity Value

Exact Interest (365 Days)

I = P X R X T$40,000 x .08 x 124 365$1,087.12MV = P + I$40,000 + $1,087.12$41,087.12

On March 4, Ray borrowed $40,000 at 8%. Interest and principal are due on July 6.

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Finding Unknown in Simple Interest Formula - Principal

Principal = Interest Rate x Time

Interest (I) = Principal (P) x Rate (R) x Time (T)

Christina Jones paid the bank $19.48

interest at 9.5% for 90 days. How much did

she borrow?

$19.48 .P = .095 x (90/365) = $831.6

.095 times 90 divided by 365. Do not round answer

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I = P x R x T = 10000 x 10 x 3 100 = $ 3000I must pay back = P + I = 10000+3000 =$ 13000

How much must I pay back if I borrow $10000 for 3 years at 10% pa simple interest?

.

.Total amount = P + I

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Rate = Interest Principal x Time

R = $8550 = 14.25 % pa. 6000x 10

.I was getting 14.25% interest rate

What simple interest rate would allow $ 6000 to grow to an amount of $ 14550 in 10 years?

So the simple interest I= 14550 – 6000 =$ 8550

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Finding Unknown in Simple Interest Formula - Rate

Rate = Interest Principal x Time

Interest (I) = Principal (P) x Rate (R) x Time (T)

Christina Jones borrowed $820.21

from the bank. Her interest is $19.48 for

90 days. What rate of interest did Christina

pay?

$19.48 .R = $820.21 x (90/365) = 9.6%

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Finding Unknown in Simple Interest Formula - Time

Time (yrs) = Interest Principle x Rate

Interest (I) = Principal (P) x Rate (R) x Time (T)

$19.48 .T = $820.21 x .095 = .25

.25 x 365 = 91.25 days

Christina Jones borrowed $820.21

from the bank. Her interest is $19.48 for

9.5%. How much time does Christina have to repay the

loan?

Convert years to days (assume 365 days)

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Vocabulary:Principal: an amount of money owed by an investor and held by a financial institution such as a bank.Deposit: the act of establishing , or adding to , existing principal.Balance: the amount of money in an account.Interest: the amount of money you earn by leaving deposits in a bank or financial institution Interest is a percentage of your principal.Term: the period of time an investment lasts.

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Steps to answer simple interest question

Step 1. Read the problem carefully and list the information( look for the ‘key’

words)

Step 2. Find the interest

Step 3. To calculate the amount paid all

together

Ahmad borrowed $ 78000 for 4 months at 12.75% pa simple interest to pay for her new house while her old one was being sold . How much interest did she pay? And how much was paid back altogether? P = $78000

T= 4 months or 4 /12 years

R = 12.75% or 0.1275 or 12.75

100

I= ?

I = P x R x T = 78000 x 12.75% x 4/12 = $ 3315

The total amount = P + I = 78000+ 3315 =$81315