simple interest

Simple Interest

When money is borrowed, interest is charged for the use of that money for a certain period of time. When the money is paid back, the principal (amount of money that was borrowed) and the interest is paid back. The amount to interest depends on the interest rate, the amount of money borrowed (principal) and the length of time that the money is borrowed.
The formula for finding simple interest is: Interest = PrincipalxRatexTime. If RM100 was borrowed for 2 years at a 10% interest rate, the interest would be RM100X10%X2 = RM20. The total amount that would be due would be RM100+RM20=RM120.

Simple interest is generally charged for borrowing money for short periods of time. Compound interest is similar but the total amount due at the end of each period is calculated and further interest is charged against both the original principal but also the interest that was earned during that period.
Calculating Interest: Principal, Rate and Time are Known.

M4500.00 AT 9.5% FOR 6years
I= PrtI= (4500)(0.095)(6)
I= RM2565.00

For the above calculation, we have $4500.00 to invest (or to borrow) with a rate of 9.5% for a 6 year period of time.

Calculating Interest When the Time is Given in Days

RM6300.00 at 8% for 310/365 years
I= Prt
I= (6300)(0.08)(310/365)
I= RM428.05

Let's say you want to borrow RM6300.00 from March 15th, 2007 until January 20th 2008 at a rate of 8%. The formula will still be I = Prt, however, we need to calculate the days. To do so, we will not count the day the money is borrowed or the day the money is returned. Let's figure out the days: March = 16, April = 30, May = 31, June = 30, July = 31, August = 31, September = 30, October = 31, November = 30, December = 31, January = 19. Therefore the time is 310/365. A total of 310 days out of 365. This is entered into the t for the formula.

What Annual Rate of Interest Is Needed for RM2100.00 TO earn RM122.50 in 14months?

r=I/Pt
r=122.50/(2100)(14/12)
r=(122.50)(12)/(2100)(14)
r=1470/29400
r=0.05 =5%

When the amount of interest, the principal and the time period are known, you can use the derived formula from the simple interest formula to determine the rate. I=Prt becomes r=I/Pt. Remember to use 14/12 for time and move the 12 to the numerator in the formula above. Get your calculator and check to see if you're right.