Simple Interest Answers PDF

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Winter 2018 J.Gregorio

Simple Interest ● ●

Used mainly for short-term loans and investments There are 4 variables involved in calculating simple interest: ○ Principal: the amount borrowed/loaned ○ Rate of Interest: the amount of interest charged per period (expressed as a percentage of the principal) ■ Usually quoted for a one-year period, the rate is called a per annum  rate ■ Interest rate must be converted to a decimal when used in the calculation ○ Time Period: term of the loan or investment, in years ○ Interest Amount: Amount of interest charged per period

Equation:

I = P rt

Examples: 1. I deposited $1000 at 6% per annum for 6 months. How much interest would I earn? Interest Earned: $30 2. What amount of interest will be charged on $800 at 5% per annum for 9 months? Interest Charged: $30 3. If I want to earn $100 over 5 months at 3% interest, how much would I have to invest? Principal: $8000

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Winter 2018 J.Gregorio Practice (From Textbook Section 6.1) 2. Montel loaned $6800 to a friend for 13 months at an annual interest rate of 7.7% simple interest. How much interest did the borrower owe? Interest: $567.23

7. What annual rate of interest was earned if a $15,000 investment for five months earned $546.88 in interest? Rate: 8.75%

15. Morgan Loaned $3100 to Rolf at a simple interest rate of 0.65% per month. What was the term of the loan if the total interest came to $221.65? Term: 11 months (Guided Example) 18. Sergon has $5000 to invest for six months. The rates offered on three-month and six-month term deposits at the bank are 5.5% and 5.8% respectively. He is trying to choose between the six-month term deposit and two consecutive three-month term deposits. What would the simple rate of interest need to be on the second three-month term deposit for Sergon to end up in the same financial position with either alternative? Assume that he would place both the principal and the interest from the first three-month term deposit in the second three-month term deposit. Interest on 6-month Deposit: $145 Interest Rate for the second 3 month term: 6.02%

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