Simple Interest Loans

• A simple interest loan is the easiest type of loan.
• For this loan you
  • Borrow a fixed amount of money called the principal (p)
  • For a fixed amount of time (t)
  • At a fixed interest rate (r)
• At the end of the time, you pay rent or interest (i) on the loan.
• You pay off a total amount (A) which is the interest plus the principal.
• Formulas:
  • i = prt
  • A = p + i
  • A = p(1+rt)
• Caution: make sure time and interest are in the same terms.
  • I work in years unless there is a reason not to.
  • Interest rates are given as annual or yearly rates unless otherwise stated.
  • A year is 360 days unless otherwise stated.
  • A year has 12 months.
  • A year has 52 weeks.
• Find A and i if p=$430, r=3% and t = 4 years.
• Find A and i if p=$500, r = 5 1/2% and t = 180 days.
• Find A and i if p = $10,000 r = 9% and t = 7 months.
• Find r if p = $2000, t = 4 years and i = $400.
• Find i if p = $1000, t = 12 months and r = 0.047% daily.
• Sue borrows $500 to pay for text books, her brother charges her 12% interest and expects Sue to pay the loan off in 15 weeks.
  • How much interest does Sue owe?
  • How much must she pay her brother at the end of the semester.
• A discount loan is a simple interest loan where the interest is paid up front.
• To do a discount loan
  • Calculate i as in a simple interest loan
  • Use this to compute the actual principal
  • Calculate the simple interest rate based on the new interest and principal.
• Tim borrows $4000 at a discount rate of 8% for a period of 3 years.
  • How much money did Tim receive?
  • How much must he pay back?
  • What is the simple interest rate?