11.2, Simple Interest Loans

• A loan is a tool by which a lender can give money to a borrower.
• The money the lender gives the borrower is called the principal
• Simple interest loans require a single payment, at the end of the loan, of both principal and interest.
• Interest is the money the borrower pays to the lender for use of the money.
• Interest is based upon
  • the principal amount of the loan (p)
  • time the money is kept (t)
  • the interest rate (r).
• An interest rate is the percentage of the principal which must be paid as interest per time period.
  • Unless otherwise stated, all interest rates are annual (or percent per year)
  • When computing interest related problems, make sure that the time (t) and the interest rate (r) are in terms of the same time period.
  • For historical purposes, banks consider years to be 360 days long.
• For simple interest loans
  • i =prt
  • A = p+i
  • where p, r, and t are as defined above
  • i is the interest due
  • A is the total amount due.
• Do problems 9,11,12,13,17,19,21, 25,27
• A discount loan charges interest up front.
  • The stated amount will be principal plus interest.
  • First compute the principal using i=prt, p=A-i
  • Then compute the actual interest rate r=i/pt
• Do problem 29