Simple Interest Loans

• A loan is essentially renting money
  • You get an amount of money, called the principal
  • For an amount of time, called the term
  • For a given amount of rent, called the interest
  • Interest, unless otherwise specified is represented by an annual percent interest rate, or apr.
• In a simple interest loan
  • You are given a fixed amount of money P
  • For a fixed amount of time t
  • At a fixed interest rate r
  • At the end you must pay back an amount A
    • Where A is the principal
    • Plus interest
  • A = P+i
  • i = Prt
• You need to make sure that r and t are in the same terms.
  • There are 12 months in a year
  • There are 52 weeks in a year
  • There are 360 days in a year because bankers are strange
  • Unless given otherwise, r is annual.
• Try some problems P580 9 - 27
• A discount note is weird
  • The story will always say "discount" or "discount rate"
  • The amount of the loan is given as principal plus interest
  • You fist must compute the interest
  • Then compute the real rate
  • The real rate will always be higher than the discount rate.
  • You compute the interest twice.
• Try problems 29-32