Interest is either earned when we deposit money into a bank or paid when we borrow money. Simple interest is calculated using a straightforward formula that considers the principal amount, the interest rate, and the time for which the money is deposited or borrowed.
The formula for simple interest is:
Let’s look at some examples.
Example 1: Calculating the Final Amount after Interest
Mr White deposited £5000 into a bank for 5 years, earning 2% interest on his money per year. How much will he have in his account after the 5 years?
Example 2: Calculating Interest and Total Amount Paid for a Loan
Bernard took a loan of £10,000 from his bank and will pay interest on this sum for 10 years at the rate of 5% per annum. Find how much interest he should pay after 10 years and the total amount he paid.
Example 3: Finding the Amount Borrowed
A sum of money was borrowed from a bank at a 7.5% interest per year for 4 years. The interest amounted to £150. What is the amount borrowed?
Example 4: Finding the Interest Rate per Annum
£50,000 was paid to Mrs Mary after investing £40,000 for 6 years into a bank. Find the interest rate per annum.
Example 5: Finding the Loan Duration
A sum of £4500 was borrowed from a firm paying 2.5% interest rate per annum. The interest paid was £750. Find how long the sum was loaned.
Example 6: Calculating Interest Earned in a Specific Time Period
£500 is deposited into a bank paying a 3% interest rate per annum. How much interest is earned in 4 months?