Interest

Sub Topics
I Definition of Interest
II Simple Interest
III Compound Interest
IV Application in business
V. Problems

I Definition of Interest

If we save or invest our money in a bank we are getting a revenue from the bank for
a certain period. The revenue we get from our investment is called interest.

II Simple Interest

Simple Interest Formula

I=PRt
Where:
I = Interest
P =Principal
R = interest rate per time unit (month)
t = time
Pt = P + I = P + PRt = P(1+Rt)
Where
Pt = Total amount over t months.
Example.
A man invested Rp 200.000 at 1,5% per month simple interest. Find the total
amount for 8 months.
Answer.
Given P=200,000, R=0,015, t = 8
Pt = 200,000(1+0,015x8)
=200,000x 1,12
= 224,000

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III Compound Interest

Compound Interest Formula

Pt = P(1+i)t
Where
i = interest rate
Example.
A man invested Rp 200.000 at 1,5% per month compounded monthly Find the
total amount for 8 months.
Answer.
Given P=200,000, R=0,015, t = 8
Pt = 200,000(1+0,015)8
=200,000x 1.126493
=225,298.5

IV Application

Example 1
A man invested at a bank Rp 500.000 at 1% per month compounded monthly. Find
how much the interest over a year.
Answer.
Given P=500,000, i=0.01, t =12
I = Pt - P = 500,000(1+0,01) 12 - P
=500,000x 1.126825 - 500.000
= 563,412.5 –500,000
=63,412.5
Example 2
A man invested at a bank 2 years ago Rp 800.000 at interest rate compounded
monthly , amount of his investment is Rp 991.923. How much interest rate per
month?
Answer.
Given P=800.000, t =24, Pt = 991.923
Pt = P(1+i)t
991.923 = 800.000(1+i)24
(1+i)24 = 991.923/800.000
(1+i) =( 991.923/800.000) 1/24
(1+i) =1,009
I =0,009 = 0,9%

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V Problems

Problem1
When a man deposited at a bank Rp 400,000, the bank paid 1% per month
compounded monthly. 6 months later, the bank paid 1.1% per month compounded
monthly. Find the total amount for 2 years.?

Problem2
A man deposited at a bank Rp 1000,000, the bank paid 1% per month
compounded monthly. 8 months later, he added his deposits Rp 2,000,000. Find the
total amount for 3 years?

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