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# 2D Simple interest

When you borrow money, you have to pay for the privilege of being able to use money that
belongs to another person, a bank or other lending institutionyou pay interest. One method
of calculating how much you have to pay for the privilege is called simple interest. It is
called simple interest as the amount of interest paid remains the same each year.

SI = PRT

## P = principal, which is the amount of money borrowed or deposited

R = rate of interest, which is a percentage per annum or year
T = time (in years) the money is borrowed for

Example Solution
1 Calculate the simple interest charged on SI = PRT P = \$25 000
a loan of \$25 000 at 9% per annum for 9 9
5 years, if the principal is paid back at = 25000 5 R = 9% = p.a.
100 100
the end of the 5 years and the interest is = \$11250
paid annually. T = 5 years

2 Calculate:
a the simple interest charged on a SI = PRT P = \$2500
loan of \$2500 at 9% per annum 9 9
for 6 months = 2500 05 R = 9% = p.a.
100 100
= \$11250
6
T= = 05 years
12

## b the total amount owing The total amount owing

= principal + interest
= 2500 + 11250
= \$261250

Exercise 2D
1 Find the simple interest on a principal of \$8000 at 4% per annum for 5 years.

2 Calculate the simple interest on a principal of \$18 000 at 6% per annum for 3 years.

3 Calculate the simple interest on a principal of \$45 000 at 6 12 % per annum for 7 years.

4 How much simple interest would you pay on a principal of \$2000 at 8% per annum
borrowed for 6 months?

5 Calculate the simple interest on a principal of \$1200 at 5% per annum for 18 months.

6 Calculate the simple interest on a principal of \$5000 at 12% per annum for 4 months.

7 a Calculate the simple interest on a loan of \$25 000 at 85% per annum for 2 12 years.
b How much is owed in total after 2 12 years if nothing is repaid?