VALENCIA MTB 1103 - Calculating Interest: Principal, Rate, and Time Are Known

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Calculating simple interest or the amount of principal the rate or the time of a loan can seem confusing but it s really not that hard Here are examples of how to use the simple interest formula to find one value as long as you know the others Calculating Interest Principal Rate and Time Are Known When you know the principal amount the rate and the time the amount of interest can be calculated by using the formula For the above calculation you have 4 500 00 to invest or borrow with a rate of 9 5 percent for a six year period of time Calculating Interest Earned When Principal Rate and Time Are Known Calculate the amount of interest on 8 700 00 when earning 3 25 percent per annum for three years Once again you can use the I Prt formula to determine the total amount of interest earned Check with your calculator Calculating Interest When the Time Is Given in Days Deb Russell I Prt Deb Russell Deb Russell Suppose you want to borrow 6 300 from March 15 2004 until January 20 2005 at a rate of 8 percent The formula will still be I Prt however you need to calculate the days To do so do not count the day the money is borrowed or the day the money is returned To determine the days March 16 April 30 May 31 June 30 July 31 August 31 September 30 October 31 November 30 December 31 January 19 Therefore the time is 310 365 A total of 310 days out of 365 This is entered into the t for the formula What Is the Interest on 890 at 12 5 Percent for 261 Days Deb Russell I Prt Once again apply the formula You have all the information you need to determine the interest in this question Remember 261 365 days is the calculation for t time Find the Principal When You Know the Interest Rate and Time What amount of principal will earn interest of 175 50 at 6 5 percent in eight months Once again use the derived formula of Deb Russell I Prt P I rt which becomes Use the example above to help you Remember eight months can be converted to days or you can use 8 12 and move the 12 into the numerator in the formula What Sum of Money Can You Invest for 300 Days at 5 5 Percent to Earn 93 80 As above use the derived formula of Deb Russell I Prt which will be P I rt In this case you have 300 days which will look like 300 365 in the formula Remember to move the 365 into the numerator to enable the formula to work Get out your calculator and check your answer with the solution above What Annual Interest Rate Is Needed for 2 100 to Earn 122 50 in 14 Months When the amount of interest the principal and the time period are known you can use the derived formula from the simple interest formula to determine the rate as follows Deb Russell I Prt becomes r I Pt Remember to use 14 12 for time and move the 12 to the numerator in the formula above Get your calculator and check to see if you re right Edited by Anne Marie Helmenstine Ph D


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