Simple Interest ‖ Definition And Worked Examples
You may have considered starting a business with the aim of making some profits. You could also consider making a cash investment in an already existing venture to yield interest in a short period of time, usually one year. The additional money that is yielded from your investment is called Simple Interest.
By definition, simple interest is the interest or return on investing a Principal amount of Money (P) over a period of Time (T) at any given Rate (R).
Mathematically, simple interest (S.I) is given as:
S.I = (P X R X T)/ 100
Where:
P = Principal (the original amount of money invested)
R = Rate of Interest (usually per annum)
T = Time
At the end of the investment period, the total amount of money accrued (A) is given as:
A = P + S.I
We will see some examples that have been worked on to make understanding easier.
Example 1
A man invests #10,000 in a poultry business at 5% annually. Find the following:
- The simple interest in 8 years
- The total amount in 8 years
- The simple interest if the duration of investment is 5 years
Solution
- You have to list out all the parameters you were given
P = 10,000
R = 5
T = 8
S.I = (P X R X T)/ 100
= 10,000 x 5 x 8/ 100
S.I = #4000
Therefore, in a period of 8 years, the investment will yield an interest of #4,000.
- To solve for the amount, you have to recall that amount = principal + S.I
A = P + S.I
P = 10,000
S.I = 4000
A = # (10,000 + 4, 000)
= #14,000
Therefore, the total amount at the end of 8 years is #14,000
- S.I at 5 years
S.I = (P X R X T)/ 100
= 10,000 x 5 x 5/ 100
S.I = #2500
Also Recommended:
Indices: Meaning, Laws, And Worked Examples
Logarithm: Definition, Laws, And Worked Examples
Changing The Subject Of The Formula
Example 2
A man invested #10, 000 in a fish business at the rate of 4% per annum. Find the interest yielded after 3 years.
Solution
S.I = (P X R X T)/ 100
P = 10,000
R = 4
T = 3
S.I = 10,000 x 4 x 3/ 100
= 120, 000/100
S.I = #120
You can now use the formula and steps described above to solve more arithmetic exercises involving simple interest. If you have any questions or comments regarding this article, please use the comment box below. We respond promptly to questions and suggestions.
