How to calculate simple interest?

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

A percentage is a hundredth of a number. Using it, you can calculate the share of any value. Simple interest is the amount that accrues at the end of the billing period on the original loan provided. It is most often used to calculate the accumulated amount of investments or loans issued. Bank money must “work” and bring income to the creditor. When a loan is granted, interest is generated - this is the value, calculated mathematically, that will be earned from providing a loan. If income is calculated only on the amount issued, this is called simple interest. You can calculate it, having three indicators:

1. Amount of funds borrowed or invested.
2. Interest rate - the rate required to calculate the amount of interest. It is negotiated between the lender and the borrower. It is expressed as a percentage as a fraction or decimal.
3. Time period - the period during which it is necessary to repay the debt.

The longer the period for which the loan is given, the greater the interest of the lender. The standard time interval in financial transactions is most oftencounted as a calendar year. Therefore, simple interest is calculated after this period on the amount received once, depending on the interest rate.

This scheme assumes that the base on which the accrual takes place will be unchanged. Let the loan (or investment) taken be equal to P, the interest rate - r. The funds are borrowed on the condition of simple interest, if the capital of the creditor increases per year by the value of Pr. And in n years he will be able to get the sum Sn: Sn=P + Pr + … + Pr=P (1 + nr).

In other words, if you take an amount of money in the bank in the amount of 10 thousand rubles at a simple interest, for example 10%, then after a year you need to pay 11 thousand rubles.

Sn=10000 + 10000 x 10%=11000 RUB

In two years this amount will be 12 thousand rubles, and in three years - 13 thousand rubles.

Since the formula consists of four variables, four types of problems can be solved. The first is a direct finding of the accumulated number and three reverse finds: the amount of invested funds, the interest rate and the time of lending. This calculation is correct if the crediting time is one year. Then from this formula it follows that the interest rate is:

r=S/P – 1/n.

If we need to calculate simple interest in months, the formula will look different. Let the time period be 3 months, then r=S/P – 1:

R3/12=P + Pr/(12 x 3).

Calculate the percentage of the amount for a certain period is easy using the simple interest formula. For ease of calculationconvert the rate to a decimal. To do this, divide its value by 100 (r/100).

The bank agreements indicate the interest rate, which is set for a period of one year. With its help, you can determine the amount of income. If this value is divided by the number of days in a year, then the percentage per day can be determined. The amount of daily interest multiplied by the required period will give us the income for that billing period.

For example, the amount of the original loan S is 200 thousand rubles. The interest rate is 14.5%. The billing period is one month (or 31 days). Task: calculate the required amount to be paid for the loan. Solution:

200 x 14.5/100 x 31/365=2.463 thousand rubles