Simple Interest

Interest

Amount paid or earned for the use of money

Simple interest (Is)

Interest that is computed on the principal. Remains constant

Lender or creditor

Person who invest or makes the funds available

Borrower or debtor

Person who owes or avails of the funds from the lender

Origin or loan date

Date on which money is received by the borrower

Repayment date or maturity date

Date on which money borrowed is completely repaid

Time or term

Time in years the money is borrowed. Time between origin and maturity date

Principal (P)

Amount of money invested on origin date

Rate “r”

Annual rate or rate of increase in the investment. Usually in percent

Maturity value or future value

Amount after t years that lender receives from borrower on maturity date

Computing Simple Interest

Is = simple interest

P = principal or amount invested or borrowed

r = rate of simple interest (in decimal)

t = time (in years)

F = future value (maturity value)

Simple Interest Formula

Is = Prt

Finding r (rate) in Simple Interest Formula

r = Is / Pt

Finding t (time) in Simple Interest Formula

t = Is / Pr

Finding P (principal) in Simple Interest Formula

P = Is / rt

Future Value Formula

F = P + Is or F = P ( 1 + rt )