Chapter 10 Simple Interest - Fullerton College

Chapter 10 Simple Interest

10-1 McGraw-Hill/Irwin

Copyright ? 2006 by The McGraw-Hill Companies, Inc. All rights reserved.

Maturity Value

Maturity Value (MV) = Principal (P) + Interest (I)

The amount of the loan (Face value)

Cost of borrowing

money

10-2

Simple Interest Formula

Simple Interest (I) = Principal (P) x Rate (R) x Time (T)

Stated as a Percent

Stated in years

Ryan borrowed $30,000. The loan was for 2 years at a rate of 8%. What is interest and maturity value?

SI = $30,000 x.08 x 2 = $4,800 MV = $30,000 + $4,800 = $34,800

10-3

What if you borrow for less than a full year? How do you calculate the interest charge then?

See next slide.

10-4

Simple Interest Formula

Simple Interest (I) = Principal (P) x Rate (R) x Time (T)

Stated as a Percent

Stated in years

Ryan borrowed $30,000. The loan was for 6 months at a rate of 8%. What is interest and maturity value?

SI = $30,000 x.08 x 6 = $1,200 12

MV = $30,000 + $1,200 = $31,200

Do all of the multiplication before doing the division for partial years.

10-5

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