Calculate Maturity Value for a Simple Interest Account

by Hanis
(Malaysia)

Question
Razifah deposited $2000 in an account at rate of 3.75% simple interest. 8 months later, she deposited another $3000 into account. Find the total amount in the account three years after the first deposit.

Answer
After understanding the question, it is better to split the solution into two parts before we can get the answer. These parts are:

1) Find the total amount after 8 months
2) Find the total amount for the rest of the period

Since we are finding the total amount, we can use the maturity value formula shown below: 
The maturity value formula

You can see the lesson on simple interest to learn more about this formula.

1) Find the total amount after 8 months.

It is important to know that the interest 3.75% is on per year basis (or per annum) unless stated otherwise. Therefore, it is important to convert 8 months to years. Since 1 year consists of 12 months, we divide 8 months with 12. Here's how:

converting 8 months to year
Next, we need to convert 3.75% to a decimal by dividing it with 100. Here's how:

converting 3.75% to decimal
Alright, we are all set to calculate the total amount in the account after 8/12 year. These are the information that we have:
  1. Principal, P = $2000
  2. Interest rate, r = 0.0375
  3. Duration/Period, t = 8/12
Substituting these values into the maturity value formula:
calculating maturity value

Hence, after 8 months, the total amount in the account is $2050. Let's go to the second part:

2) Find the total amount for the remaining period

Now, after covering the first 8 months. Let's find the maturity value for the rest of the remaining period. Since, 3 years has 36 months (3 x 12), the:   
the remaining period is 36-8=28 months
Next, we have to convert 28 months to year by dividing it with 12:
converting 28 months to year

Razifah deposit another $3000 into her account. Therefore, the amount of money in her account after 8 months will be:
the new principal amount
Hence, we have the following information:
  1. Principal, P = $5050
  2. Interest rate, r = 0.0375
  3. Duration/Period, t = 28/12
We can calculate for the maturity value after 3 years using the above information. This is shown below:
calculating the maturity value

Therefore, the total amount in the account three years after the first deposit is $5491.88.

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Aug 05, 2014
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WRONG CALCULATION
by: Anonymous

The correct answer is : RM5487.50.
First part is the calculation of S on P= 2000 at 3.75% for 3 years which is the answer is RM2225.
second part is the calculation of S on p=3000 at 3.75% for 28/12 years which is the answer is RM3262.50.
This is because the definition of simple interest is : the calculation of interest should always based on the original principal. tq

Dec 23, 2011
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good
by: aravind

i pay the post office rd monthly 500 . after 3 years how much interest ,net total amount, interest percentage how? i need .please mail me calculate amount ?
mail id: fivestarschool@gmail.com

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