How to Calculate Simple Interest
Lesson Objective
In this lesson, we will see some examples on how to calculate simple interest...
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About This Lesson
In this lesson, we will see some examples on using the simple interest formula to calculate simple interest. These examples will show:
how we can calculate the interest when the principal, interest rate and loan duration (in year & month) are given.
(
1st math video
&
2nd math video
)
how we can use the simple interest formula to find the interest rate,
r
.
(
3rd math video
)
The
study tips
and
math videos
below will explain more.
Study Tips
Tip #1
The formula for finding simple interest,
I
is given below:
Where:
P
is the principal (the amount of money borrowed)
r
is the interest rate (per year or per annum)
t
is the loan duration in years.
The math videos below will show some examples on using this formula...
Math Video
Video on calculating for I when P, r and t (in year) are given...
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Video on calculating for I when P, r and t (in month) are given...
Video on calculating for r when I, P and t are given...
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Math Video Transcript
CALCULATE SIMPLE INTEREST TRANSCRIPT PART 1 00:00:03.130 In this lesson, we will learn how to calculate simple interest, using some examples. 00:00:10.150 Consider a loan of $5000 with the interest rate of 3%, for 2 years. Calculate the simple interest. 00:00:20.170 Now, to calculate the interest, we can use the formula, I=Prt. 00:00:27.150 Now, since the principal is given as $5000, we can substitute P with 5000. 00:00:35.160 Similarly, since the interest rate is given as 3%, we can substitute r with 3%. 00:00:43.160 Here, note that, we must change 3% into a decimal, before using it for calculation. 00:00:51.170 To do so, we divide 3 with 100. This gives 0.03. 00:00:59.190 Let’s continue, since the loan duration is 2 years, we can substitute t with 2. 00:01:09.090 We can now calculate the interest. 00:01:12.170 0.03 multiply with 2 gives 0.06. 5000 multiply with 0.06, gives 300. 00:01:25.140 Hence, the interest I, is $300. 00:01:31.140 Alright, that is all for this example. PART 2 00:00:03.230 Consider a loan of $3000, with the interest rate of 5%, for the duration of 6 months. Calculate simple interest. 00:00:15.150 Now, to calculate the interest, we can use the formula, I=Prt. 00:00:23.070 Since the principal is given as $3000, we can substitute P with 3000. 00:00:30.070 Similarly, since the interest is given as 5%, we can substitute r with 5%. Note that, we have to convert this 5% into a decimal. 00:00:43.160 To do so, we divide 5 with 100. This gives 0.05. 00:00:53.240 Next, the loan duration is given as 6 months. Hence, we can substitute t with 6 months. 00:01:03.220 Note that, since the loan duration is always in 'year'. We must convert 6 months into year. 00:01:11.220 To do so, since 1 year has 12 months, we divide 6 with 12. 00:01:18.030 This gives 0.5 year. Now, we can start calculating the interest. 00:01:27.030 0.05 multiply with 0.5, gives 0.025. 00:01:34.100 3000 multiply with 0.025, gives 75. 00:01:41.040 Therefore, the get the interest I = $75. 00:01:47.140 That is all for this example. PART 3 00:00:03.020 Consider a loan with a principal of $2000, the loan duration is 4 years, and the interest after 4 years is $800. Find the loan's interest rate, r. 00:00:17.040 We start with the simple interest formula, I = Prt. 00:00:22.200 Since the interest is given as $800, we can substitute I with 800. 00:00:29.180 Similarly, since the principal is given as $2000, we can substitute P with 2000. Next, the loan duration is given as 4 years. Hence, we can substitute t, with 4. 00:00:47.010 We can simplify by multiplying 2000, with 4. This gives 8000. 00:00:55.030 Now we have, 8000r=800. Let's rewrite it here. 00:01:03.230 To find r, we need to remove 8000. 00:01:08.170 To do so, we divide both sides of the equation with 8000. 00:01:14.120 This gives, r equals to, 800/8000. 800 divided by, 8000 gives, 0.1. 00:01:27.120 Now, we have the interest rate as, r=0.1. 00:01:34.050 Now, rather than leaving the answer like this, it is better to change 0.1 to percent. 00:01:40.240 We can do so, by multiplying 0.1 with 100. This gives, 10%. 00:01:51.030 Hence, the interest rate for this loan is 10%. 00:01:56.240 That is all for this example. --END OF CALCULATE SIMPLE INTEREST--
Practice Questions & More
Multiple Choice Questions (MCQ)
Now, let's try some MCQ questions to understand this lesson better.
You can start by going through the series of
questions on calculate simple interest
or pick your choice of question below.
Question 1
on the using the simple interest formula
Question 2
on using the maturity value formula
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