4.1 Calculate Simple Interest

Interest is a fee charged for borrowing money or returns on investment or savings in financial institutions. There are two types of interest commonly used nowadays: simple interest and compound interest. Simple interest involves interest only on the principal, while compound interest requires interest to be paid on both principal and the previously earned interest. For this topic, discussion will be on simple interest only.

Simple interest is interest charged or returns on the entire principal for the entire length of the loan. The formula to calculate interest is:

Where

I – Interest, the amount charged or earned for any loan or deposit.
P – Principal, either the loan amount or the amount invested.
R – Rate, the percent charged for borrowing money or percent earned for investment.
T – Time, the loan period or investment period written in terms of number of years.

If it is written in terms of month/week/day, convert it to a fraction of a year.

4.1 Calculate Simple Interest

Example 2
Calculate the interest on a loan of RM 60,000 at 12% for 11 months.

Solution:

Example 3
A manufacturing company borrowed RM 60,000 for 1 year 5 months with an interest of 6.2% to buy new machinery for the factory. Determine the amount of interest to be paid.

Solution:

4.1 Calculate Simple Interest

Example 4
A deposit of RM 50,000 is made for 1 year 6 months at a finance company that gives an interest of 5% per year. Find the simple interest earned.

Solution:

Example 5
Suhafna Department Store borrowed RM 550,000 for two years at a rate of 8.5%. Find the amount of interest that the store will have to pay at the end of two years.

Solution: