Simple interest

Simple interest is the amount of interest paid and it is simply the same every time.

 SIMPLE INTEREST = SIMPLY THE SAME 

Simple interest `=prt`

To remember the formula of simple interest:

Simply I'm pretty

(Simple interest `=prt`)

Example 1

Mrs Jones borrows £50,000 from the bank for one year at a simple interest rate of 5%. How much interest does she pay?

Simple interest `=prt`

Simple interest `=50,000times0.05times1year`

Simple interest `=£2,500`

Answer: Mrs Jones pays £2,500 interest

NOTE:

An alternative to this is just to use logic.

(see our work on percentages to help)

Multiply by `x` to get `x` on its own.

`(xtimes50,000)/x=(100timesx)/5`

           `50,000=20x`

Divide both sides by 20 to get `x` on its own.

Example 2

A loan is taken out for `£6,000` for 3 years at `7.5%` simple interest what is the total amount to pay back to the loan company?

First work out the simple interest

Simple interest `=prt`

Simple interest `=6,000times0.075times3year`

Simple interest `=£1,350`

The original sum borrowed `=£6,000`

Therefore the total to pay back `=£1,350+£6,000`

      `=£7,350`

NOTE:

An alternative to this is just to use logic.

(see our work on percentages to help)

Work out interest for one year

Multiply by `x` to get `x` on its own.

`(xtimes6,000)/x=(100timesx)/7.5`

           `6,000=(100x)/7.5`

Multiply both sides by `7.5` to get `x` on its own.

Divide both sides by `100` to get `x` on its own.

For 3 years: `£450times3=£1,350`

The original sum borrowed was `=£6,000`

Therefore the total to pay back `=£1,350+6,000=£7,350`

Example 3

Bernard invests `£420` into a simple interest account which gives 3% interest per annum. What is the interest Bernard earns in 4 years?

Simple interest `=prt`

Simple interest `=420times0.03times4years`

Simple interest `=£50.40`

Alternatively, we could work it out using simple logic.

(see our work on percentage to help)

Work out interest for one year

Multiply both sides by `x` to get `x` on its own.

`(cancelxtimes420)/cancelx=(100timesx)/3`

           `420=(100x)/3`

Multiply both sides by `3` to get `x` on its own.

Divide both sides by `100` to get `x` on its own.

For four years this `=4times£12.60=£50.40`

Example 4

A bank lent `£1,400` for 4 years at a simple interest rate. Monique paid `£150` in interest, what was her interest rate?

Simple interest `=prt`

If `100%=1`

              `x=0.027`

(you need our work on percentages to work this out)