To calculate interest correctly, you need to know three values:
- The principle amount
- The interest rate
- The amount of time (in years or fractions of a year)
When you know these three values, calculating interest is simple.
We’ll call interest (I), principle (P), rate (r), and time (t). Then I = Prt.
Example: On June 1st, an employee borrows $350 from his employer who charges 6% interest as long as it is paid back by the first of the year. How much will the employee owe on January 1st?
Answer: The principle is $350, or P=350. The interest rate is 6%, or r=.06. We need to figure out what t equals since it is not in the form of years. To do this, we need to find out what our fraction of a year is. And to do that, we need to know the number of days of the loan. Let’s just add them up. June = 30, July = 31, August = 31, Sept = 30, Oct = 31, Nov = 30, Dec = 31. So the total days will be 214 and the fraction of the year is (214)/(365).
Our formula, then, looks like this: I = (350)(.06)(214/365) = $12.31
Your turn!
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10 Responses
Bought car for $14,000. Paid $301.78. It’s at 19 percent. For 72 months. How do I figure principle?
You’d have to check your amortization schedule. Your principle paid will be lower in the beginning of your loan and get higher as you get closer to paying it off.
The owner of a retailing organization is interested in the relationship between price at which the commodity is offered for sale and the quantity sold. The following samples have been collected:
Price 25 45 30 50 35 40 65 75 70 60
Quantity Sold 118 108 112 100 111 108 95 88 91 96
anyone can solve ?
Find the principal amounting to 16856.10 in 2 years at .108 simple interest rate.
You are planning to invest 5000 in a bank with rate of 6% simple interest. How much time you need to invest to make it 9000?
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