Simple Interest - Basics

Interest is the money charged for borrowing money or paid to somebody who invest money

The rate of Interest is the payment made by the borrower expressed as a percentage of capital

How do you calculate the interest and the future value (accumulated amount) for an investment with a simple interest rate over a period of time?

Simple interest questions can be solved by applying the following formulae:

English version

Italian version

Example 1:

Michelle invested € 5,000.00 in mutual fund with the interest rate of 4.8%. How much interest would she earn after 2 years?

Answer :

PV = € 5,000.00
r = 4.8%
t = 2

I = (PV × r × t)/100
I = (€ 5,000.00 x 4.8 x 2)/100 = € 480.00

Hence, Michelle would earn € 480 after 2 years.

Example 2.

Jeff has one savings account with the interest rate of 3.3%  in a bank. If he deposits €1200.00 to the savings account  how much money will he have after 6 years?

Answer:

PV = €1200.00
r = 3.3%
t = 6

FV = [PV × (100 + rt)]/100
FV= [€1200.00 x (100 + 3.3 X 6)]/100= € 1437.60

Hence, Jeff will have = € 1,437.60 after 6 years.

Solve the interest problem below:

Amount (future value) after 3 years is:_________  Interest after 3 years is:______

Amount (accumulated amount) after 19 years is :________          Interest after 19 years is:_____

Future value  after 6 years is:________            Interest after 6 years is:_____

Simple Interest - Period of time is a fraction of the year

The Simple Interest formula applies to short-term investments (less than a year). Typical Situation: You invest/lend/borrow money for less than a year; at maturity you receive/repay the principal (face value or PV) plus interest (PV x r x t)/100.

For Example

• If you invest € 100 in a checking account that returns 4% per year, you’ll get €104 in a year. 
• If you invest €100 in a current account that returns 4% per year; you’ll get $102 in 6 months. 
• If you invest $100 in a checking account that returns 4% per year, you’ll get $101 in a quarter (3 months)

Calculating the Number of Days of a Loan

Steps for Determining the Number of Days of a Loan:

• Step 1. Determine the number of days remaining in the first month by subtracting the loan date from the number of days in that month.

• Step 2. List the number of days for each succeeding whole month.
• Step 3. List the number of loan days in the last month.
• Step 4. Add the days from Steps 1, 2, and 3.

Determining the Maturity Date of a Loan

Steps for Determining the Maturity date of a Loan

• Step 1. Find the number of days remaining in the first month by subtracting the loan date from the number of days in that month.
• Step 2. Subtract the days remaining in the first month (Step 1) from the number of days the loan.
• Step 3. Continue subtracting the number of days in each succeeding whole month, until you reach a month in which the difference is less than the total days in that month. At that point, the maturity date will be the day of that month that corresponds to the difference.

Inverse Formulae:

	the unknown
TIME	Present Value	rate of interest	time
years
months
days/365
days/360

Inverse Formula of PV from FV:

	year	months	days/365	days/360
Present Value

GLOSSARY – Interest Problems

English	Italian	Notes
charge (v)	addebitare
borrow (v) from	prendere a prestito da
borrower	debitore di un prestito	mutuatario
rate of interest	tasso di interesse	i.g. :5% per year
mutual fund	fondo comune d'investimento
savings account	deposito a risparmio
checking account	conto corrente bancario	also "current account"
maturity	scadenza
calendar year	anno civile	365 days per year
commercial year	anno commerciale	360 days per year
simple interest	interesse semplice
compound interest	interesse composto
accrued interest	interessi maturati
present value	valore attuale
future value	montante
lend (v) to	dare a prestito a
lender	creditore di un prestito	mutuante
loan	prestito
loan date	data erogazione del prestito	da cui decorrono gli interessi
unknown	incognita