# Simple Interest

In this chapter we’re going to be looking at simple interests. We shall explore how to calculate simple interest on loans, Interest rates, Time periods and Repayments. You must have some prior knowledge of working with percentages.

## What is an Interest

Money governs the world in some sense. We use money all the time through purchasing, selling and borrowing/lending. Many institutions such as banks make money by lending money and receiving profits when the loan is paid back. The extra money that the bank earns from the interest is what is known as interest. Examples of interests are; Simple interest, Compound interest, and Reducible interest. In this chapter we shall be working with simple interest.## Simple Interest Formula

Suppose John borrowed £1000 from HSBC bank for 3years and the bank charges simple interest at the rate of 10% p.a. That is 10% per year. After 1 year the simple interest off the amount John borrowed will be; 10% of £1000 that is; …which means after 3 years the simple interest will be;### Example

Find the simple interest on a loan of £4200 borrowed for 5 years at an interest of 9.8% p.a. Let’s find the first year interest first; Now let’s multiply the first year interest by 5 to find the simple interest after 5 years. The simple interest on a loan of £4200 borrowed after 5 years is £1646.4. If you observed carefully you might have noticed a pattern in our calculations. The formula we can conclude here is; …where**I**is the interest to find.**P**is the amount borrowed.**r**is the interest rate.**n**is the years past. Let’s use the formula with the example above. Above we’ve calculated the simple interest in relation to full/whole years. In some cases you might have to find the simple interest for time periods which are not whole years. In this case we gave to adjust the n in the simple interest formula.