Simple Interest Example
Mr. Ali has deposited an amount of $ 150,000 with a bank
offer a 13% interest. Bank will make equal installment of interest each year.
How much will Mr. Ali receive each year and total amount?
Simple Interest Formula
In simple
interest equal amount of interest is paid each year. Therefore bank is offering
a simple interest rate and following formula may be used for calculating total
interest.
Future value
= P ( 1+ Rn)
= $ 150,000 (1+ .13x5)
=$ 150,000 x 1.65
=247,500 (Total amount)
= 247,500 – 150,000 = $
97,500 (Interest)
=$ 97,500/5 year = $
19,500 (Interest per year)
R= rate of interest
N = number of period
P = Present value
Alternate Method annual Interest
Interest = P x r
= 150,000 x .13
= $ 19,500 (annual interest)
= $ 19,500 x 5 = $ 97,500
(Total Interest = Annual interest x No of years)
= $ 97,500 + 150,000 =
247,500 (total Future Value= Deposit amount + Total interest)
