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Welcome to our Math lesson on Simple Interest, this is the second lesson of our suite of math lessons covering the topic of Applications of Percentage in Banking. Simple and Compound Interest, you can find links to the other lessons within this tutorial and access additional Math learning resources below this lesson.
Simple Interest
Simple interest (SI) is the extra money you earn from or pay to the bank after a deposit period T (in years) and interest rate R given in a yearly base is expressed as a percentage of the principal. We calculate the simple interest using the formula
SI = P × R × T/100
For example, if you make a $20,000 deposit (P = 20,000) in a bank which offers 4% (yearly) interest rates (R = 4), the extra money you will receive after 5 years (T = 5) is
SI = P × R × T/100
= $20,000 × 4 × 5/100
= $4,000
Example 1
A customer earned an extra $3,600 from depositing $24,000 in a bank for three years. The bank applies simple interest rates. What was the interest rate offered by the bank?
Solution 1
We have the following clues:
SI = 3,600
P = 24,000
T = 3
R = ?
Using the formula of simple interest
SI = P × R × T/100
we obtain for the interest rate after rearranging the formula above:
R = SI × 100/P × T
= 3,600 × 100/24,000 × 3
= 360,000/72,000
= 5
This means the bank offered a 5% interest rate to the given customer.
More Applications of Percentage in Banking. Simple and Compound Interest Lessons and Learning Resources
Percentages Learning Material| Tutorial ID | Math Tutorial Title | Tutorial | Video
Tutorial | Revision
Notes | Revision
Questions |
|---|
| 5.4 | Applications of Percentage in Banking. Simple and Compound Interest | | | | |
| Lesson ID | Math Lesson Title | Lesson | Video
Lesson |
|---|
| 5.4.1 | How does a Bank Operate? | | |
| 5.4.2 | Simple Interest | | |
| 5.4.3 | Calculating the Total Amount Earned when Simple Interest Is Known | | |
| 5.4.4 | Compound Percentage Change | | |
| 5.4.5 | Compound Interest | | |
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