Simple Interest
The word interest originates from Latin word intereo, which means ‘to be lost’. Interest is then developed from the concept that lending money results in loss to the lender. The word usury is usually associated with lending at an excessive rate.
Simple interest is the interest calculated o he original principal for the entire period it is borrowed or invested. It is the product of the principal multiplied by the rate and time. This maybe stated as the formula
I=Prt
Where I = simple interest
P = principal
r = rate of simple interest
t = time or term in years
The word interest originates from Latin word intereo, which means ‘to be lost’. Interest is then developed from the concept that lending money results in loss to the lender. The word usury is usually associated with lending at an excessive rate.
Simple interest is the interest calculated o he original principal for the entire period it is borrowed or invested. It is the product of the principal multiplied by the rate and time. This maybe stated as the formula
I=Prt
Where I = simple interest
P = principal
r = rate of simple interest
t = time or term in years
The simple amount is the sum of the original principal and the interest earned.the simple aount formula is given
S = P(1 + rt)
S = simple interest
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- Exact time – It is the exact number of days between two given dates.
- Approximate time – It assumes a month has 30 days in the calculation of number of days between twi gven dates.
- Ordinary simple inerest – In calculating ordinary simple interest, we use a 360-day year
- Exact simple interest – This uses a 365/366-day year for interest computation.
The present value is the value in today’s money of a sum o money to be received in the future. Hence from the formula
S = P (1 + rt)
We find P to find the present value, that is
P = S (1 + rt)ˉ¹
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