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I - Overview
A - Definition
1) Example
We invest $10,000 for 3 years at an annual rate of 8%.
2) Remark:
In simple interest, interest is not added to the capital at the end of the capitalization
period to produce interest.
3) Definition:
Interest represents the rent or the remuneration of the money loaned. This money
is called "capital or investment"
Simple interest generally applies to short-term loans or investments (less than a
year).
C : Invested capital
t : Interest rate for $100 of capital
n : Duration of placement
Va : Acquired value
I : Interest
I= C x t /100 x n
Va = C + C x t/100 x n
Va = C + I
If we invest some money today, how much will we receive tomorrow? "This is called
compounding.
1
Verification
Va = 12 400
1 - Capital
This is the amount of money invested on a specific date
Example:
A capital placed at an annual rate of 3% for 3 years has yielded $18 of interest.
Determine the capital initially invested.
Solution:
I = C x t/100 x n
I x 100 = C x t x n
C = I x 100
txn
C= 18 x 100 = $200
3x3
2 - Duration
The duration of the loan (or investment) can be expressed in years, months or days.
I = C x t/100 x n
I = C x t/100 x n/12(mois)
2
I=Cxtxn
1 200
I = 3 600 x 6 x 9 = $162
1 200
Remark
Ex :
A capital of $4,800 is placed at an annual rate of 4.75% from March 12 to July 17.
Placement period is:
3 – Interest rate
It is expressed in% (percentage) and indicates the amount of money brought back by $100
in a determined period (in principle a year).
Ex :
A capital of $5200 with simple interest yielded $52 of interest for 36 days.
Determine the interest rate.
I=Cxtxn
36000
t = I x 36000
Cxn
T= 52 x 36000 = 10%
52000 x 36
3
Verification
I = 52000 x 10 x 36 = $52
36000
Remark
The rate used must correspond to the placement period chosen (yearly, semi-annually,
quarterly and monthly)
Ex :
At what semi-annual rate was a capital of $5000 which, in 102d, earned $85 of interest?
Solution
t = 0,06