Interest is defined as the price paid for being allowed to use someone else’ fund for a period of time. In other words, interest is the charges one is made to pay if certain amount of money is lent to someone. This is why the economists called interest the price of capital, as they refer to capital as the money needed to carry out business activities.
Our major focus here is how the simple interest is calculated.
In computing simple interest, we must remember that the interest amount does not change over the interest period. This is what make it simple interest.
The following approach is adopted in the computation of simple interest for a period
Principal amount borrowed or invested plus interest amount multiplied by the number of interest periods.
Our major focus here is how the simple interest is calculated.
In computing simple interest, we must remember that the interest amount does not change over the interest period. This is what make it simple interest.
The following approach is adopted in the computation of simple interest for a period
Principal amount borrowed or invested plus interest amount multiplied by the number of interest periods.
If we take this, then the following question on simple interest can be answered as shown below.
Question1
MNas invested a sum of $1.5m at 10% interest for 10 years simple interest. Determine the total amount receivable by MNas after 10 years.
Solution.
If we adopt the above approach, then we can compute interest in tabular form as follows
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