Simple Interest Applications – Finance Chapter Section 2 Saving


Finance unit 2 other uses of simple
interest. Simple interest formula is also useful for some none saving situations.
Billing purposes here we have an example of an invoice. With the balances unpaid after
30 days are subject to a 12% or 1% monthly a finance charge. If a
customer’s 25 days late, beyond the original 30 day period, on $1,150
invoice the late payment penalty is $9.16. Informal loans, here we have an
example where Bill loans his sister $500 at 4% interest for 8 months. Simple interest calculation shows that the cost of this loan or the interest is $13.33. We also can use simple interest to create an amortization schedule. In this example $85,000 was borrowed at 6.35% for 30
years. The monthly payment is $528.90 and of that amount, the first months
interest which is calculated using the simple interest formula amounts to $449.79. We have another example here using simple interest. You loan your brother $800 at 6% simple interest, he will pay back the original amount borrowed plus interest
7 months from now. How much interest will you collect, using the simple
interest formula, where the principles $800, at 6% interest and remember time
is not in months rather it’s in years. So to express our 7 months in years we’ll put it as 7 over 12 since there are 12 months in a year, multiplying these three values together
results in an interest of $28.

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