Simple Interest Problems Solution for Set 7 Question 1
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Solution to Question 1
You're going to have to do this question in two bits. One part is to work out how much interest Ashton will have to pay over the 6 months. The second thing you're going to have to do is calculate how much money in total Ashton will end up paying back. So the first thing to do is determine what the amount of simple interest payable is. For this we'll need to call on the formula for calculating simple interest:
simple interest paid = (principal * interest rate * term length) / 100
The principal is just the size of the loan - $500. The interest rate is 3% per year. Remember that since we're dealing with an interest rate PER YEAR, we have to do everything else in terms of years. So that means writing the term length in years. In the question, it says the term length is 6 months. Well, how many years is 6 months? It's 0.5 years. So our term length is 0.5 years:
simple interest paid = ($500 * 3 * 0.5) / 100
simple interest paid = $7.50
So now for the second part of the question, which is working out the total amount Ashton will have to pay back. This is going to be the initial amount he borrowed (the principal) plus the interest:
total amount = simple interest + principal
total amount = $7.50 + $500
total amount = $507.50.
So the total amount Ashton will have to pay back to the Umpqua Bank is $507.50.