Finals- Lesson 2: Simple Interest

• When the bank pays you for the privilege of using your money, the amount paid to you is called interest.
• If you are the one borrowing money from a bank, the amount you pay for the privilege of using that money is also called interest.
• The amount deposited in a bank or borrowed from a bank is called the principal.
• Interest rate- the amount of interest paid is usually given as a percent of the principal. It is the percent used to determine the amount of interest.
• Interest paid on the original principal is called simple interest.
• Simple Interest is denoted as I
• Simple Interest- defined as the interest on a loan or principal that is based only on the original amount of the Loan or Principal.
• P = Principal / Loan
• I= Interest
• r- interest rate
• t= period
• True of False: when using the simple interest formula, the time factor, t, must be expressed in years or a fraction of a year. True
• Maturity Value - the total amount to be repaid to the lender is the sum of the principal and interest.
• A= Maturity Value
• Formula of Maturity Value is A = P + I
• Types of Simple Interest: ordinary simple interest and exact simple interest.  
• Ordinary simple interest- this type of simple interest is based on one banker’s year.
• Exact simple interest- this type of simple interest is based on the exact number of days given in a year.
• The Exact simple interest is based on what calendar?

  gregorian calendar
• Exact Simple Interest is used by government agencies such as

  the Federal Reserve Bank, and most credit unions.