Simple interest · Grade 8
In Grade 8 you learn: paying in installments.
Simple interest is worked out on the amount you started with only, so you earn (or pay) the same amount every year: interest = amount × rate × years. Hire purchase spreads a price over a deposit and payments, and usually costs more than paying cash.
Key facts
- Simple interest: I = P × r × n (r as a decimal, n in years). The total is P + I.
- Simple interest is the same every year: find it for one year, then multiply by the number of years.
- Hire purchase: total paid = deposit + all the instalments. The extra cost is total paid − cash price.
Worked examples
Example 1
$5,000 is invested at 6% simple interest per year for 4 years. How much is it worth at the end?
Answer: $6,200
Example 2
$800 is invested at 3% simple interest per year. How much interest is earned in 5 years?
Answer: $120
Example 3
$1,500 is invested at 4% simple interest per year for 3 years. Find the total value.
Answer: $1,680
Example 4
How many years does it take $400 to earn $60 at 5% simple interest per year?
Answer: 3 years
Example 5
A TV costs $450 cash. On hire purchase you pay a $90 deposit and 12 payments of $35. How much extra do you pay on hire purchase?
Answer: $60