Cambridge International Mathematics

214 Topics in arithmetic (Chapter 10)

Whenever money is lent, the person lending the money is known as thelenderand the person receiving the

money is known as theborrower. The amount borrowed from the lender is called theprincipal.

The lender usually charges a fee calledinterestto the borrower. This fee represents the cost of using the

other person’s money. The borrower has to repay the principal borrowed plus the interest charged for using

that money.

The amount of interest charged on a loan depends on theprincipal, thetimethe amount is borrowed for,

and theinterest rate.

SIMPLE INTEREST

Under the simple interest method, interest is calculated on the initial amount borrowed for the entire period

of the loan.

Example 5 Self Tutor

Calculate the simple interest on a$4000loan at a rate of7%per annum over

3 years. Hence find the total amount to be repaid.

The interest payable for 1 year=7%of$4000

=0: 07 £$4000

) the interest payable over 3 years=0: 07 £$4000£ 3

= $840

So, the total amount to be repaid= $4000 + $840

= $4840

Example 6 Self Tutor

John wants to earn$ 2000 in interest on a 4 year loan of$15 000.

What rate of simple interest will he need to charge?

The interest needed each year=$ 2000 ¥4=$ 500

) the interest rate=

$ 500

$15 000

£100%

=^103 %

) the rate would need to be 313 %p.a.

Example 7 Self Tutor

How long would it take aE12 000loan to generateE 3000 simple interest

if it is charged at a rate of 8 :2%p.a.?

C SIMPLE INTEREST [1.8]

p.a. reads or

.

per annum

per year

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Y:\HAESE\IGCSE01\IG01_10\214IGCSE01_10.CDR Tuesday, 23 September 2008 4:19:30 PM PETER