WP2a
Practice - Simple Interest
TRY TO ANSWER IN TWO AND A HALF MINUTES.
QUESTIONS
QUESTIONS
1. You buy a used car for $8000. You pay $500 down and finance the rest for three years at an annual interest rate of 6%. At the end of the third year, how much will you have paid for the car?
2. You have $500. You invest it in an account that pays 4.5 % annual interest. If you leave the money in the account for 30 months, how much interest will you have earned?
3. You deposit $4000 in an account that pays 3.5% simple interest each year. You withdraw the interest when it is paid at the end of each year. If you leave your money in the account for four years, how much interest will you have earned?
4. You borrow $2500 from your brother for nine months at 4% interest. How much do you pay him at the end of the nine months?
5. You borrow $6000 for four years at 6% simple interest. How much interest do you pay?
6. To produce $450 in simple interest, how long would you have to invest $3000 at 5%?
ANSWERS
1. Interest Cost = Principal x Rate x Time. $8000 - $500 = $7500 financed. Interest Cost = $7500 x .06 percent/year x 3 years = $7500 x .18 = $1350. Total cost = $8000 + $1350 = $9350.
2. Interest = Principal x Rate x Time. $500 x .045 percent/year x (30/24) years, = $500 x .045 x 2.5 years , = $500 x .1125, = $56.25.
3. The formula is I = prt. The principal p is $4000. The rate r is 3.5% or 0.035. The time is four years. So the interest = $4000 times 0.035 times 4 = $4000 times 0.14 = $560.
4. I = prt. p = $2500. r = 4% or .04. t = (9/12) or 0.75. So I = $2500 x .04 x 0.75 = $2500 x .03 = $75. At the end of nine months you would pay him the principal, $2500, plus the interest, $75, or $2575.
5. Again, I = prt. p = $6000. r = 6% or .06. t = 4. So I = $6000 x .06 x 4 = $6000 x .24 = $1440 in interest.
6. I = prt. The unknown is t, so t = I/pr = 450/(3000x.05) = 450/150 = 3 years. Note that the question ignores the possibility that the interest earned during the first year would itself earn interest during the second year, etc. All of the test questions on interest are about simple interest, not compound interest.