Exercise:
1. Salon borrowed $5,000 at per year simple interest of 5% for two years to buy new hair dryers. How much interest must be paid?
Answer (2)
Salon borrowed $5,000 at a 5% simple interest rate for 2 years. The total interest paid will be $500. This is calculated using the formula for simple interest: I = P * r * t.
;
Convert the interest rate to decimal form: 5% = 0.05 .
Apply the simple interest formula: I = P ⋅ r ⋅ t .
Substitute the given values: I = 5000 ⋅ 0.05 ⋅ 2 .
Calculate the total interest paid: I = 500 .
Explanation
Understanding the Problem We are given a principal amount of $5,000, a simple interest rate of 5% per year, and a time period of 2 years. We need to calculate the total interest paid on the loan.
Converting Percentage to Decimal First, we convert the interest rate from a percentage to a decimal: r = 5% = 0.05 .
Stating the Simple Interest Formula Next, we use the formula for simple interest: I = P ⋅ r ⋅ t , where I is the interest, P is the principal amount, r is the interest rate, and t is the time period.
Substituting Values Now, we substitute the given values into the formula: I = 5000 ⋅ 0.05 ⋅ 2 .
Calculating the Interest Calculating the interest, we get: I = 5000 ⋅ 0.05 ⋅ 2 = 500 .
Final Answer Therefore, the total interest paid is $500.
Examples
Simple interest calculations are commonly used in everyday financial situations, such as calculating interest on savings accounts, loans, and investments. For example, if you deposit money into a savings account with a simple interest rate, you can use this calculation to determine how much interest you will earn over a specific period. Understanding simple interest helps individuals make informed decisions about borrowing and saving money.
