Simple Interest and Maturity Value

MJC Revised 1/2012 Page 1

Interest rates are always stated for a year. I.e. 6% is six percent interest for one year.

How to calculate simple interest for different lengths of time

1. How to calculate simple interest for more than one year.

Basic formula for interest is Principle X Rate X Time = Interest

Example: Candy borrows $10,000 at 5% interest for five years.

$10,000 X 5% X 5 = $2,500 Interest

2. How to calculate simple interest for one year and some odd months.

Basic formula for interest is Principle X Rate X Time = Interest when the loan is

for more than a year with some odd months. Time is stated as: Months / 12

Example 1: Candy borrows $10,000 at 5% interest for 1 ¾ months.

$10,000 X 5% X 21/12 = $875 Interest

¾ = .75 X 12 = 9 months + 12 months = 21/12 months

Example 2: Candy borrows $10,000 at 5% interest for 1 ¼ months

$10,000 X 5% X 15/12 = $625 Interest

¼ = .25 X 12 = 3 months +12 months = 15/12 months

3. How to calculate simple interest for one year.

Basic formula for interest is Principle X Rate X Time = One years interest.

Example: Candy borrows $10,000 at 5% interest for one year.

$10,000 X 5% X 1 = $500 interest

4. How to calculate simple interest for less than a year using months formula:

Basic formula for interest is Principle X Rate X Time = Interest when the loan is

for less than a year using months. Time is stated as: Months / 12

Example: Candy borrows $10,000 at 5% interest for 6 months.

$10,000 X 5% X 6/12 = $250 interest

Simple Interest and Maturity Value

MJC Revised 1/2012 Page 2

5. How to calculate simple interest for less than a year using days with the ordinary

interest dating method: Use 360 days for the year.

Basic formula for interest is Principle X Rate X Time = Interest when the loan is

for less than a year using ordinary days. Time is stated as: days / 360

Example: Candy borrows $10,000 at 5% interest for 180 days

$10,000 X 5% X 180/360 = $250 Interest

6. How to calculate simple interest for less than a year using days with the exact

interest dating method: Use 365 days for the year.

Basic formula for interest is Principle X Rate X Time = Interest when the loan is

for less than a year using exact days. Time is stated as: days / 365

Example: Candy borrows $10,000 at 5% interest for 180 days

$10,000 X 5% X 180/365 = 246.57 Interest

Maturity Value

The formula to calculate Maturity Value is: Principle + Interest = Maturity Value

Example 1: Candy borrows $10,000 at 5% interest for 180 days exact interest

dating.

$10,000 X 5% X 180/365 = 246.57 Interest

$10,000 + $245.57 = $10,246.57 Maturity Value

Example 2: Candy borrows $10,000 at 5% interest for 180 days ordinary interest

dating.

$10,000 X 5% X 180/360 = $250 Interest

$10,000 + $250 = $10,250 Maturity Value