Question

If you borrow $1,000 at a 5% interest for six months what amount would you need to pay back if you paid back the principal and interest at the end of the loan?

Answer 1

A = $1,025.00

I = A - P = $25.00

Equation:

A = P(1 + rt)

Calculation:

First, converting R percent to r a decimal

r = R/100 = 5%/100 = 0.05 per year.

Putting time into years for simplicity,

6 months / 12 months/year = 0.5 years.

Solving our equation:

A = 1000(1 + (0.05 × 0.5)) = 1025

A = $1,025.00

The total amount accrued, principal plus interest, from simple interest on a principal of $1,000.00 at a rate of 5% per year for 0.5 years (6 months) is $1,025.00.