How to Solve Simple Interest Problems Part 1

This is the first part of the Solving Simple Interest Problem Series for the Civil Service Examination.

Simple interest problems are usually included in many examinations such as the Civil Service Exams. It is important that you practice solving these types of problems in order to increase your chance of passing the exams.

Before solving simple interest problems, let us familiarize ourselves with the terms used in simple interest problems. These are the money invested which is called the principal, the rate of interest which is the percent and the interest which is the income or return of investment, and time. Time may vary depending on the investment. It can range from months to years.

Example 1

Mr. Reyes invested Php50,000 at an interest rate of 3% per year.

a.) Identify the principal and rate of interest.
b.) Calculate the interest earned after 1 year.

Solution

For (a)
The money invested or principal is Php50,000, the interest rate is 3%, and the time is 1 year.

For (b)
We want to calculate 3% of Php50,000. To multiply, we must convert 3 percent to decimal which is equal to 0.03.

interest = Php50,000 × 0.03
interest = Php1500

This means that for a year, the money earned Php1500.

Example 2

Ms. Gutierrez invested Php60,000 at a simple interest of 4% per year for 4 years.

a.) Identify the principal, rate of interest, and time.
b.) How much money will Ms. Gutierrez have after four years?

Solution

For (a),
The principal or money invested is Php60,000.
The rate of interest is 4%.
The time is 4 years.

For (b),
We need to calculate 4% of Php60,000. Just like above, we must first convert 4 percent to decimal which is equal to 0.04.

Now,
interest (1 year) = P60,000 × 0.04 = 2,400
That is the interest for 1 year. To be able to calculate the interest for four years, we have

interest (4 years) = 2,400 × 4 = 9600.

So, the money Ms. Gutierrez will have by the end of four years is the Principal which is 60,000 and the interest for 4 years which is 9600. So, in total, her money will be 69,600.

***

From the two problems above, we can see the interest (I) is the product of the principal (P), the rate (R), and the time(T). Therefore, we can have the formula.

I = P × R × T

or simply

I = PRT.

In the next part of this series, we will be solving more simple interest problems.

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9 Responses

  1. anon says:

    In example 2. I think it should be 5% = 0.05 not 4%.

  2. jayronald33 says:

    b.) How much money will Ms. Gutierrez have after “three years”?

    So, the money Mr. Reyes will have by the end of three years is the Principal which is 60,000 and the interest for 3 years which is 7200. So, in total, his money will be “69,600”.

    the total should be 67,200 since it was only for three years..

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