1. Find Interest Rate i = ?
Present value C = 1000, Time n = 3 Year, Future value FV = 1300,
for Present value using Simple Interest method
Solution:
`C=1000`
`n=3` years (Number of periods)
`FV=1300` (Future value)
Now, Future value (Simple Interest) formula is
`FV=C*(1+i*n)`
`:.1300=1000*(1+i*3)`
`:.(1300)/(1000)=(1+i*3)`
`:.1.3=1+i*3`
`:.1.3-1=i*3`
`:.0.3=i*3`
`:.0.3/3=i`
`:.i=0.1`
`:.i=10 %` per year
2. Find Interest Rate i = ?
Present value C = 5000, Time n = 2 Year, Future value FV = 6000,
for Present value using Simple Interest method
Solution:
`C=5000`
`n=2` years (Number of periods)
`FV=6000` (Future value)
Now, Future value (Simple Interest) formula is
`FV=C*(1+i*n)`
`:.6000=5000*(1+i*2)`
`:.(6000)/(5000)=(1+i*2)`
`:.1.2=1+i*2`
`:.1.2-1=i*2`
`:.0.2=i*2`
`:.0.2/2=i`
`:.i=0.1`
`:.i=10 %` per year
This material is intended as a summary. Use your textbook for detail explanation.
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