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How to Solve Simple Interest Problems? (+FREE Worksheet!)

Learn how to solve simple interest problems using simple interest formulas.

How to Solve Simple Interest Problems? (+FREE Worksheet!)

Related Topics

  • How to Find Percent of Increase and Decrease
  • How to Solve Percent Problems
  • How to Do Percentage Calculations
  • How to Find Discount, Tax, and Tip

Step-by-step guide to solve simple interest

  • Simple Interest: The charge for borrowing money or the return for lending it.
  • To solve a simple interest problem, use this formula: Interest \(=\) principal \(\times\) rate \(\times\) time  \( ⇒ \color{blue}{I=p \ × \ r \ × \ t}\)  

Simple Interest – Example 1:

Find simple interest for \( $450\) investment at \(7\%\) for \(8\) years.

Use Interest formula: \(\color{ blue }{I=prt }\) \(P=$450\), \(r=7\%=\frac{7}{100}=0.07\) and \(t=8\) Then: \(I=450 \ × \ 0.07 \ × \ 8=$252\)

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Simple interest – example 2:.

Find simple interest for \( $5,200\) investment at \(4\%\) for \(3\) years.

Use simple interest formula: \(\color{ blue }{I=prt }\) \(P=$5,200\), \(r=4\%=\frac{4}{100}=0.04\) and \(t=3\) Then: \(I=5,200 \ × \ 0.04 \ × \ 3=$624\)

Simple Interest – Example 3:

Find simple interest for \($5,000\) investment at \(3\%\) for \(4\) years.

Use simple interest formula: \(\color{ blue }{I=prt }\) \( P=$5,000, r=3\%=\frac{3}{100}=0.03\) and \(t=4\) Then: \(I= 5,000 ×0.03×4=$600\)

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Simple interest – example 4:.

Find simple interest for \($900\) at \(3.5\%\) for \(5\) years.

Use simple interest formula: \(\color{ blue }{I=prt }\) \( P=$900, r=3.5\%=\frac{3.5}{100}=0.035\) and \(t=5\) Then: \(I=900×0.035×5=$157.50\)

Exercises for Solving Simple Interest

Use simple interest to find the ending balance.

  • \($1,300\) at \(5\%\) for \(6\) years.
  • \($5,400\) at \(7.5\%\) for \(6\) months.
  • \($25,600\) at \(9.2\%\) for \(5\) years.
  • \($240\) interest is earned on a principal of \($1500\) at a simple interest rate of \(4\%\) interest per year. For how many years was the principal invested?
  • A new car, valued at \($28,000\), depreciates at \(9\%\) per year from original price. Find the value of the car \(3\) years after purchase.
  • Sara puts \($2,000\) into an investment yielding \(5\%\) annual simple interest; she left the money in for five years. How much interest does Sara get at the end of those five years?

Download Simple Interest Worksheet

  • \(\color{blue}{$1,690.00}\)
  • \(\color{blue}{$5,602.50}\)
  • \(\color{blue}{$37,376.00}\)
  • \(\color{blue}{4 \ years}\)
  • \(\color{blue}{$20,440.00}\)
  • \(\color{blue}{$500.00}\)

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Pre-Algebra Exercise Book A Comprehensive Workbook + PreAlgebra Practice Tests

Pre-algebra in 10 days the most effective pre-algebra crash course, college algebra practice workbook the most comprehensive review of college algebra, high school algebra i a comprehensive review and step-by-step guide to mastering high school algebra 1, 10 full length clep college algebra practice tests the practice you need to ace the clep college algebra test.

by: Effortless Math Team about 5 years ago (category: Articles , Free Math Worksheets )

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MathBootCamps

Simple interest formula and examples.

Simple interest is when the interest on a loan or investment is calculated only on the amount initially invested or loaned. This is different from compound interest, where interest is calculated on on the initial amount and on any interest earned. As you will see in the examples below, the simple interest formula can be used to calculate the interest earned, the total amount, and other values depending on the problem. [adsenseWide]

Examples of finding the interest earned with the simple interest formula

In many simple interest problems, you will be finding the total interest earned over a set period, which is represented as \(I\). The formula for this is:

graphic showing the simple interest formula for interest earned

Let’s use an example to see how this formula works. Remember that in the formula, the principal \(P\) is the initial amount invested.

A 2-year loan of $500 is made with 4% simple interest. Find the interest earned.

Always take a moment to identify the values given in the problem. Here we are given:

  • Time is 2 years: \(t = 2\)
  • Initial amount is $500: \(P = 500\)
  • The rate is 4%. Write this as a decimal: \(r = 0.04\)

Now apply the formula:

\(\begin{align}I &= Prt \\ &= 500(0.04)(2) \\ &= \bbox[border: 1px solid black; padding: 2px]{40}\end{align}\)

Answer : The interest earned is $40.

In this example, the time given was in years, just as in the formula. But what if you are only given a number of months? Let’s use another example to see how this might be different.

A total of $1,200 is invested at a simple interest rate of 6% for 4 months. How much interest is earned on this investment?

Before we can apply the formula, we will need to write the time of 4 months in terms of years. Since there are 12 months in a year:

\(\begin{align}t &= \dfrac{4}{12} \\ &= \dfrac{1}{3}\end{align}\)

With this adjusted to years, we can now apply the formula with \(P = 1200\) and \(r = 0.06\).

\(\begin{align}I &= Prt \\ &= 1200(0.06)\left(\dfrac{1}{3}\right) \\ &= \bbox[border: 1px solid black; padding: 2px]{24}\end{align}\)

Answer : The interest earned is $24.

If you hadn’t converted here, you would have found the interest for 4 years, which would be much higher. So, always make sure to check that the time is in years before applying the formula.

Important! The time must be in years to apply the simple interest formula. If you are given months, use a fraction to represent it as years.

Another type of problem you might run into when working with simple interest is finding the total amount owed or the total value of an investment after a given amount of time. This is known as the future value, and can be calculated in a couple of different ways.

Finding the future value for simple interest

One way to calculate the future value would be to just find the interest and then add it to the principal. The quicker method however, is to use the following formula.

future value of simple interest formula

You know to use this formula when you are asked questions like “what is the total amount to be repaid” or “what is the value of the investment” -anything that seems to refer to the overall total after interest is considered.

A business takes out a simple interest loan of $10,000 at a rate of 7.5%. What is the total amount the business will repay if the loan is for 8 years?

The total amount they will repay is the future value, \(A\). We are also given that:

  • \(r = 0.075\)
  • \(P = 10\,000\)

Using the simple interest formula for future value:

\(\begin{align}A &= P(1 + rt)\\ &= 10\,000(1 + 0.075(8)) \\ &= \bbox[border: 1px solid black; padding: 2px]{16\,000}\end{align}\)

Answer : The business will pay back a total of $16,000.

This may seem high, but remember that in the context of a loan, interest is really just a fee for borrowing the money. The larger the interest rate and the longer the time period, the more expensive the loan.

Also note that you could calculate this by first finding the interest, I = Prt = 10000(0.075(8)) = $6000, and adding it to the principal of $10000. The final answer is the same using either method.

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Continue your study of interest

Now that you have studied the simple interest formula, you can learn the more advanced idea of compound interest. Most savings accounts, credit cards, and loans are based on compound instead of simple interest. You can review this idea here:

  • Compound interest

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6.4 Solve Simple Interest Applications

Learning objectives.

  • Use the simple interest formula
  • Solve simple interest applications

Be Prepared 6.4

Before you get started, take this readiness quiz.

  • Solve 0.6 y = 45 . 0.6 y = 45 . If you missed this problem, review Example 5.43 .
  • Solve n 1.45 = 4.6 . n 1.45 = 4.6 . If you missed this problem, review Example 5.44 .

Use the Simple Interest Formula

Do you know that banks pay you to let them keep your money? The money you put in the bank is called the principal , P , P , and the bank pays you interest , I . I . The interest is computed as a certain percent of the principal; called the rate of interest , r . r . The rate of interest is usually expressed as a percent per year, and is calculated by using the decimal equivalent of the percent. The variable for time, t , t , represents the number of years the money is left in the account.

Simple Interest

If an amount of money, P , P , the principal, is invested for a period of t t years at an annual interest rate r , r , the amount of interest, I , I , earned is

Interest earned according to this formula is called simple interest .

The formula we use to calculate simple interest is I = P r t . I = P r t . To use the simple interest formula we substitute in the values for variables that are given, and then solve for the unknown variable. It may be helpful to organize the information by listing all four variables and filling in the given information.

Example 6.33

Find the simple interest earned after 3 3 years on $500 $500 at an interest rate of 6%. 6%.

Organize the given information in a list.

I = ? P = $500 r = 6% t = 3 years I = ? P = $500 r = 6% t = 3 years

We will use the simple interest formula to find the interest.

Write the formula.
Substitute the given information. Remember to write the percent in decimal form.
Simplify.
Check your answer. Is $90 a reasonable interest earned on $500 in 3 years?
In 3 years the money earned 18%. If we rounded to 20%, the interest would have been 500(0.20) or $100. Yes, $90 is reasonable.
Write a complete sentence that answers the question. The simple interest is $90.

Try It 6.65

Find the simple interest earned after 4 4 years on $800 $800 at an interest rate of 5%. 5%.

Try It 6.66

Find the simple interest earned after 2 2 years on $700 $700 at an interest rate of 4%. 4%.

In the next example, we will use the simple interest formula to find the principal.

Example 6.34

Find the principal invested if $178 $178 interest was earned in 2 2 years at an interest rate of 4%. 4%.

I = $178 P = ? r = 4% t = 2 years I = $178 P = ? r = 4% t = 2 years

We will use the simple interest formula to find the principal.

Write the formula.
Substitute the given information.
Divide.
Simplify.
Check your answer. Is it reasonable that $2,225 would earn $178 in 2 years?
Write a complete sentence that answers the question. The principal is $2,225.

Try It 6.67

Find the principal invested if $495 $495 interest was earned in 3 3 years at an interest rate of 6%. 6%.

Try It 6.68

Find the principal invested if $1,246 $1,246 interest was earned in 5 5 years at an interest rate of 7% . 7% .

Now we will solve for the rate of interest.

Example 6.35

Find the rate if a principal of $8,200 $8,200 earned $3,772 $3,772 interest in 4 4 years.

Organize the given information.

I = $3,772 P = $8,200 r = ? t = 4 years I = $3,772 P = $8,200 r = ? t = 4 years

We will use the simple interest formula to find the rate.

Write the formula.
Substitute the given information.
Multiply.
Divide.
Simplify.
Write as a percent.
Check your answer. Is 11.5% a reasonable rate if $3,772 was earned in 4 years?
Write a complete sentence that answers the question. The rate was 11.5%.

Try It 6.69

Find the rate if a principal of $5,000 $5,000 earned $1,350 $1,350 interest in 6 6 years.

Try It 6.70

Find the rate if a principal of $9,000 $9,000 earned $1,755 $1,755 interest in 3 3 years.

Solve Simple Interest Applications

Applications with simple interest usually involve either investing money or borrowing money. To solve these applications, we continue to use the same strategy for applications that we have used earlier in this chapter. The only difference is that in place of translating to get an equation, we can use the simple interest formula.

We will start by solving a simple interest application to find the interest.

Example 6.36

Nathaly deposited $12,500 $12,500 in her bank account where it will earn 4% 4% interest. How much interest will Nathaly earn in 5 5 years?

We are asked to find the Interest, I . I .

I = ? P = $12,500 r = 4% t = 5 years I = ? P = $12,500 r = 4% t = 5 years

Write the formula.
Substitute the given information.
Simplify.
Check your answer. Is $2,500 a reasonable interest on $12,500 over 5 years?
At 4% interest per year, in 5 years the interest would be 20% of the principal. Is 20% of $12,500 equal to $2,500? Yes.
Write a complete sentence that answers the question. The interest is $2,500.

Try It 6.71

Areli invested a principal of $950 $950 in her bank account with interest rate 3%. 3%. How much interest did she earn in 5 5 years?

Try It 6.72

Susana invested a principal of $36,000 $36,000 in her bank account with interest rate 6.5% . 6.5% . How much interest did she earn in 3 3 years?

There may be times when you know the amount of interest earned on a given principal over a certain length of time, but you don't know the rate. For instance, this might happen when family members lend or borrow money among themselves instead of dealing with a bank. In the next example, we'll show how to solve for the rate.

Example 6.37

Loren lent his brother $3,000 $3,000 to help him buy a car. In 4 years 4 years his brother paid him back the $3,000 $3,000 plus $660 $660 in interest. What was the rate of interest?

We are asked to find the rate of interest, r . r .

I = 660 P = $3,000 r = ? t = 4 years I = 660 P = $3,000 r = ? t = 4 years

Write the formula.
Substitute the given information.
Multiply.
Divide.
Simplify.
Change to percent form.
Check your answer. Is 5.5% a reasonable interest rate to pay your brother?
Write a complete sentence that answers the question. The rate of interest was 5.5%.

Try It 6.73

Jim lent his sister $5,000 $5,000 to help her buy a house. In 3 3 years, she paid him the $5,000 , $5,000 , plus $900 $900 interest. What was the rate of interest?

Try It 6.74

Hang borrowed $7,500 $7,500 from her parents to pay her tuition. In 5 5 years, she paid them $1,500 $1,500 interest in addition to the $7,500 $7,500 she borrowed. What was the rate of interest?

There may be times when you take a loan for a large purchase and the amount of the principal is not clear. This might happen, for instance, in making a car purchase when the dealer adds the cost of a warranty to the price of the car. In the next example, we will solve a simple interest application for the principal.

Example 6.38

Eduardo noticed that his new car loan papers stated that with an interest rate of 7.5% , 7.5% , he would pay $6,596.25 $6,596.25 in interest over 5 5 years. How much did he borrow to pay for his car?

We are asked to find the principal, P . P .

I = 6,596.25 P = ? r = 7.5% t = 5 years I = 6,596.25 P = ? r = 7.5% t = 5 years

Write the formula.
Substitute the given information.
Multiply.
Divide.
Simplify.
Check your answer. Is $17,590 a reasonable amount to borrow to buy a car?
Write a complete sentence that answers the question. The amount borrowed was $17,590.

Try It 6.75

Sean's new car loan statement said he would pay $4,866.25 $4,866.25 in interest from an interest rate of 8.5% 8.5% over 5 5 years. How much did he borrow to buy his new car?

Try It 6.76

In 5 5 years, Gloria's bank account earned $2,400 $2,400 interest at 5%. 5%. How much had she deposited in the account?

In the simple interest formula, the rate of interest is given as an annual rate, the rate for one year. So the units of time must be in years. If the time is given in months, we convert it to years.

Example 6.39

Caroline got $900 $900 as graduation gifts and invested it in a 10-month 10-month certificate of deposit that earned 2.1% 2.1% interest. How much interest did this investment earn?

We are asked to find the interest, I . I .

I = ? P = $900 r = 2.1% t = 10 months I = ? P = $900 r = 2.1% t = 10 months

Write the formula.
Substitute the given information, converting 10 months to of a year.
Multiply.
Check your answer. Is $15.75 a reasonable amount of interest?
If Caroline had invested the $900 for a full year at 2% interest, the amount of interest would have been $18. Yes, $15.75 is reasonable.
Write a complete sentence that answers the question. The interest earned was $15.75.

Try It 6.77

Adriana invested $4,500 $4,500 for 8 8 months in an account that paid 1.9% 1.9% interest. How much interest did she earn?

Try It 6.78

Milton invested $2,460 $2,460 for 20 20 months in an account that paid 3.5% 3.5% interest How much interest did he earn?

Section 6.4 Exercises

Practice makes perfect.

In the following exercises, use the simple interest formula to fill in the missing information.

Interest Principal Rate Time (years)
Interest Principal Rate Time (years)
Interest Principal Rate Time (years)
Interest Principal Rate Time (years)
Interest Principal Rate Time (years)
Interest Principal Rate Time (years)

In the following exercises, solve the problem using the simple interest formula.

Find the simple interest earned after 5 5 years on $600 $600 at an interest rate of 3%. 3%.

Find the simple interest earned after 4 4 years on $900 $900 at an interest rate of 6%. 6%.

Find the simple interest earned after 2 2 years on $8,950 $8,950 at an interest rate of 3.24% . 3.24% .

Find the simple interest earned after 3 3 years on $6,510 $6,510 at an interest rate of 2.85% . 2.85% .

Find the simple interest earned after 8 8 years on $15,500 $15,500 at an interest rate of 11.425% . 11.425% .

Find the simple interest earned after 6 6 years on $23,900 $23,900 at an interest rate of 12.175% . 12.175% .

Find the principal invested if $656 $656 interest was earned in 5 5 years at an interest rate of 4% . 4% .

Find the principal invested if $177 $177 interest was earned in 2 2 years at an interest rate of 3% . 3% .

Find the principal invested if $70.95 $70.95 interest was earned in 3 3 years at an interest rate of 2.75%. 2.75%.

Find the principal invested if $636.84 $636.84 interest was earned in 6 6 years at an interest rate of 4.35%. 4.35%.

Find the principal invested if $15,222.57 $15,222.57 interest was earned in 6 6 years at an interest rate of 10.28% . 10.28% .

Find the principal invested if $10,953.70 $10,953.70 interest was earned in 5 5 years at an interest rate of 11.04%. 11.04%.

Find the rate if a principal of $5,400 $5,400 earned $432 $432 interest in 2 2 years.

Find the rate if a principal of $2,600 $2,600 earned $468 $468 interest in 6 6 years.

Find the rate if a principal of $11,000 $11,000 earned $1,815 $1,815 interest in 3 3 years.

Find the rate if a principal of $8,500 $8,500 earned $3,230 $3,230 interest in 4 4 years.

Casey deposited $1,450 $1,450 in a bank account with interest rate 4%. 4%. How much interest was earned in 2 2 years?

Terrence deposited $5,720 $5,720 in a bank account with interest rate 6%. 6%. How much interest was earned in 4 4 years?

Robin deposited $31,000 $31,000 in a bank account with interest rate 5.2% . 5.2% . How much interest was earned in 3 3 years?

Carleen deposited $16,400 $16,400 in a bank account with interest rate 3.9% . 3.9% . How much interest was earned in 8 8 years?

Hilaria borrowed $8,000 $8,000 from her grandfather to pay for college. Five years later, she paid him back the $8,000 , $8,000 , plus $1,200 $1,200 interest. What was the rate of interest?

Kenneth lent his niece $1,200 $1,200 to buy a computer. Two years later, she paid him back the $1,200 , $1,200 , plus $96 $96 interest. What was the rate of interest?

Lebron lent his daughter $20,000 $20,000 to help her buy a condominium. When she sold the condominium four years later, she paid him the $20,000 , $20,000 , plus $3,000 $3,000 interest. What was the rate of interest?

Pablo borrowed $50,000 $50,000 to start a business. Three years later, he repaid the $50,000 , $50,000 , plus $9,375 $9,375 interest. What was the rate of interest?

In 10 10 years, a bank account that paid 5.25% 5.25% earned $18,375 $18,375 interest. What was the principal of the account?

In 25 25 years, a bond that paid 4.75% 4.75% earned $2,375 $2,375 interest. What was the principal of the bond?

Joshua's computer loan statement said he would pay $1,244.34 $1,244.34 in interest for a 3 3 year loan at 12.4% . 12.4% . How much did Joshua borrow to buy the computer?

Margaret's car loan statement said she would pay $7,683.20 $7,683.20 in interest for a 5 5 year loan at 9.8%. 9.8%. How much did Margaret borrow to buy the car?

Caitlin invested $8,200 $8,200 in an 18-month 18-month certificate of deposit paying 2.7% 2.7% interest. How much interest did she earn form this investment?

Diego invested $6,100 $6,100 in a 9-month 9-month certificate of deposit paying 1.8% 1.8% interest. How much interest did he earn form this investment?

Airin borrowed $3,900 $3,900 from her parents for the down payment on a car and promised to pay them back in 15 15 months at a 4% 4% rate of interest. How much interest did she owe her parents?

Yuta borrowed $840 $840 from his brother to pay for his textbooks and promised to pay him back in 5 5 months at a 6% 6% rate of interest. How much interest did Yuta owe his brother?

Everyday Math

Interest on savings Find the interest rate your local bank pays on savings accounts.

  • ⓐ What is the interest rate?
  • ⓑ Calculate the amount of interest you would earn on a principal of $8,000 $8,000 for 5 5 years.

Interest on a loan Find the interest rate your local bank charges for a car loan.

  • ⓑ Calculate the amount of interest you would pay on a loan of $8,000 $8,000 for 5 5 years.

Writing Exercises

Why do banks pay interest on money deposited in savings accounts?

Why do banks charge interest for lending money?

ⓐ After completing the exercises, use this checklist to evaluate your mastery of the objectives of this section.

ⓑ On a scale of 1–10, how would you rate your mastery of this section in light of your responses on the checklist? How can you improve this?

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Access for free at https://openstax.org/books/prealgebra/pages/1-introduction
  • Authors: Lynn Marecek, MaryAnne Anthony-Smith
  • Publisher/website: OpenStax
  • Book title: Prealgebra
  • Publication date: Sep 25, 2015
  • Location: Houston, Texas
  • Book URL: https://openstax.org/books/prealgebra/pages/1-introduction
  • Section URL: https://openstax.org/books/prealgebra/pages/6-4-solve-simple-interest-applications

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Simple Interest Lesson

Analysis: When money is borrowed,   interest   is charged for the use of that money over a certain period of time. The amount of interest charged depends on the amount of money borrowed, the interest rate and the length of time for which the money is borrowed.

Definitions: Principal   is the amount of money borrowed. The   interest rate   is given as a   percent .   Time   is the length of time in years for which the money was borrowed.

Procedure: To find interest, take the product of the principal, the interest rate and the time. Thus, the formula for finding   interest   is:

Interest = Principal * Rate * Time   which is also written as   I = P*R*T

Now that we have a procedure and a formula, we can solve the problem above.

Solution: Principal = $3,000, Interest rate = 0.09 and Time = 4

I = (3000)*(0.09)*(4) = $1,080.00

Answer: Raquel had to pay back $3,000 in principal plus $1,080 in interest for a total of $4,080.00.

Remember that interest is the charge for borrowing the money. So Raquel had to pay back the original amount borrowed (principal) AND the interest. Let’s look at some more examples of interest.

Solution: P = $1,200, R = 0.18 and T = 0.75

Remember that the interest formula asks for the time in years. However, the time was given in months. So to get the time in years we represent 9 months as 9/12 of a year, or 0.75.

I = (1200)*(0.18)*(0.75) = 162.00

Answer: Kevin paid $162.00 in interest.

In the problem and example above, money was borrowed and interest was paid for borrowing that money. A person can also earn interest on money invested. Let’s look at an example of this.

Solution: P = $500, R = 0.055 and T = 1

I = (500)*(0.055)*(1) = $27.50

Answer: Isabella earns $27.50 per year in interest from her local bank.

In Example 2, the bank was the borrower and Isabella was the lender. Let’s revise our definition of interest so that it applies to all of these problems.

Interest   is the amount of money the lender is paid for the use of his/her money. Interest is the money you pay to use someone else’s money. In either case, the more money being used and the longer it is used for, the more interest must be paid. Let’s look at some more examples of interest.

P = $38,000, R = 7.25% and T = 10

I = (38000)*(.0725)*(10) = $27,550.00

Answer: Jodi will have to pay $38,000 in principal plus $27,550 in interest for a total of $65,550.00.

Solution: P = $1000, I = 0.04 and T = 0.25

Remember that the interest formula asks for the time in years. However, the time was given in months. So to get the time in years we represent 3 months as 3/12 of a year, or 0.25.

I = (1000)*(0.04)*(0.25) = $10.00

Answer: Julia will have $1,000 in principal plus $10 of interest earned for a total of $1,010.00.

In each of the examples above, the interest rate was applied only to the original principal amount in computing the amount of interest. This is known as   simple interest . When the interest rate is applied to the original principal and any accumulated interest, this is called   compound interest . Simple and compound interest are compared in the tables below. In both cases, the principal is $100.00 is and the interest rate is 7%.

Year Principal Interest Ending Balance
1 $100.00 $7.00 $107.00
2 $100.00 $7.00 $114.00
3 $100.00 $7.00 $121.00
4 $100.00 $7.00 $128.00
5 $100.00 $7.00 $135.00
Interest
Year Principal Interest Ending Balance
1 $100.00 $7.00 $107.00
2 $107.00 $7.49 $114.49
3 $114.49 $8.01 $122.50
4 $122.50 $8.58 $131.08
5 $131.08 $9.18 $140.26

As you can see, compound interest can end up being higher than simple interest   for the same principal and the same rate . If you were borrowing money, would you want to pay simple interest or compound interest? If you were lending or investing money, would you want to earn simple interest or compound interest?

Summary: Interest is the amount of money the lender is paid for the use of his/her money. Interest is the money you pay to use someone else’s money. In either case, the more money being used and the longer it is used for, the more interest must be paid. So whether you are borrowing or lending (investing)  money, interest is found by taking the product of the principal, the interest rate and the time in years. The formula for finding   simple interest   is:

Directions: Each problem below involves simple interest. Solve each problem below by entering a dollar amount with cents. For each exercise below, click once in the ANSWER BOX, type in your answer and then click ENTER. After you click ENTER, a message will appear in the RESULTS BOX to indicate whether your answer is correct or incorrect. To start over, click CLEAR.

RESULTS BOX: 

years. How much did he repay altogether?

RESULTS BOX: 

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"Investment" Word Problems

Explanation Examples

What is "interest"?

Interest is the price of money. If I borrow money from you, with a promise to pay you back later, that money is no longer available for you to use as you please. In return for the loss of your use of that money, I would pay you a certain amount (usually being a percentage of the amount that I borrowed), over and above the amount what I'd borrowed, in order to pay you for my use of your money.

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Investment Word Problems on MathHelp.com

Investment Word Problems

What is an "interest rate"?

An interest rate is a rate (usually expressed as a percentage) of the money borrowed, which is to be paid back over and above the borrowed amount. For instance, if I borrow $100 from you and pay you back $108 at the end of a year's time, then the interest rate "per annum" (that is, per year) is 8%.

Interest rates are almost always expressed in terms of years. If I borrowed the $100 from you and paid you back in six months, then I would owe you $104, because six months is half of a year.

What is "simple" interest?

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Simple interest is an amount of money that is a fixed percentage of the amount borrowed, and which is added to the borrowed amount once each interest-rate period. So if I'd borrowed $100 from you and didn't pay it back until two years later, I would owe you an extra $8 for the first year and another extra $8 for the second year, for a total of $116 that I need to pay you.

In pre-algebra or beginning algebra, "investment" word problems usually involve simple annual interest — as opposed to compounded interest . Simple interest is earned on the entire investment amount for a given period of time.

This differs from compounded interest, where simple interest is earned for a smaller amount of time (for instance, for one month). Then, over the next period of time, the interest is earned on the original investment *plus* on the interest that was earned on that first time period. Then, during the third time period, interest is earned on the initial investment amount plus the interest earned during the first two periods. And so forth.

What is an example of a simple-interest situation?

One example of a simple-interest situation is getting a loan for the car you're buying. Another example would be investing in a certificate of deposit (that is, a CD ) at your bank. Mortgages and student loans can also be issued in terms of simple interest.

What is the formula for simple interest?

The formula for the simple interest I earned on the amount of an investment (that is, the "principle") P with an interest rate of r over a time period t is I  =  Prt .

In the simple-interest formula I  =  Prt , the variable I stands for the interest earned on the original investment, P stands for the amount of the original investment, r is the interest rate (expressed in decimal form), and t is the time (usually in terms of years).

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The time units, in all cases, must match the interest-rate units. For instance, if you got a loan from your friendly neighborhood loan shark, where the interest rate is monthly, rather than yearly, then your time must be measured in terms of months.

When working on investment word problems, you will want to substitute all given information into the I  =  Prt equation, and then solve for whatever is left.

  • You put $1000 into an investment yielding 6% annual interest; you left the money in for two years. How much interest do you get at the end of those two years?

The invested amount (that is, the principal) of my investment is P  = $1000 , the interest rate (expressed in decimal form) is r  = 0.06 per year, and the amount of time is t  = 2 . Substituting these values into the simple-interest formula, I get:

I = (1000)(0.06)(2) = 120

I will get $120 in interest.

  • You invested $500 and received $650 after three years. What had been the interest rate?

For this exercise, I first need to find the amount of the interest. Since simple interest is added to the principal, and since the principal was P  = $500, then the interest is I = $650 − 500 = $150 . The time is t  = 3 . Substituting all of these values into the simple-interest formula, I get:

150 = (500)( r )(3)

150 = 1500 r

150 / 1500 = r = 0.10

Of course, I need to remember to convert this decimal to a percentage.

I was getting 10% interest.

When you have just one account, one simple situation, requiring one use of the simple-interest formula, it's pretty easy to set up and solve the exercises. The hard part comes when the exercises involve multiple investments or some other complication. But there is a trick to these that makes them fairly easy to handle. You use a simple table or grid.

  • You have $50,000 to invest, and two funds into which you'd like to place those monies. The You-Risk-It Fund (Fund Y) yields 14% interest. The Extra-Dull Fund (Fund X) yields 6% interest. You'd like to earn as much as possible but, because of college financial-aid implications, you don't think you can afford to earn more than $4,500 in interest income this year. How much should you put in each fund?

The problem here comes from the fact that I'm splitting the $50,000 in principal into two smaller amounts. Here's how to handle this:

I will make a table. The top row has, as its entries, the variables in the simple-interest formula. The left-hand column labels the two funds — and, in case I need it, a "totals" row. (Not all exercises will need the "totals" row.)

I can't add rates — that's just a thing; rates can't be added — and each of the investments is for one year, so there are no "total" values for the interest rates or the years. Hence, the dashes, to remind me not to try to put anything in there.

Fund X
Fund Y
total 4,500 50,000

I know the interest total that I'm aiming for, and I know the total amount that I'm investing, so I can enter "total" values for the "interest" and "investment" columns.

I know the interest rates and the time (namely, one year) for the two investments, so I can enter these values in the "rate" and "time" columns, in each fund's row.

Putting it all together, I get the following start to my set-up:

Fund X 0.06 1
Fund Y 0.14 1
total 4,500 50,000

How do I fill in for those question marks? I'll start with the principal P . Let's say that I put x dollars into Fund X, and y dollars into Fund Y. Then x  +  y  =  50,000 .

But this doesn't help much, since I only know how to solve equations in one variable. However, I then notice that I can solve x  +  y = 50,000 to get y = 50,000 −  x .

THIS TECHNIQUE IS IMPORTANT! The amount left for me to put into Fund Y is (the total that I invested) less (what I've already put into Fund X), or 50,000 −  x .

Any time you have a total that is divided into two parts, you can designate one part as (one part), and the rest will be (the total) minus the (one part), because the second part is whatever is left, from the total, after (one part) is accounted for.

You will need this technique — this "how much is left" construction — in the future, so make sure you understand it now.

So now I have a variable for the Fund X part, and an expression for however much was left to go into the Fund Y part. I can add these to my table:

Fund X 0.06 1
Fund Y 50,000 − 0.14 1
total 4,500 50,000

Now I will show you why I set up the table like this. By organizing the columns according to the interest formula, I can now multiply across (in this case, I will multiply the three right-hand columns to get expressions for I in the second column) to fill in the "interest" column.

Fund X 0.06 0.06 1
Fund Y 0.14(50,000 − ) 50,000 − 0.14 1
total 4,500 50,000

The interest from Fund X and the interest from Fund Y will add up to $4,500 . As a result, I can add down the "interest" column, set the sum of the two interest expressions equal to the total interest, and solve the resulting equation for the value of the variable:

0.06 x + 0.14(50,000 − x ) = 4,500

0.06 x + 7,000 − 0.14 x = 4,500

7,000 − 0.08 x = 4,500

−0.08 x = −2,500

The value of x stands for the amount invested in Fund X. So the amount that is left, from the total invested, is given by 50,000 − 31,250 = 18,750 . And this (being the amount that is left after I'd put money into Fund X) is the amount that is invested in Fund Y.

I should put $31,250 into Fund X, and $18,750 into Fund Y.

Note that the answer did not involve nice, neat values like $10,000 or $35,000 . You should understand that this means that you cannot always expect to be able to use guess-n-check to find your answers. You really do need to know how to do these exercises.

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problem solving about simple interest

Simple Interest Word Problems

These lessons, with videos, examples and step-by-step solutions, help Algebra students learn how to solve word problems that involve interest.

Related Pages Simple Interest Compound Interest More Lessons for Grade 9 Math Math Worksheets

How to solve word problems using the simple interest formula? The simple interest formula is interest = principal × rate × time or I = Prt

How to use the Simple Interest Formula?

Example: How much interest is earned in five years on $3,000 invested at an interest rate of 9% per year?

Interest Word Problems - Algebra Help How to solve simple interest word problems?

Example: Pam invested $5000. She earned 14% on part of her investment and 6% on the rest. If she earned a total of $396 for the year, how much did she invest at each rate?

Find the amount of interest earned by $8,000 invested at a 5% annual simple interest rate for 1 year.

To start a mobile dog-grooming service, a woman borrowed $2,500. If the loan was for 2 years and the amount of interest was $175, what simple interest rate was she charged?

A student borrowed some money from his father at 2% simple interest to buy a car. If he paid his father $360 in interest after 3 years, how much did he borrow?

A couple invested $6,000 of their $20,000 lottery winnings in bonds. How much do they have left to in stocks?

A college student wants to invest the $12,000 inheritance he received and use the annual interest earned to pay his tuition cost of $945. The highest rate offered by a bank is 6% annual simple interest. At this rate, he cannot earn the needed $945, so he decided to invest some of the money in a riskier, but more profitable, investment offering a 9% return. How much should he invest at each rate?

A credit union loaned out $50,000, part at an annual rate of 6% and the rest at an annual rate of 12%. The collected combined simple interest was $3600 that year. How much did the credit union loan out at each rate?

Example: Suppose $7,000 is divided into two bank accounts. One account pays 10% simple interest per year and the other pays 5%. After three years there is a total of $1451.25 in interest between the two accounts. How much was invested into each account (rounded to the nearest cent)?

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  • IIT JEE Study Material

Simple Interest Problems

Simple interest is the interest calculated on the principal amount which is borrowed. While learning how simple interest is calculated, the main terms are – principal, denoted by P; rate of interest, denoted by R and time in years, denoted by T. 

The branch of commercial mathematics has one of the most important concepts, which is interest. The two types of interest are simple interest and compound interest. The idea of simple interest is based on the time value of money, which has a current value, present value and future value. If invested in a deposit, it earns an amount called interest. In this article, we will learn about simple interest, compound interest and how to solve simple interest problems.

The following example will make these terms more clear:

Malini said that she is going to buy a new refrigerator. Her father asked whether she had the money to buy it. She said to her father that she is planning to take a loan from the bank. The money she borrows is the sum borrowed or the principal. To keep this money for some time, she needs to pay some extra money to the bank. That amount is the interest. So, at the end of the year, she has to pay back the money borrowed and the interest. This is the amount denoted by A. 

Therefore, Amount = Principal + Interest. 

Interest is given in percentage for a time of one year. For example, 12% per annum or 12% p.a.

This means that for every Rs. 100 you borrow, you have to pay Rs. 12 as interest for one year. 

Example: Rajiv took a loan of Rs. 7000 from a bank at 10% as a rate of interest. Find the interest he has to pay at the end of one year.

Solution: Here, sum borrowed, P = 7000

Rate of interest, R = 10%

This means if he borrowed Rs. 100, he had to pay Rs. 10 as interest. So, for Rs. 7000, the interest he has to pay for one year is 7000×10/100 = Rs. 700.

So, at the end of the year, the amount he has to pay back = 7000 + 700 = Rs. 7700

Interest for multiple years: 

If money is borrowed for multiple years, the interest is calculated for the period of time it is kept. For example, if Rajiv returns money at the end of 2 years, he has to pay twice the interest. Rs. 700 for the first year and Rs. 700 for the second year. As the number of years increases, the interest to be paid also increases. If Rs. 100 is borrowed for 4 years at 5%, then the interest to be paid at the end of 4 years is 5 + 5 + 5 + 5 = 4 × 5 = 20. 

So, the interest paid for T years for a principal P at the rate R% is SI = PTR/100

How Simple Interest is Different from Compound Interest

The interest is calculated on the principal amount for a fixed period of time, and the rate of interest is called simple interest. It is used for a single period.

The interest calculated at the end of a certain fixed period and which adds to the principal so that interest can be earned in the next compounding period is called compound interest.

SI and CI Formulas

Simple Interest 

Amount = SI + P

Compound Interest

Amount at end of t years

CI: Compound Interest

P: Principal

R: Rate of interest per annum

T: Time in years

SI: Simple Interest

Solved Examples

Example 1: An amount of Rs. 12800 was invested by Mr Rohan, dividing it into two different investment schemes, A and B, at a simple interest rate of 11% and 14%. What was the amount in plan B if the amount of interest earned in two years was Rs. 3508?

Let the sum invested in Scheme A be Rs. x and that in Scheme B be Rs.(12800 – x).

Then, [x . 14 . 2]/100 + [(12800 – x) . 11 . 2]/100 = 3508

28x – 22x = 350800 – (12800 × 22)

x = 11533.33

So, the sum invested in Scheme B = Rs. (12800 – 11533.33) = Rs. 1266.67.

Example 2: A lender claims to be lending at simple interest, but he adds the interest every 6 months in the calculation of the principal. The rate of interest charged by him is 8%. What will be the effective rate of interest?

Let the sum be Rs. 100.

Simple interest for 1 st 6 months = Rs. [100 × 8 × 1]/[100 × 2] = Rs. 4

Simple interest for last 6 months = Rs. [104 × 8 × 1]/[100 × 2] = Rs.4.16

So, amount at the end of 1 year = Rs. (100 + 4 + 4.16) = Rs. 108.16

Effective rate = (108.16 – 100) = 8.16%

Example 3: A town has a population of 20,000. The population increases by 10% per year. What will be the population after 2 years?

Here, R = 10/100

Population after 2 years will be = P[1 + (R/100)] T

= 20000[1 + (10/100)] 2

= 20000(1.1) 2

Example 4: The time required for a sum of money to amount to five times itself at 16% simple interest p.a. will be:

Let the sum of money be Rs. x and the time required to amount to five times itself be T years.

Principal amount = Rs. x

Amount after T years = Rs. 5x

So, the interest in ‘T’ year should be Rs.(5x – x) = Rs. 4x.

Using simple interest formula,

(P × T × R)/100 = SI

Where, P = Principal amount, T = Duration in years, R = Interest rate per year, SI = Simple interest

(x × T × 16)/100 = 4x

⇒ T × (16/100) = 4

⇒ T = 400/16 = 25

∴ The required time = 25 years.

Example 5:   The rate of simple interest per annum at which a sum of money doubles itself in 16⅔ years is:

Let the principal amount be P.

Now, the amount A after 16⅔  years is doubled.

Hence, amount is 2P.

I = P × R × T/100

P = principal amount

R = rate of interest

T = time in years = 16 2 / 3  = 50/3

I = simple interest

Amount A = I + P

According to question,

A = P + (P × R × T/100)

2P = P + (P × R × T/100)

P = P × R × T/100

R = 100 × 3/50

Example 6: In which year will the amount on a sum of Rs. 800 at 20% compounded half-yearly exceed Rs.1000?

Let the time taken for this amount to reach Rs. 1000 be X.

The important thing to note is that this sum is compounded half-yearly. Hence, we use the formula:

Where, A = Amount

P = Principal

r = Interest rate

m = No. of periods within a year

T = No. of years

We need to obtain T such that the RHS should be greater than the LHS:

\(\begin{array}{l}\therefore A < P\left(1 + [\frac{r}{m*100}]^{mT} \right)\end{array} \)

In this case,

m = 2 (since it is half-yearly)

Substituting these values, we have

⇒ 1.25 < (1.21) T

Now, we need to use trial and error to check for the values of T.

For T = 1, 1.25 > 1.21; hence, the condition is not satisfied.

For T = 2, 1.25 < 1.4641, hence the condition is met.

Therefore, it is the second year in which the amount would be greater than Rs. 1000.

Example 7:  In how many years will a sum of Rs. 4,000 yield a simple interest of Rs. 1,440 at 12% per annum?

We know that the formula for simple interest:

SI = [ P  ×  R  ×  T] /  100

SI = Simple Interest = 1440

P = Principal = 4000

T = Time = ?

R = Rate of Interest = 12%

Substituting the values in the formula

⇒ 1440  = [ 4000  ×  12  ×  T] /  100

⇒ 1440 = 480T

⇒ T = 1440/480 = 3 yrs

Quadratic equations

Linear equations

Frequently Asked Questions

What is the difference between simple interest and compound interest.

Simple interest is based on the principal amount of a loan. Compound interest is based on the principal amount and the interest which adds on it in every period.

Give the formula for simple interest.

Simple interest, I = PRT, where P is the principal amount, R is the rate of interest, and T is the time in years.

How to find the amount if the principal and simple interest are given?

We use the formula, amount = principal + simple interest, to find the amount.

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Simple Interest Calculator

The Simple Interest Calculator calculates the interest and end balance based on the simple interest formula. Click the tabs to calculate the different parameters of the simple interest formula. In real life, most interest calculations involve compound Interest. To calculate compound interest, use the Interest Calculator .

End balance
Principal
Interest rate
Term
 
 
Total Interest =$20000 × 3% × 10
=$6,000.00
End Balance =$20000 + $6,000.00
=$26,000.00
YearInterestBalance
1$600.00$20,600.00
2$600.00$21,200.00
3$600.00$21,800.00
4$600.00$22,400.00
5$600.00$23,000.00
6$600.00$23,600.00
7$600.00$24,200.00
8$600.00$24,800.00
9$600.00$25,400.00
10$600.00$26,000.00

Related Interest Calculator | Compound Interest Calculator

What is Simple Interest?

Interest is the cost you pay to borrow money or the compensation you receive for lending money. You might pay interest on an auto loan or credit card, or receive interest on cash deposits in interest-bearing accounts, like savings accounts or certificates of deposit (CDs).

Simple interest is interest that is only calculated on the initial sum (the "principal") borrowed or deposited. Generally, simple interest is set as a fixed percentage for the duration of a loan. No matter how often simple interest is calculated, it only applies to this original principal amount. In other words, future interest payments won't be affected by previously accrued interest.

Simple Interest Formula

The basic simple interest formula looks like this:

Simple Interest = Principal Amount × Interest Rate × Time

Our calculator will compute any of these variables given the other inputs.

Simple Interest Calculated Using Years

You may also see the simple interest formula written as:

In this formula:

  • I = Total simple interest
  • P = Principal amount or the original balance
  • r = Annual interest rate
  • t = Loan term in years

Under this formula, you can manipulate "t" to calculate interest according to the actual period. For instance, if you wanted to calculate interest over six months, your "t" value would equal 0.5.

Simple Interest for Different Frequencies

  • I = total interest
  • P = Principal amount
  • r = interest rate per period
  • n = number of periods

Under this formula, you can calculate simple interest taken over different frequencies, like daily or monthly. For instance, if you wanted to calculate monthly interest taken on a monthly basis, then you would input the monthly interest rate as "r" and multiply by the "n" number of periods.

Simple Interest Examples

Let's review a quick example of both I=Prt and I=Prn.

For example, let's say you take out a $10,000 loan at 5% annual simple interest to repay over five years. You want to know your total interest payment for the entire loan.

To start, you'd multiply your principal by your annual interest rate, or $10,000 × 0.05 = $500.

Then, you'd multiply this value by the number of years on the loan, or $500 × 5 = $2,500.

Now that you know your total interest, you can use this value to determine your total loan repayment required. ($10,000 + $2,500 = $12,500.) You can also divide the value to determine how much interest you'd pay daily or monthly.

Alternatively, you can use the simple interest formula I=Prn if you have the interest rate per month.

If you had a monthly rate of 5% and you'd like to calculate the interest for one year, your total interest would be $10,000 × 0.05 × 12 = $6,000. The total loan repayment required would be $10,000 + $6,000 = $16,000.

What Financial Instruments Use Simple Interest?

Simple interest works in your favor as a borrower, since you're only paying interest on the original balance. That contrasts with compound interest, where you also pay interest on any accumulated interest. You may see simple interest on short-term loans.

For this same reason, simple interest does not work in your favor as a lender or investor. Investing in assets that don't offer compound growth means you may miss out on potential growth.

However, some assets use simple interest for simplicity — for example bonds that pay an interest coupon. Investments may also offer a simple interest return as a dividend. To take advantage of compounding you would need to reinvest the dividends as added principal.

By contrast, most checking and savings accounts, as well as credit cards, operate using compound interest.

Simple Interest Versus Compound Interest

Compound interest is another method of assessing interest. Unlike simple interest, compound interest accrues interest on both an initial sum as well as any interest that accumulates and adds onto the loan. (In other words, on a compounding schedule, you pay interest not just on the original balance, but on interest, too.)

Over the long run, compound interest can cost you more as a borrower (or earn you more as an investor). Most credit cards and loans use compound interest. Savings accounts also offer compounding interest schedules. You can check with your bank on the compounding frequency of your accounts.

Compound Interest Formula

The basic formula for compound interest is:

A = P × (1 +
r
n
  • A = ending balance
  • P = Principal balance
  • r = the interest rate (expressed as a decimal)
  • n = the number of times interest compounds in a year
  • t = time (expressed in years)

Note that interest can compound on different schedules – most commonly monthly or annually. The more often interest compounds, the more interest you pay (or earn). If your interest compounds daily, you'd enter 365 for the number of time interest compounds annually. If it compounds monthly, you'd input 12 instead.

Learn More About Compound Interest

Compound interest calculations can get complex quickly because it requires recalculating the starting balance every compounding period.

For more information on how compound interest works, we recommend visiting our compound interest calculator .

Which is Better for You: Simple or Compound Interest?

As a borrower, paying simple interest works in your favor, as you'll pay less over time. Conversely, earning compound interest means you'll net larger returns over time, be it on a loan, investment, or your regular savings account.

For a quick example, consider a $10,000 loan at 5% interest repaid over five years.

As established above, a loan this size would total $12,500 after five years. That's $10,000 on the original principal plus $2,500 in interest payments.

Now consider the same loan compounded monthly. Over five years, you'd repay a total of $12,833.59. That's $10,000 of your original principal, plus $2,833.59 in interest. Over time, the difference between a simple interest and compound interest loan builds up exponentially.

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Simple interest calculator finds the principal amount, interest amount and interest rate using simple interest formula. This calculator can help you deal with all kinds of simple interest problems. The calculator prints an easy-to-follow, step-by-step explanation.

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Simple interest

Simple interest is based only on the principal amount , unlike compound interest, where we use previously earned interest to calculate the next interest. For example if we invest \$100 for 3 years at an interest rate of 10% than we earn $10 each year. This calculator uses the following formula to solve simple interest problems:

Simple interest formula

P is the principal. This is the total amount of money we invested.

R is the ANNUAL rate of interest at which the money is given.

T is the time duration in years for which the principal is invested.

We will show how to use simple interest forumula on two examples.

Calculate the interest earned on \$1200 if the rate is 6% over 3 years.

Step1 : Transform 6% into decimal

6% = 6 ÷ 100 = 0.06

Step2 : Apply above formula:

I = P × R × T = 1200 × 0.06 × 3 = 216

You deposit \$800 into a bank account and received \$56 simple interest after 18 months. What is the interest rate per year?

Step1 : Transform 18 months into years

18 M = 18 ÷ 12 = 1.5 Y

I = P × R × T R = I ÷ ( P × T) R = 56 ÷ (800 × 1.5) R = 0.047 R = 4.7%

1. Simple Interest formula with examples

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Word Problems on Simple Interest

Word Problems on Simple Interest are solved here:

1.  Robert deposits $ 3000 in State Bank of India for 3 year which earn him an interest of 8%.What is the amount he gets after 1 year, 2 years and 3 years? Solution: In every $ 100, Robert gets $ 8. (Since rate is 8% → 8 for every 100) Therefore, for $ 1 he gets = $ 8/100 And for $ 2000 he gets = 3000 x 8/100  = $ 240 Simple Interest for 1 year = $ 240. Simple Interest for 2 year = $ 240 x 2  = $ 480

Simple Interest for 3 year = $ 240 x 3 = $ 720 Therefore,  Amount after 1 year = Principal (P) + Simple Interest (SI) = 3000 + 240 = $ 3240

Amount after 2 years = Principal (P) + Simple Interest (SI) = 3000 + 480 = $ 3480 Amount after 3 years = Principal (P) + Simple Interest (SI) = 3000 + 720 = $ 3720 We observe from the above example that, the Interest cannot be calculated without Principal, Rate and Time.

Therefore, we can conclude that Simple Interest (S.I.) depends upon:

(i) Principal (P) (ii) Rate (R) (iii) Time (T)

And therefore, the formula for calculating the simple interest is Simple Interest (SI) = {Principal (P) × Rate (R) × Time (T)}/100

Amount (A) = Principal (P) + Interest (I) Principal (P) = Amount (A) – Interest (I) Interest (I) = Amount (A) – Principal (P)

2. Richard deposits $ 5400 and got back an amount of $ 6000 after a year. Find the simple interest he got. Solution: Principal (P) = $ 5400, Amount (A) = $ 6000 Simple Interest (SI) = Amount (A) – Principal (P) = 6000 - 5400 = 600 Therefore, Richard got an interest of $ 600. 3. Seth invested a certain amount of money and got back an amount of $ 8400. If the bank paid an interest of $ 700, find the amount Sam invested. Solution: Amount (A) = $ 8400, Simple Interest (SI) = $ 700 Principal (P) = Amount (A) – Interest (I) = 8400 - 700 = 7700 Therefore, Seth invested $ 7700. 4. Diego deposited $ 10000 for 4 year at a rate of 6% p.a. Find the interest and amount Diego got. Solution: Principal (P) = $ 10000, Time (T) = 4 years, Rate (R) = 6% p.a. Simple Interest (SI) = {Principal (P) × Rate (R) × Time (T)}/100 = (10000 x 6 x 4)/100 = $ 2400 Amount (A) = Principal (P) + Interest (I) = 10000 + 2400 = $ 12400 The interest Diego got = $ 2400. Therefore, the amount Diego got $ 12400.

●  Simple Interest.

Word Problems on Simple Interest.

Factors Affecting Interest

In Simple Interest when the Time is given in Months and Days.

To find Principal when Time Interest and Rate are given.

To find Rate when Principal Interest and Time are given .

To find Time when Principal Interest and Rate are given.

Worksheet on Simple Interest.

Worksheet on Factors affecting Interest

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Simple Interest Word Problems Lesson

  • Demonstrate an understanding of how to translate phrases into algebraic expressions and equations
  • Learn the six-step method used for solving applications of linear equations
  • Learn how to solve word problems that involve the simple interest formula "I = prt"

How to Solve Simple Interest Word Problems

Six-step method for solving word problems with linear equations in one variable.

  • Read the problem and determine what you are asked to find
  • If more than one unknown exists, we express the other unknowns in terms of this variable
  • Write out an equation that describes the given situation
  • Solve the equation
  • State the answer using a nice clear sentence
  • We need to make sure the answer is reasonable. In other words, if asked how many students were on a bus, the answer shouldn't be (-4) as we can't have a negative amount of students on a bus.

Solving Simple Interest Word Problems » I = prt

I p r
B. F.$1450$29,000.05
S. A..02xx.02

Skills Check:

Solve each word problem.

Lauren earns $550 per year in annual simple interest from a $10,000 investment. She invested part of the $10,000 in a savings account at 5% annual simple interest and the remainder in bonds paying 6% annual simple interest. How much did Lauren invest at each rate?

Please choose the best answer.

Ben is saving money for his welding certification. He deposited some money in a savings account paying 5% annual simple interest. Additionally, he deposited $1200 less than that amount in a CD paying 4% annual simple interest. Ben earns a total of $141 per year in interest from the two investments. How much did he invest at each rate?

April invested in a real estate fund that pays 6% annual simple interest. Additionally, she invested $6000 more than three times as much in corporate bonds that pay 5% annual simple interest. If April’s total interest per year is $825, how much did she invest at each rate?

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Simple Interest Problems

Key concepts.

  • Simple interest, percent of interest and principal.
  • Find simple interest.
  • Find the percent of interest.
  • Find the principal.

Solve simple interest problems

What is principal.

When an individual or business borrows a certain sum of money through a loan, the amount borrowed is referred to as the principal amount.

Example: Maddy wants to construct his house; the estimation was calculated to be $40000. He decides to borrow $10000 from the bank. This borrowed amount is termed as principal.

What is simple interest?

Simple interest is the method of calculating the interest amount for some principal amount of money. We generally borrow money from our siblings or friends when our pocket money gets exhausted or lend money. We use that money for our purpose and return it when we receive the next month’s pocket money to them. This is how lending and borrowing works at home.

But in the real world, money is not free to borrow. We often borrow money from banks in the form of a loan. During payback, apart from the loan amount, we pay an extra amount that depends on the loan amount and the time period for which we borrowed. This additional amount being paid is called simple interest.

What is percent of interest?

An interest rate is a percent used to calculate interest on the principal.

parallel

Maddy borrows $10000 at 4% interest for a period of two years.

Here, we understand that principal = $10000 and rate of interest = 4%.

Let us understand, what does 4% mean?

4% is written as 4/100

The banker here wants to convey that if Maddy borrows $100, then he must pay $4 extra during the payback. But, Maddy here borrows $10000.

The interest to be paid  = 10000 × 4%

                                                  = 10000 × 0.04

                                                  = $400.

Therefore, Maddy must pay $400 during the payback additionally along with the principal of $10000.

Find simple interest

Example 1: Ann opens a saving account with a deposit of $670. She will earn 1.5% interest each year on her money. How much interest will she earn over a period of 10 years? (assuming she does not add or take out any money).

Use the percent equation to find the amount of interest earned in one year.

We know that, part = percent × whole

Let us take the interest amount as I, part = I, percent = 1.5% and whole = amount deposited.

I = 1.5% × 670

I = 0.015 × 670

Step 2:Multiply the interest earned in one year by 10 to calculate the total interest Ann will earn over a 10-year period.

Find simple interest

Total interest earned by Ann in 10 years = 10.05 × 10

                                                                 = 100.5

Therefore, Ann gets $100.5 in ten years’ time.

Example 2: Dave borrows $1500 to repair his house. He will pay off the loan after 3 years by paying back the principal plus 3.5% interest for each year. How much will he pay in interest, and how much will she pack back altogether

Let us take the interest amount as I, part = I, percent = 3.5% and whole = amount borrowed.

I = 3.5% × 1500

I = 0.035 × 1500

Step 2: Multiply the interest to be paid in one year by 3 to calculate the total interest Dave will have to pay over a 3-year period.

Find simple interest

Total interest in 3 years = 52.5 × 3

                                      = 157.5

Total amount to be paid back = principal + interest

                                                               = 1500 + 157.5

                                                               = 1657.5

Therefore, the interest to be paid by Dave is $157.5, and the total amount altogether is $1657.5

Find the percent of interest

Example 1: A bank lends $4000 on loan to a businessman in simple interest. If he promises to pay $20 every month for a period of two years. What is the interest rate on the loan per annum?

Multiply the interest by 12 to get the interest for 1 year.

20 × 12 = $240

Interest to be paid in two years = 240 × 2

                                                   = $480.

Step 2: Use the percent equation to find the interest rate.

Here we understand that, part = interest, whole = principal and percent rate = p.

Let us take interest rate as p, which we are about to find.

Interest = interest rate × principal.

480 = p × 4000

Divide the equation by 4000 on both sides.

480/4000 = p

Express the decimal as a percent by multiplying by 100.

Therefore, the interest rate levied on the loan by the bank is 12%.

Example 2: A person deposits $5000 in a bank in simple interest; he finds $6200 after two years in the account. What is the rate of interest per annum?

Find the interest paid by the bank in those two years

Interest paid in two years = 6200 – 5000

                                          = $1200.

Interest paid in one year = 1200/2

Interest paid in one year = 600

600 = p × 5000

Divide the equation by 1200 on both sides.

600/5000 = p                       

Therefore, the interest rate levied on the deposit by the bank is 12%

Find the principal

Example 1: Brit opened a savings account that fetches him 4% interest. Brit estimates that assuming he neither adds to nor withdraws from his account, he will earn $300 in interest after 5 years. How much did Brit deposit when he opened the account?

Firstly, find the interest he earns in 1 year.

300 ÷ 4 = 75

Interest earned per year is $75.

Step 2: Use the percent equation to find the deposit or principal.

Let us take principal as p, which we are about to find.

Here we understand that, part = interest amount, whole = principal and percent = interest rate.

Interest amount per year = interest rate × principal.

75 = 4% × P

75 = 0.04 × P

Divide the equation by 0.04 on both sides.

75/0.04 = 0.04/0.04 =  × P

P × 1 =1875

Therefore, Brit deposits $1875 in the account at 4% simple interest to earn $300 interest over a period of 4 years.

Example 2: Alex borrowed money for school. He took out a loan that charges 5% simple interest. He will end up paying $800 in interest after 5 years. How much did Alex borrow for school?

800 ÷ 5 = 160

Interest earned per year is $160.

160 = 5% × P

160 = 0.05 × P

Divide the equation by 0.05 on both sides.

160/0.05 = 0.05/0.05 =  × P

P × 1 =3300

Therefore, Alex borrows $3300 for school at 5% simple interest over a period of 5 years and pays $800 interest.

  • A bank lends $1000 at 2.5% in simple interest. After 5 years, how much money should be paid back to the bank?
  • Adam borrows $6600 from his friend at 1.5% in simple interest; he promises to pay it back in 3 years. How much interest does he pay?
  • Calculate the interest earned on lending $500 for two years at 3% per annum in simple interest?
  • Greg pays $100 in interest per year for 8 years for borrowing $12000 in simple interest; what is the interest rate?   
  • A bank asks to pay $50 per year for 2 years on borrowing $1000. Determine the rate of interest.
  • A company lends Maya $4000. Every month she will pay $11.88 interest for 1 year. What is the interest rate?
  • The interest earned at 2% is $320 for 2 years. What is the principal?
  • The interest earned at 5% is $1000 for a period of 10 years. Determine the principal.
  • Rebecca borrows money to pay for her medical expenses. She paid $400 over a period of 10 years borrowing at 2% in simple interest. How much did she borrow?
  • Adam decided to deposit $8000 in a bank at a simple interest of 3% till 12 years so that he can use it for his business expansion later. How much money will he have in his account after 12 years, assuming that he neither draws nor adds any amount?

What have we learned?

  • Understanding simple interest, percent of interest and principal.
  • Finding simple interest.
  • Finding the percent of interest.
  • Finding the principal.

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problem solving about simple interest

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WORD PROBLEMS ON SIMPLE INTEREST

Problem 1 :

Find the simple interest for 2 years on $2000 at 6% per year.

Formula for simple interest :

Substitute P = 2000,  t = 2 and r = 6% or 0.06.

I = 2000  ⋅  0.06  ⋅ 2

Problem 2 :

In simple interest, a sum of money doubles itself in 10 years. Find the number of years it will take to triple itself.

Let P be the sum of money invested.

Given : Sum of money doubles itself in 10 years.

Then, P will become 2P in 10 years.

Now we can calculate interest for ten years as given below

problem solving about simple interest

From the above calculation, P is the interest for the first 10 years.

In simple interest, interest earned will be same for every year.

So, interest earned in the next 10 years also will be P.

It has been explained below.

problem solving about simple interest

So, it will take 20 years for the principal to become triple itself.

Problem 3 :

In simple interest, a sum of money amounts to $ 6200 in 2 years and $ 7400 in 3 years. Find the principal.

At the end of 2 years, we get $6200.

At the end of 3 years, we get $7400.

From these two information, we can get the interest earned in the 3rd year as given below.

problem solving about simple interest

In simple interest, interest will be same for every year.

Based on this, we can calculate the principal as given below

problem solving about simple interest

So, the principal is $3800.

Problem 4 :

A sum of $46875 was lent out at simple interest and at the end of 1 year 8 months, the total amount was $50000.Find the rate of interest per year.

From the given information, we have

P = 46875 and A = 50000

Interest = Amount - Principal

I = 50000 - 46875

The value of n must always be in years. But in the question, it is given in both years and months.

To convert months to years, divide the given months by 12.

1 year 8 months = 1 ⁸⁄₁₂ years or 1 ⅔  years

So, the value of t  is  1 ⅔ or ⁵⁄₃ .

Substitute P = 46875 and t  = ⁵⁄₃ .

3125 = 46875 ⋅  r  ⋅   ⁵⁄₃

3125 = 78125  ⋅  r

Divide both sides by 78125.

0.04  ⋅ 100% = r

Problem 5 :

Find the accumulated value of the deposit $2500 made in simple interest for 3.5 years at 5% rate of interest per year.

First let us find the interest earned and then we can find the accumulated value.

I = Pr t  

Substitute P = 2500, t = 3.5 and r = 0.05.

I = 2500  ⋅  0.05  ⋅  3.5

Accumulated value :

A = 2500 + 437.50

A = $2937.50

Problem 6 :

How much interest will be earned on $3000 at 7% simple interest per year for 9 months ?

I = Pr t ----(1)

Substitute P = 3000 and r = 7%.

The value of n must always be in years. But in the question, it is given in months. 

9 months = ⁹⁄₁₂  years or ¾ years

In (1), substitute P = 3000, r = 0.07 and t = ¾ .

I = 3000  ⋅ 0.07 ⋅   ¾

I = $157.50

Problem 7 :

What sum of money will produce $28600 as interest in 3 years and 3 months at 2.5% per year simple interest ?

The value of n must always be in years. But in the question, it is given in both years and months. 

3 years 3 months = 3 ³⁄₁₂ years or 3 ¼  years

n =  3 ¼   or ¹³⁄₄

Substitute I = 28600, r = 0.025 and t =  ¹³⁄₄ in (1)

28600 = P  ⋅  0.025  ⋅  ¹³⁄₄

2860000 = P  ⋅  0.025  ⋅ 3.25

2860000 = P  ⋅  8.125

Divide both sides by 8.125.

Required sum of money is $352,000.

Problem 8 :

Mr. Abraham  invested an amount of $13900 divided in two different schemes A and B at the simple interest rate of 14% p.a. and 11% p.a. respectively. If the total amount of simple interest earned in 2 years be $ 3508, what was the amount invested in Scheme B ?

Let m be the amount invested in scheme B. 

Then the amount invested in scheme A = 13900 - m.

Interest in scheme (A) + Interest in scheme (B) = 3508 

(13900 - m)  ⋅  0.14  ⋅  2 + m  ⋅  0.11  ⋅  2 = 3508

(13900 - m)  ⋅  0.28  +  0.22m = 3508

3892 - 0.28m  +  0.22m = 3508

3892 - 0.06m = 3508

3892 - 3508 = 0.06m

384 = 0.06m

m = 6400 

The amount invested in scheme B is $6,400.

Problem 9 :

Lily took a loan of $1200 with simple interest for as many years as the rate of interest. If she paid $432 as interest at the end of the loan period, what was the rate of interest?

Let m be the rate of interest. 

Given :  The rate of interest and the number of years are same.

Then, the number of years = m.

Formula  for simple interest :

Substitute I = 432, P = 1200, r = 0.01m and t = m. 

432 = 1200  ⋅  0.01m  ⋅  m

432 = 12m 2

Divide both sides by 12.

The rate of interest is 6%.

Problem 10 :

A lent $5000 to B for 2 years and $3000 to C for 4 years on simple interest at the same rate of interest and received $2200 in all from both of them as interest. Find the rate of interest per year.

Let m be the rate of interest.

Interest from B + Interest from C = 2200

5000  ⋅  0.01m  ⋅  2  + 3000  ⋅  0.01m  ⋅  4 = 2200

100m  + 120m = 2200

220m = 2200

Divide both sides by 220.

The rate of interest is 10%.

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Being a parent can bring with it a rollercoaster of feelings – from happiness and love to worry and fear and back again. It’s anything but stress-free!  

Stress happens to everyone and is a normal human reaction. A small amount of stress can even be useful in our daily lives – it helps us to focus and be productive. But stress can be harmful when it gets too much or goes on for too long, leading to exhaustion and burnout.  

Many of life’s demands can cause stress, like work, relationships and juggling being a parent. When you feel stressed, it can get in the way of dealing with these demands and can affect everything you do. You can begin to feel stressed with even the simplest of tasks. 

The first step to reducing stress? Try to be kind to yourself. Recognize that parenting is hard and there’s no such thing as a “perfect” parent. Taking time for yourself isn’t a luxury, it’s a necessity. When we take care of ourselves, we can better take care of our children as well.

What's covered:  

Recognize the signs of stress What to do if you get angry What is burnout?   Proven relaxation techniques The importance of self-care Positivity, problem-solving and play When to seek help

Recognize the signs of stress

We can’t avoid stress completely, but there are ways to stop it from becoming overwhelming. Stress affects people in different ways. Feeling overwhelmed, increased anxiety, irritability, and fatigue are some of the effects that people experience.  

Try to recognize the signs that you need a break and take steps to stop stress before it builds up – a short walk, a cup of tea or a breathing exercise can really make a difference. By doing so, you’re helping bring your body back into balance and preventing stress from building up, which can lead to burnout. 

> Learn more: What is stress?   

What to do if you get angry

If you ever feel yourself getting angry, step away and take 20 seconds to cool down. Breathe in and out slowly 5 times before you speak or move. If you can, go somewhere else for 5-10 minutes to regain control of your emotions. 

What is burnout? 

One of the negative consequences of accumulated stress is burnout. Burnout is a state of physical, emotional and mental exhaustion that results from prolonged exposure to stressors or situations that are emotionally demanding. It is emotional exhaustion. 

Burnout includes many symptoms that can be both physical and emotional, such as: 

  • Feeling tired most of the time 
  • Difficulty sleeping or sleeping too much 
  • Reduced performance 
  • Concentration and memory problems 
  • Inability to make decisions 
  • Muscle tension 
  • Getting sick more often, frequent headache or upset stomach 
  • Restlessness 
  • Loss of empathy 

If you relate to any of these symptoms, it could be a sign that you may be on the verge of burning out or being burned out. It is a sign that it’s time to pause, seek support from those around you, and focus on self-care. If you feel that you need further support, do not hesitate to reach out to a professional who can help you to prioritize self-care and explore how to manage stress.

Relaxation techniques for parents 

Your breathing affects your whole body. When you feel stressed or worried, your body can become tense and your breathing speeds up. You can use breathing techniques to help you calm down. It can be very helpful to spend two to three minutes breathing deeply a couple of times a day to help you feel calm.  

These exercises can be done anywhere, anytime. 

Deep breathing

Try to breathe in slowly and deeply to fill your lungs with air. Then breathe out slowly and fully. You can count to five on each inhale and exhale to help you breathe slowly. Try practicing this for two to three minutes. If you are doing this with your children, explain that when they inhale, they are blowing up their tummy softly like a balloon, and when they exhale the air is going slowly out of the balloon again. 

Listen to your breath

It can be helpful to listen to your breath as the air goes in and out. You can put a hand on your stomach and feel it rise and fall with each breath. Listen to your breath for a while.  

Add gentle movement

Drop your hands below your waist and keep your palms facing up. Slowly raise your hands as you breathe in through your nose. Stop when your hands are about shoulder level. Slowly lower your hands as you breathe out through your mouth.  

The importance of self-care 

Self-care is any activity that we do intentionally in order to take care of our mental, emotional and physical health. Although it’s a simple concept, it’s something we can often overlook.  

Good self-care is key to an improved mood and reduced anxiety. A self-care activity can be as simple as taking the time to enjoy a cup of tea, listen to your favourite music or go outside for a walk. Think about some simple activities that re-energize you.  

Self-care needs to be something you actively plan, rather than something that just happens. Add certain activities to your calendar, announce your plans to others in order to increase your commitment, and actively look for opportunities to practice self-care. See if you can incorporate self-care activities into your day with the support of those around you. 

Self-care is key to preventing burnout!    > Read: How mental health experts practice self-care in their families  

Positivity, problem-solving and play 

When you are facing challenging times, it can be difficult to feel hopeful that things can improve. But it is important to remind yourself that you do have control over different aspects of your life and that you can bring about change. When we feel hopeful, it helps us to focus on change, look to the future, and actively look for solutions to the difficulties we may face.  

If you are facing a problem, try to write down as many ways of overcoming it as you can. Then think about the pros and cons of each solution and which ones would be easier to put into practice. Sometimes you will need to try more than one solution. If a problem seems too big to take on, try breaking it down into smaller tasks to make it more manageable.  

It is important to remember that you are not alone and that others can play an important role in helping us. Don’t wait to ask others for help if you are feeling overwhelmed. Speak to a friend or family member who can support. Try to find ways to include your children in age-appropriate tasks around the home – it can be a great way to connect, help children develop skills and take some of the pressure off you.  

Playing with your children is a proven way to relieve stress. Whether it’s playing a game, dancing or singing together, when you’re enjoying fun moments and laughing together, your body releases endorphins that promote a feeling of well-being. Even short periods of play can help remind adults of their ability to support their child, as well as provide a happy distraction from whatever else is on your mind.  

> Read: How play strengthens your child’s mental health  

Don’t hesitate to seek professional help 

If you are finding it difficult to cope, consider meeting with a trained expert who can help. Your family doctor or a counsellor should be able to advise you on your options, such as time with a psychologist who helps people to manage stress and establish positive mental health habits.  

Don’t be afraid to seek professional help. If stress is affecting your life, then it is important to get help as soon as possible, so you can start feeling better. 

Remember that children look up to adults, so taking steps to manage stress sets a positive example for how your children should take care of themselves now and in the future. 

Developed with support from  LEGO Foundation .

Mental health and well-being

Tips and resources to help you support your child and yourself

Mental health explained

Learn about common mental health terms and conditions and how to support your family’s well-being

Self-care for parents

How mental health experts with kids look after their own well-being

What is postpartum depression?

Learn about the signs and how to find support

More From Forbes

Ai power consumption: rapidly becoming mission-critical.

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Big Tech is spending tens of billions quarterly on AI accelerators, which has led to an exponential increase in power consumption. Over the past few months, multiple forecasts and data points reveal soaring data center electricity demand, and surging power consumption. The rise of generative AI and surging GPU shipments is causing data centers to scale from tens of thousands to 100,000-plus accelerators, shifting the emphasis to power as a mission-critical problem to solve.

Increasing Power Consumption Per Chip

As Nvidia, AMD, and soon Intel begin to roll out their next generation of AI accelerators, the focus is now shifting towards power consumption per chip, whereas the focus has been primarily on compute and memory. As each new generation boosts computing performance, it also consumes more power than its predecessor, meaning that as shipment volumes rise, so does total power demand.

This photograph taken in Paris on February 23, 2024 shows a US multinational Nvidia's graphic ... [+] processing unit (GPU). Global equities pushed higher on February 23 as investors digested a record-breaking week powered by US technology titan Nvidia's blockbuster results and the artificial intelligence boom. (Photo by JOEL SAGET / AFP) (Photo by JOEL SAGET/AFP via Getty Images)

Nvidia’s A100 max power consumption is 250W with PCIe and 400W with SXM (Server PCIe Express Module), and the H100’s power consumption is up to 75% higher versus the A100. With PCIe, the H100 consumes 300-350W, and with SXM, up to 700W. The 75% increase in GPU power consumption happened rapidly, within two brief years, across one generation of GPUs.

When we look at other GPUs on the market today, AMD’s MI250 accelerators draw 500W of power, up to 560W at peak, while the MI300x consumes 750W at peak, up to a 50% increase. Intel’s Gaudi 2 accelerator consumes 600W, and its successor, the Gaudi 3, consumes 900W, again another 50% increase over the previous generation. Intel’s upcoming hybrid AI processor, codenamed Falcon Shores , is expected to consume a whopping 1,500W of power per chip, the highest on the market.

Nvidia’s upcoming Blackwell generation boosts power consumption even further, with the B200 consuming up to 1,200W, and the GB200 (which combines two B200 GPUs and one Grace CPU) expected to consume 2,700W. This represents up to a 300% increase in power consumption across one generation of GPUs with AI systems increasing power consumption at a higher rate . SXM allows the GPUs to operate beyond the PCIe bus restrictions, offer higher memory bandwidth, high data throughput and higher speeds for maximal HPC and AI performance, thus drawing more power.

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It’s important to note that each subsequent generation is likely to be more power-efficient than the last generation, such as the H100 reportedly boasting 3x better performance-per-watt than the A100, meaning it can deliver more TFLOPS per watt and complete more work for the same power consumption. However, GPUs are becoming more powerful in order to support trillion-plus large language models. The result is that AI requires more power consumption with each future generation of AI acceleration.

Big Tech’s AI Ambitions Lead to Surging GPU Shipments

From Big Tech’s perspective, we’re still in the early stages of this AI capex cycle. Most recently, we covered how Big Tech is boosting capex by more than 35% YoY in 2024, likely upwards of $200 billion to $210 billion, predominantly for AI infrastructure. The majority is flowing to GPU purchases and custom silicon, to power AI training, model development, and to meet elevated demand in the cloud.

2023 was a breakout year for Nvidia’s data center GPUs, with reports placing annual shipments at 3.76 million, for an increase of more than 1.1 million units YoY. A report stated that at peak of 700W and ~61% annual utilization, each GPU would draw 3.74 MWh; this means that Nvidia’s 3.76 million GPU shipments could consume as much 14,384 GWh (14.38 TWh). A separate report estimated that with 3.5 million H100 shipments through 2023 and 2024, that H100 alone could see total power consumption of 13.1 TWh annually.

The 14.4 TWh is equivalent to the annual power needs of more than 1.3 million households in the US. This also does not include AMD, Intel, or any of Big Tech’s custom silicon, nor does it take into account existing GPUs deployed or upcoming Blackwell shipments in 2024 and 2025. As such, the total energy consumption is likely to be far higher by the end of the year as Nvidia’s Blackwell generation comes online in larger quantities.

To read more about Nvidia’s upcoming Blackwell architecture, reference our previous analysis: Nvidia Q1 Earnings Preview: Blackwell and the $200B Data Center . If you own AI stocks, or are looking to own AI stocks and want to learn more, we encourage you to attend our upcoming weekly webinar, held this Thursday at 4:30 pm EST. Learn more here .

A Path to Million GPU Scale

Nvidia and other industry executives have laid out a path for GPU clusters in data centers to scale from the tens of thousands of GPUs per cluster to the hundred-thousand-plus range, even up to the millions of GPUs by 2027 and beyond. We’re already seeing signs of strong demand for Nvidia’s Blackwell platform, but overall, the million-plus GPU data center target is still years away.

Oracle’s Chairman Larry Ellison sees this creating secular tailwinds for data center construction, due to both rising GPU demand and increased power requirements driving a shift to liquid cooling:

“This AI race is going to go on for a long time. It's not a matter of getting ahead, just simply getting ahead in AI, but you also have to keep your model current. And that's going to take larger and larger data centers. … The data centers we are building include the power plants and the transmission of the power directly into the data center and liquid cooling. And because these modern data centers are moving from air cooled to liquid cooled, and you have to engineer them from scratch. And that's what we've been doing for some time. And that's what we'll continue to do.”

As the industry progresses towards that million-GPU scale, this puts more emphasis on future generations of AI accelerators to focus on power consumption and efficiency while delivering increasing levels of compute. Data centers are expected to adopt liquid cooling technologies to meet the cooling requirements to house these increasingly large GPU clusters.

For more information on investing in AI, check out our 1-hour interview “ AI is the Best Opportunity of our Lifetime .”

AI Electricity Demand Forecast to Surge

As a result of booming demand for generative AI and for GPUs, AI’s electricity demand is forecast to surge, especially in the data center. We have a handful of different viewpoints and analyst projections that, while differing slightly in the timelines, all point to that same conclusion.

For example, Morgan Stanley is estimating global data center power use will triple this year, from ~15 TWh in 2023 to ~46 TWh in 2024. This coincides with the ramp of Nvidia’s Blackwell chip later in the year as well as utilization of the entirety of its deployed Hopper GPUs, and increased shipments from AMD and custom silicon ramps from Big Tech.

Morgan Stanley also projects generative AI power demand may exceed 2022’s data center power usage by 2027 if GPU utilization rates are high, at ~90% on average; however, their base case still calls for a nearly 5x increase in power demand over the next three years.

Morgan Stanley calls for a nearly 5x increase in generative AI power demand over the next three ... [+] years in their base case scenario.

Wells Fargo is projecting AI power demand to surge 550% by 2026, from 8 TWh in 2024 to 52 TWh, before rising another 1,150% to 652 TWh by 2030. This is a remarkable 8,050% growth from their 2024 projected level. AI training is expected to drive the bulk of this demand, at 40 TWh in 2026 and 402 TWh by 2030, with inference’s power demand accelerating at the end of the decade. In this model, the 652 TWh projection is more than 16% of the current total electricity demand in the US.

Wells Fargo is projecting AI power demand to surge 550% by 2026, from 8 TWh in 2024 to 52 TWh, ... [+] before rising another 1,150% to 652 TWh by 2030

The Electric Power Research Institute forecasts that data centers may see their electricity consumption more than double by 2030, reaching 9% of total electricity demand in the US. The IEA is projecting global electricity demand from AI, data centers and crypto to rise to 800 TWh in 2026 in its base case scenario, a nearly 75% increase from 460 TWh in 2022. The agency’s high case scenario calls for demand to more than double to 1,050 TWh.

. The IEA is projecting global electricity demand from AI, data centers and crypto to rise to 800 ... [+] TWh in 2026 in its base case scenario, a nearly 75% increase from 460 TWh in 2022.

Arm’s executives also see data center demand rising significantly: CEO Rene Haas said that without improvements in efficiency, "by the end of the decade, AI data centers could consume as much as 20% to 25% of U.S. power requirements. Today that’s probably 4% or less." CMO Ami Badani reiterated Haas’ view that that data centers could account for 25% of US power consumption by 2030 based on surging demand for AI chatbots and AI training.

How the Supply Chain is Addressing Power Requirements:

Taiwan Semiconductor is an example of a supply chain company that plays a crucial role here, as its most advanced nodes tout lower power consumption and increased performance, which is why AI accelerators will soon shift from primarily being produced on the 5nm node to the 3nm node and eventually 2nm.

Here’s what we said previously in our free newsletter about TSMC :

“ At the foundry level, the 3nm process offers 15% better performance than the 5nm process when power level and transistors are equal. TSMC also states the 3nm process can lower power consumption by as much as 30%. The die sizes are also an estimated 42% smaller than the 5nm. …

N3E is the baseline for IP design with 18% increased performance and 34% power reduction, N3P has higher performance and lower power consumption , whereas the N3X will offer high-performance computing with very high performance but with up to 250% power leakage .

The 2nm will be the first node to use gate-all-around field-effect transistors (GAAFETs), which will increase chip density. The GAA nanosheet transistors have channels surrounded by gates on all sides to reduce leakage, yet will also uniquely widen the channels to provide a performance boost. There will be another option to narrow the channels to optimize power cost. The goal is to increase the performance-per-watt to enable higher levels of output and efficiency. The N2 node is expected to be faster while requiring less power with an increase of performance by 10%-15% and lower power consumption of 25%-30%.”

CEO C.C. Wei noted in Q1’s call that TSMC’s “ customers are working with TSMC for the next node. Even for the next, next node, they have to move fast because, as I said, the power consumption has to be considered in the AI data center. So the energy-efficient is fairly important. So our 3-nanometer is much better than the 5-nanometer. And again, it will be improved in the 2-nanometer . So all I can say is all my customers are working on this kind of a trend from 4-nanometer to 3 to 2.”

The power problem is being addressed throughout the supply chain, from TSMC’s chip designs to renewable energy power agreements for Big Tech’s data centers. It’ll likely require the industry to move in tandem due to the sheer pace of GPU upgrades from Nvidia, soon AMD and possibly Intel.

We’re covering how another critical part of the supply chain is working to address power consumption this week for our premium members. Learn more here .

AI power demand is forecast to rise at a rapid rate. GPU demand is showing no signs of slowing as Big Tech continues to spend billions on AI infrastructure, with each GPU generation seeing higher peak power consumption. The industry is quickly taking steps to address this, and power consumption, or more specifically, power efficiency per chip, looks to be emerging as the third realm of competition.

We’ve covered the first two realms of competitions, raw computing power and memory, extensively in previous analysis, including “ Here’s Why Nvidia will Reach $10 Trillion in Market Cap .” We think it’s important to keep a keen eye on this space as new winners will emerge as AI power consumption becomes mission critical.

Please note: The I/O Fund conducts research and draws conclusions for the company’s portfolio. We then share that information with our readers and offer real-time trade notifications. This is not a guarantee of a stock’s performance and it is not financial advice. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis. Beth Kindig and the I/O Fund own shares in NVDA and AMD at the time of writing and may own stocks pictured in the charts.

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Beth Kindig

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Bibliometrics & citations, view options, recommendations, two-phase heuristics for the k-club problem.

Given an undirected graph G and an integer k, a k-club is a subset of nodes that induces a subgraph with diameter at most k. The k-club problem consists of identifying a maximum cardinality k-club in G. It is an NP-hard problem. The problem of checking ...

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Solution-based tabu search for the maximum min-sum dispersion problem

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COMMENTS

  1. Simple Interest Problems with Solutions

    Problem 1 : A person deposits $5,000 in a bank account which pays 6% simple interest per year. Find the value of his deposit after 4 years. Solution : Formula for simple interest is. I = Prt. Substitute P = 5000, t = 4, r = 6%. I = 5000 ⋅ 6/100 ⋅ 4. I = 1200.

  2. How to Solve Simple Interest Problems? (+FREE Worksheet!)

    Step-by-step guide to solve simple interest Simple Interest: The charge for borrowing money or the return for lending it. To solve a simple interest problem, use this formula:

  3. Simple interest formula and examples

    Examples of finding the interest earned with the simple interest formula. In many simple interest problems, you will be finding the total interest earned over a set period, which is represented as \(I\). The formula for this is: Let's use an example to see how this formula works. Remember that in the formula, the principal \(P\) is the ...

  4. 6.4 Solve Simple Interest Applications

    We will start by solving a simple interest application to find the interest. Example 6.36. ... In the following exercises, solve the problem using the simple interest formula. 208. Find the simple interest earned after 5 5 years on $600 $600 at an interest rate of 3%. 3%. 209.

  5. 7.4: Solve Simple Interest Applications

    In the following exercises, solve the problem using the simple interest formula. Find the simple interest earned after 5 years on $600 at an interest rate of 3%. Find the simple interest earned after 4 years on $900 at an interest rate of 6%. Find the simple interest earned after 2 years on $8,950 at an interest rate of 3.24%.

  6. Simple Interest (S.I)

    Simple Interest Problems. Let us see some simple interest examples using the simple interest formula in maths. Example 1: Rishav takes a loan of Rs 10000 from a bank for a period of 1 year. The rate of interest is 10% per annum. Find the interest and the amount he has to pay at the end of a year.

  7. Simple Interest Lesson

    Simple Interest Lesson. Problem: To buy a computer, Raquel borrowed $3,000 at 9% interest for 4 years. How much money did she have to pay back? Analysis: When money is borrowed, interest is charged for the use of that money over a certain period of time. The amount of interest charged depends on the amount of money borrowed, the interest rate and the length of time for which the money is borrowed.

  8. Simple Interest Questions with Solutions

    Simple interest questions are available here to help students learn the formula and how to apply the simple interest formula in various problems, including real-life scenarios. We know that "interest" is the most commonly used word when dealing with financial matters. Also, different types of interests exist, such as simple interest, compound interest, etc.

  9. Simple Interest Practice Questions

    The Corbettmaths Practice Questions on Simple Interest. Previous: Similar Shapes Area Volume Textbook Exercise

  10. Simple Interest Formula (video lessons, examples and solutions)

    How To Solve Simple Interest Problems, Compound Interest Problems, Continuously Compounded Interest Problems, And Determining The Effective Rate Of Return? Examples Of Simple Interest Problems: Joseph buys a new home using an interest only loan where he pays only the interest on the value of the home each month. The home is valued at $200,000 ...

  11. How do you solve simple-interest word problems?

    To solve a simple-interest word problem, use the simple-interest formula I = Prt. Using a table can help you easily set up and solve these exercises. ... set the sum of the two interest expressions equal to the total interest, and solve the resulting equation for the value of the variable: 0.06x + 0.14(50,000 − x) = 4,500. 0.06x + 7,000 − 0 ...

  12. Simple Interest Word Problems

    Simple Interest Word Problems. Examples: Find the amount of interest earned by $8,000 invested at a 5% annual simple interest rate for 1 year. To start a mobile dog-grooming service, a woman borrowed $2,500. If the loan was for 2 years and the amount of interest was $175, what simple interest rate was she charged?

  13. Solved Problems and Examples on Simple Interest

    The two types of interest are simple interest and compound interest. The idea of simple interest is based on the time value of money, which has a current value, present value and future value. If invested in a deposit, it earns an amount called interest. In this article, we will learn about simple interest, compound interest and how to solve ...

  14. Simple Interest Problems

    The calculation for finding the amount of interest owed with simple interest is: {eq}I = P \times R \times T {/eq} Where: I is the interest owed. P is the principal (the initial amount of money ...

  15. 6.1.1: Simple Interest and Discount (Exercises)

    Hint: You must do the following. a) Find the present value of $1000. b) Find the present value of the $30 payments. c) The fair market value of the bond = a + b. 16) Find the fair market value of the twenty-year $1,000 bond that pays $30 every six months, if the current interest rate has increased to 7.5%.

  16. Simple Interest Formula I = PRT

    In this video, I teach you how to solve simple interest problems by using the formula I = PRT. I go over a few different word problem examples.I = InterestP ...

  17. Simple Interest Calculator

    Alternatively, you can use the simple interest formula I=Prn if you have the interest rate per month. If you had a monthly rate of 5% and you'd like to calculate the interest for one year, your total interest would be $10,000 × 0.05 × 12 = $6,000. The total loan repayment required would be $10,000 + $6,000 = $16,000.

  18. Simple Interest Calculator

    Simple interest. Simple interest is based only on the principal amount, unlike compound interest, where we use previously earned interest to calculate the next interest. For example if we invest \$100 for 3 years at an interest rate of 10% than we earn $10 each year. This calculator uses the following formula to solve simple interest problems:

  19. Word Problems on Simple Interest

    Word Problems on Simple Interest are solved here: 1. Robert deposits $ 3000 in State Bank of India for 3 year which earn him an interest of 8%.What is the amount. Word Problems on Simple Interest. ... In the worksheet on triangle we will solve 12 different types of questions. 1. Take three non - collinear points L, M, N. Join LM, MN and NL.

  20. Simple Interest Calculator I = Prt

    This calculator for simple interest-only finds I, the simple interest where P is the Principal amount of money to be invested at an Interest Rate R% per period for t Number of Time Periods. Where r is in decimal form; r=R/100. r and t are in the same units of time. Calculate Interest, solve for I. I = Prt. Calculate Principal Amount, solve for P.

  21. Solving Simple Interest Word Problems I=PRT Lesson

    The simple interest earned from the two investments is 2610. If we solve the simple interest formula for r (rate): I = prt r = I pt Since time is 1, we can rewrite our equation as: r = I p Since his goal is 3% interest, let's plug everything in and check: .03 = 2610 29, 000 + 58, 000 .03 = 2610 87, 000 .03 = .03 .

  22. Simple Interest Problems: Examples with Solutions

    Step 1: Multiply the interest by 12 to get the interest for 1 year. 20 × 12 = $240. Interest to be paid in two years = 240 × 2. = $480. Step 2: Use the percent equation to find the interest rate. We know that, part = percent × whole. Here we understand that, part = interest, whole = principal and percent rate = p.

  23. WORD PROBLEMS ON SIMPLE INTEREST

    Problem 1 : Find the simple interest for 2 years on $2000 at 6% per year. Solution : Formula for simple interest : I = Pr t. Substitute P = 2000, t = 2 and r = 6% or 0.06. I = 2000 ⋅ 0.06 ⋅ 2. I = $240. Problem 2 : In simple interest, a sum of money doubles itself in 10 years. Find the number of years it will take to triple itself. Solution :

  24. How to reduce stress

    Good self-care is key to an improved mood and reduced anxiety. A self-care activity can be as simple as taking the time to enjoy a cup of tea, listen to your favourite music or go outside for a walk. ... Positivity, problem-solving and play . When you are facing challenging times, it can be difficult to feel hopeful that things can improve. But ...

  25. AI Power Consumption: Rapidly Becoming Mission-Critical

    Generative AI and rising GPU shipments is pushing data centers to scale to 100,000-plus accelerators, putting emphasis on power as a mission-critical problem to solve.

  26. Learning driven three-phase search for the maximum independent union of

    As a generalization of the popular NP-hard maximum clique problem, the maximum IUC problem is of great practical importance for social network analysis and network-based data mining. In this work, we present the first learning driven three-phase search algorithm for this relevant problem.