Question

Simple interest is normally used for loans with a term of a year or less.

The simple interest formula is I = Prt (Interest = Principal * rate * time) . This is one way that interest is calculated on a loan or investment.

Create a loan scenario: Tell a story about the purpose of the loan, who was involved, and explain the terms and conditions of the loan. Present your scenario to the class; make sure it includes the principal amount, interest rate, and time period.

Answer 1

Ken who was in the midst of starting a business i.e a busicuit factory ,was short of funds even though he had borrowed a loan from the bank.he was in the last stages of the completion of the factory and only had some painting work left. since he had already borrowed from the bank he decided to borrow some amount from his friend john. The cost of the whitewashing and painting rounded upto $3200.john on hearing about this immediately lent him $4000 just to help ken with any further expenses. Since John was a friend of ken he decided to lend the money at a lower interest rate than banks i.e at 5% p.a. in the terms and conditions of the loan John also stated the the loan should be paid 9 months after the business has begun. Ken on accepting these terms and conditions borrowed the money and began the work.soon he completed the factory work and began the business in the same year he borrowed the loan from john.ken who was doing well in his business, returned the amount borrowed after 9 months to John

Calculation of simple interest for 9 months @ 4%

P=$4000 r=4% t=9 months

SI = 4000*4/100*9/12

=$120

Hence ken will have to pay back $4120 to John (principal + interest)