3-4
TIME VALUE OF MONEY
Calculating
simple interest
rates
Using simple algebra, the formula can be rearranged to calculate the
rate. For example, suppose that you borrow $120,000 for one year
and you know that your interest payment is $9,600. What is the
simple interest rate on the loan?
R = I / (P x T)
R = $9,600 / ($120,000 x 1)
R = 0.08 or 8%
You have completed the section on simple interest. Please take a moment to complete
the following practice exercise on calculating simple interest.