Ever wondered how money in the bank grows by itself?
Aisha saves ₦20,000 from her holiday job in a bank that pays 5% interest per year. Without adding another kobo, her savings grow every year. How much extra will she have after 3 years?
Revision notes
Use I = PRT ÷ 100 to find the interest on savings and loans, the total amount, and the rate or time.
Aisha saves ₦20,000 from her holiday job in a bank that pays 5% interest per year. Without adding another kobo, her savings grow every year. How much extra will she have after 3 years?
The principal (P) is the money saved or borrowed. The rate (R) is the percentage paid each year (per annum). The time (T) is the number of years.
Interest (I) is the extra money: the bank pays it to a saver, and a borrower pays it to the lender.
With simple interest, the interest is the same every year, because it is always worked out on the original principal.
🔑 Key idea: Simple interest is the same amount every year.
One year's interest is R% of P = P × R ÷ 100. For T years, multiply by T: I = P × R × T ÷ 100.
Aisha: I = 20,000 × 5 × 3 ÷ 100 = ₦3,000. That is ₦1,000 each year for 3 years.
The amount (A) is the principal plus the interest: A = ₦20,000 + ₦3,000 = ₦23,000.
🔑 Key idea: I = PRT ÷ 100 and A = P + I.
Rearrange the formula: R = 100I ÷ (P × T) and T = 100I ÷ (P × R).
If ₦10,000 earns ₦2,400 interest in 4 years: R = 100 × 2,400 ÷ (10,000 × 4) = 240,000 ÷ 40,000 = 6%.
If you are given the amount instead of the interest, first subtract: I = A − P.
🔑 Key idea: R = 100I ÷ (PT), T = 100I ÷ (PR). Use the interest, not the amount.
Yusuf saves ₦25,000 in a bank that pays 12% simple interest per year. How much interest is earned in 3 years?
Step 1: Write down P, R and T
P = ₦25,000, R = 12%, T = 3 years
Step 2: Use I = PRT ÷ 100
I = 25,000 × 12 × 3 ÷ 100
= ₦9,000
Answer: ₦9,000
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