# THE ARITHMETIC OF FINANCE

CONTENT

- Simple Interest (Revision)
- Compound Interest
- Depreciation
- Annuities
- Amortization
- Bonds and Debentures
- Rates
- Income Tax
- Value-added Tax (VAT)

## Simple Interest (Revision)

The interest is a simple one because it is calculated on the original principal, not the accumulated one. Interest is a fee paid on borrowed assets. It is the price paid for the use of borrowed money (*principal*). But the sum of the principal and the interest is called the *amount*.

Thus: \(I = \frac{PRT}{100}\)

**Examples:**

1. Find the simple Interest on ₦500,000 for 3 months at \(1\frac{1}{2}%\) per annum.

**Solution:**

\(I = ?\), \(P = ₦500,000\), \(T = 3\) months i.e. \(\frac{3}{12}%\) or \(0.25\) years, \(R = 1\frac{1}{2}%\) or \(\frac{3}{2}%\).

\(I = \frac{PRT}{100} \\ = \frac{500000 × \frac{3}{2} × \frac{3}{12}}{100} \\ = \frac{500000 × 1.5 × 0.25}{100} \\ = \frac{500000 × 0.375}{100} \\ = ₦1875\)

Hence, the interest is \(₦1875\).

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