Work each problem. Elmer borrowed $3150 from his brother Julio to pay for books and tuition. He agreed to repay Julio in 6 months with simple annual interest at 4%. (a)How much will the interest amount to?

Key Concepts

Simple Interest Formula

The simple interest formula is used to calculate the interest earned or paid on a principal amount over a specific period. It is expressed as I = PRT, where I is the interest, P is the principal amount, R is the annual interest rate (as a decimal), and T is the time in years. This formula is essential for determining how much interest Elmer will owe Julio after 6 months.

Principal Amount

The principal amount is the initial sum of money borrowed or invested, before any interest is applied. In this scenario, Elmer borrowed $3150, which serves as the principal for calculating the interest. Understanding the principal is crucial as it directly influences the total interest accrued over the loan period.

Time Period in Interest Calculations

In interest calculations, the time period is the duration for which the money is borrowed or invested, typically expressed in years. Since Elmer's loan is for 6 months, it is important to convert this time into years for the simple interest formula, which means using T = 0.5 years. This conversion is necessary to accurately compute the interest amount.