Simple interest calculation formulas

Basic simple interest formula 𝐼=𝑃𝑅𝑇

Formulas for principal, rate and time

𝑃=𝐼/𝑅𝑇 In all cases, if the net interest is
asked, use net interest rate.
𝑅=𝐼/𝑃𝑇 Similarly, if net interest rate is
asked, use net interest. Source tax in 2016

𝐼_𝑛=𝐼×(1−𝑡𝑎𝑥) Tax is 30 % until income of 3

𝑇=𝐼/𝑃𝑅
𝑅_𝑛=𝑅×(1−𝑡𝑎𝑥) For income exceeding 30 00
tax is 34 %.

Discounting
𝑃=𝑀/((1+𝑅𝑇))
ource tax in 2016

x is 30 % until income of 30 000 €.

or income exceeding 30 000 €, the

x is 34 %.
Exercises

Answers
1. 0.805 %
2. a) 10.62 € b) 39.78 €
3. 387.80 €
4. 3.50%
5. 2.25%
6. 20.82%
7. 22.50%
8. 5,838.66 €
9. 685,714.29 €
Nominal interest rate is 1.15 %. What is the net interest rate, if the source tax rate is 30 %?

Net interest rate 1.15%

Source tax 30%
Nominal interest rate 0.805 %
A deposit of 5000 € is made on the 19th of January 2015 on a bank account that has 1.2 % interest rate. The source
a) Calculate net interest gained by the 20th of April 2015.
b) Calculate net interest gained by the end of the year (2015).

a)
Principal 5,000.00 € Start date 1/19/2015
Rate (net) 0.84% End date 4/20/2015
Time (days) 91 =DAYS360(F6;F7;TRUE)
Interest (net) 10.62 € =C6*C7*C8/360

b)
Principal 5,000.00 € Start date 1/19/2015
Rate (net) 0.84% End date 12/31/2015
Time (days) 341 =DAYS360(F13;F14;TRUE)
Interest (net) 39.78 € =C13*C14*C15/360
2 % interest rate. The source tax is 30 %.

Nominal interest rate 1.20%

Source tax 30%

Nominal interest rate 1.20%

Source tax 30%
The penalty rate in Finland is validated by the Ministry of Finance twice a year.
From 1 July 2016 onwards the penalty rate is 7.0 %. (This rate applies still.)
Calculate the amount that has to be paid (including the penal interest) if a payment of 375 €
was due on the 8th of July 2016 and is paid on the 25th of October 2016.
In addition to the penalty rate, a fee of 5 € is charged.

Principal 375.00 € Start date 7/8/2016

Rate 7% End date 10/25/2016
Time (days) 107 =DAYS360(F8;F9;TRUE)
Interest 7.80 € =C8*C9*C10/360

Fee 5.00 €

Total payment 387.80 € =C8+C11+C13

Net interest rate is 2.45 %. What is the nominal interest rate, if the source tax rate is 30 %?

Net interest rate 2.45%

Source tax 30%
Nominal interest rate 3.50% =C3/(1-C4)

Since

𝑅_𝑛=𝑅×(1−𝑡𝑎𝑥)
We can solve that:

𝑅=𝑅_𝑛/((1−𝑡𝑎𝑥) )
A loan of 64 000 euros has grown interest of 360 euros in 3 months?
What is the interest rate?

Principal 64,000.00 € 𝑅=𝐼/𝑃𝑇

Rate 2.25% =C7/(C4*C6/12)
Time (months) 3
Interest 360.00 €
2800 € was invested on a bond fund on the 6th of January in 2015.
Later that year, on the 13th of September the fund units were sold at 3200 €.
Calculate the annual interest rate by which the investment earned interest. Assume that there is no source tax.

Principal 2,800.00 € Start date 1/6/2015

Rate 20.8 % End date 9/13/2015
Time (days) 247 =DAYS360(F5;F6;TRUE)
Interest 400.00 € =C10-C5
Rate calculation:
𝑅=𝐼/𝑃𝑇
Maturity value 3,200.00 € =C8/(C5*C7/360)

Notice that you DO NOT need to use discounting in this case since the principal in known.
You only need the discounting formula if the only euro calue given is the maturity value.
at there is no source tax.

𝑅=𝐼/𝑃𝑇

ipal in known.
turity value.
Cash price of a product is 219 €. Customer has an option to only pay 59 € as a down payment (=paid right away) an
Calculate by which annual interest rate the customer pays interest if he/she decides to pau the product with the paym

Think carefully what value is growing interest (principal) and what is the interest.
If needed, see hint in cell N1.

Principal 160.00 € =219-59 Of the price of the product, the down payment of 59 eu
Rate 22.5 % =C10/(C7*C9/12)
Time (months) 3
Interest 9.00 € =169-C7 If there would be no interest, the second payment woul
Alternatively: Total amount paid with the two pa
Interest is how much more that is
ent (=paid right away) and pay 169 € after three months. Hint: Principal is the amount of "loan", how much of
he product with the payment option (in two parts)?

down payment of 59 euros is paid. The rest is not yet paid i.e. the loan.

e second payment would be simply the "missing" 160 €. However, the second payment is 9 euros more. Thus, that is the intere
unt paid with the two payment option: 228.00 €
how much more that is than the cash price: 9.00 €
amount of "loan", how much of the cash price is not yet paid.

os more. Thus, that is the interest.

The balance of Sarah's bank account at the end of 2015 was 5874 €.
The annual interest rate is 1.25 % and the source tax is 30 %.
What was the balance on the 21st of April 2015?

Principal 5,838.66 € Start date 4/21/2015

Rate (net) 0.875 % End date 12/31/2015
Time (days) 249
Maturity value 5,874.00 €

Calculation of principal:
=C8/(1+C6*C7/360)

Now the discounting is needed, since only the maturity value is given.
 Nominal interest rate 1.25%
Source tax 30%

rity value is given.

How much should be won in a lottery to gain monthly net interest of 2000 € when the money is earning interest at 5
The source tax is 30 %.

Principal 685,714.29 € Nominal interest rate 5%

Rate 3.5 % Source tax 30%
Time (months) 1 "monthly net interst of…"
Interest (net) 2,000.00 €

Calculation of principal:
=C7/(C5*C6/12)
s earning interest at 5 % interest rate?
Challenging exercises

Answers

10. 128,100.00 €
11. 2.18%
An investor is planning to purchase an apartment to be rented. The investor assumes to be able to set the rent as 12
The maintenance fee of the apartment is 285 €/month. The maintenance fee can be deducted from the rent before t
The tax on the profit is 30 %. The investor is looking to receive 6 % annual net profit on the money invested.
What can be (at the maximum) the price of the apartment?

Principal 128,100.00 € Profit

Rate (net) 6% Source tax
Time (days) 30 Monthly values are given.
Net profit (net interest) 640.50 € =F6*(1-F7) Tax is paid from the profit.

Calculation of principal:
=C9/(C7*C8/360)
mes to be able to set the rent as 1200 €/month.
be deducted from the rent before taxation.
ofit on the money invested.

915.00 € =1200-285 Owner pays the maintenance fee.

30%

is paid from the profit.

Calculate bank’s Prime rate when an investment of 29 000 € gives net profit of 166.46 € in 240 days and
the interest rate is determined as follows: bank’s Prime rate – 0.95 percentage points. The source tax is 30 %.

Principal 29,000.00 €
Rate 0.8610 % =C7/(C4*C6/360) Calculate this first
Time (days) 240
Interest (net) 166.46 €

Tax rate 30%

Rate before tax 1.23% =C5/(1-C9) See exercise 5 for more information.
Nominal interest rate 2.18% =C9+0,95%
 in 240 days and First calculate the net rate based on the given principal and profit. The cal
he source tax is 30 %.

ise 5 for more information.

pal and profit. The calculate the nominal interest rate (before tax) and finally consider the -0.95 %-points.