Simple Interest & Simple Decay
Simple interest is calculated only on the original amount (called the principal). The interest does not earn further interest — the growth is linear. Simple decay (depreciation) works the same way but reduces the value instead of growing it.
Theorem 1📌 Learn for exam
Simple Interest & Simple Decay
Simple Interest (Growth)
Simple Decay (Depreciation)
- — accumulated amount (final value)
- — principal (starting amount)
- — interest rate per year (as a decimal, e.g. 8% → 0.08)
- — time in years
Simple interest is mostly used for short-term loans and hire-purchase agreements. In hire-purchase, the interest is calculated on the full original price for the full period — even though you are paying the amount off monthly. This makes it more expensive than it looks.
Worked Example
Thabo invests at a simple interest rate of 7.5% per annum for 3 years. Calculate the total amount at the end of the period.
Worked Example
A car is bought for and depreciates on a straight-line basis at 15% per annum. What is the book value of the car after 4 years?
Worked Example
A hire-purchase agreement requires a 10% deposit on a fridge costing . The balance is financed at 12% simple interest per annum over 2 years. Calculate the monthly repayment.
Tip
Always convert the interest rate to a decimal before substituting. 7.5% becomes 0.075, not 7.5. Also confirm that is in years — if the period is given in months, divide by 12.