To find the maturity value of a loan of $120,740 at
% interest for 7 months, use the maturity value formula
is the maturity value,
is the principal R is the rate of interest and T is the time factor.
Here the rate
% is converted to a decimal 0.1175 and the time factor, expressed as a fraction of a year,
Now substituting 120,740 for P , 0.1175 for R and
for T in the simple interest formula gives
Hence the maturity value of the loan is
Interest is the price or rental fee charged by a lender to a business or an individual for the use of money. Interest calculated solely on the principal amount borrowed is known as
interest, while interest calculated at regular intervals on the principal and the previously earned interest is known as
Simple interest loans are usually made for short periods of time, such as a few days, weeks or months, whereas compound interest loans are generally for time periods of a year or longer.
When the time period of a loan is over, the loan is said to be mature. At that time, the borrower repays the original principal plus the interest. Maturity value is the total payback of principal and interest of a loan. Once the interest has been calculated, the maturity value can be found by using the formula:
Maturity value can also be calculated directly without first calculating the interest by using the following formula: