Simple Interest: Calculations and Program in Python

Simple Interest: Calculations and Program in Python

1. Basic principles

Goods and services have a cost or price expressed in monetary units. A phone costs $ 100, medical care costs $ 120. Money, by the way it is used can be considered a good because it has physical existence, it can be treasured, it is transported from one place to another and it serves to facilitate the exchange since it avoids situations such as barter or difficulties to find the point of coincidence in this exchange.

The price of money, as well as it can be conserved over time, is expressed by the opportunity cost. The money can be retained as a "value deposit" or it can be used to buy goods or pay for services; the opportunity cost is in the decision to save the money or spend it, exchange it. Time is an important element; if the possessor of the money wants to keep it for a period, say a month, he loses the opportunity to buy the television he wanted or go on vacation to any place; If you decide to spend it, you lose the opportunity to receive a larger amount after the month (if you deposit it as savings) or pay for other goods and services.

The cost of money is the interest rate, a percentage that depends on abundance or scarcity, on the ease of obtaining it. The scarce money will be expensive, the interest rate will be high. The interest is the proportional part that depends on the principal or capital amount, the interest rate and time.

2. Simple interest. Formulas

Interest I depends proportionally on capital, rate and time

I = C * i * t

Where: C = Capital or principal (in monetary units)

 i = interest rate (percentage, without units)

 t = time (years or any other period of time)

There are two possibilities:

 1) A needs money, B provides the desired amount. A is a debtor (person or company) and B is a creditor or lender (Bank). After a period A you must return the principal, principal or debt plus the interest equivalent to the opportunity cost of the bank). The amount returned is called Amount, Amount:

M = C + I = C + C * i * t = C (1 + i * t) = C (1 + it) = C * FCS (1)

Where: (1 + it) = Simple capitalization factor

2) A decides to save in a bank, in which he leaves his money for a time t and receives as compensation for his opportunity cost the rate of i per unit of time. The opportunity cost of the saver is in the renunciation of the use of the money while the bank can freely dispose of it for its own banking operations. In the end, the saver receives the deposited capital plus interest. Formula (1) is also applicable in this case.

3. Example

Juan saves 20,000 euros in the Trampitas bank for 4 years, at an annual rate of 5% per year. How much can you withdraw at the end of the term?

I = C * i * t = 20,000 * 4 * 0.05 = euros * years * 1 / year = euros

I = 4,000

M = C + I = 20,000 + 4,000 = 24,000 euros

 It is important to check the coherence of units in the calculations. The interest rate (i) has no units, Interest (I) is expressed in monetary units.

4. Program in Python: