Calculating Total Amount to Pay

Interest is just the additional amount to be paid on the sum of money loaned or borrowed. The main amount to be paid is the principal amount. Interest is added to compensate the duration that the money was not used by the lender. The total amount to be paid by the borrower to the lender is called future amount. Below is the formula for solving the future amount.

` FA = P + I `

where,

FA means Future Amount

P means Principal

I means Interest


The future amount should be always greater than the principal. Their difference is always the interest. Since we already know the formula to calculate the interest, we can substitute that formula with the formula above.

Future Amount = Principal + Interest

Since Interest = Principal x Rate x Time;

Future Amount = Principal + (Principal x Rate x Time)

Factoring out the Principal;

Future Amount = Principal x [1 + (Rate x Time)]

Thus, the formula for solving the future amount can also be written as

`FA` = `P` x `[ 1+ (R x T) ]`

where,

FA means Future Amount

P means Principal

T means Time

R means Rate


Take note that since the formula for solving interest is also applied in the formula above, time is also in years and ordinary and exact simple interest can still be used.

Example 1:
 $1350

Explanation:

The principal amount is $1,200.

The interest is $150.

Using the formula for solving the future amount;

Future Amount = Principal + Interest

Future Amount = $1,200 + $150

Future Amount = $1,350

Therefore, the total amount to be paid is $1,350.

Example 2:
 $920

Explanation:

Principal amount is $800.

Rate of interest is 15%.

Time to pay the principal with the interest is 1 year.

Using the formula for solving the future amount;

Future Amount = Principal x [1 + (Rate x Time)]

Future Amount = $800 x [1 + (15% x 1)]

Future Amount = $800 x [1 + (0.15 x 1)]

Future Amount = $800 x (1 + 0.15)

Future Amount = $800 x 1.15

Future Amount = $920

Therefore, the employee must pay $920 in 1 year.







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