Calculate Savings Growth Mr Tomaklo's Account After One Year

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In this article, we will delve into the mathematics behind calculating simple interest and apply it to a real-world scenario. Our focus will be on determining the total amount Mr. Tomaklo will have in his savings account after one year, given his initial deposit and the annual interest rate. Understanding simple interest calculations is crucial for managing personal finances, making informed investment decisions, and comprehending the basics of financial growth. We'll break down the problem step-by-step, ensuring clarity and a comprehensive understanding of the concepts involved.

Before we dive into the specific problem, let's first understand the concept of simple interest. Simple interest is a method of calculating the interest earned on a principal amount. It's a straightforward calculation that makes it easy to see how your money grows over time. The formula for simple interest is:

Simple Interest (SI) = (Principal (P) * Rate of Interest (R) * Time (T)) / 100

Where:

  • P is the principal amount (the initial deposit).
  • R is the rate of interest per year (expressed as a percentage).
  • T is the time period in years.

Once you've calculated the simple interest, you can find the total amount by adding the simple interest to the principal:

Total Amount = Principal (P) + Simple Interest (SI)

Simple interest is often used for short-term loans and investments. It's a basic but essential concept in finance, serving as a foundation for understanding more complex interest calculations like compound interest. When dealing with financial planning, grasp the basic principles of how interest works and how it can affect your savings and debts.

Mr. Tomaklo has made a deposit into his savings account. The initial deposit, or the principal amount, is GH₵ 2,450.00. The bank offers an annual interest rate of 3 1/5%. Our goal is to determine the total amount Mr. Tomaklo will have in his account at the end of one year. This problem is a practical application of simple interest calculation. By solving this, we will illustrate how simple interest works in a real-world banking scenario. To find the final amount, we need to calculate the interest earned over the year and add it back to the principal amount. This involves converting the mixed fraction interest rate to a decimal, applying the simple interest formula, and then adding the calculated interest to the initial deposit. This is a fundamental financial calculation relevant to anyone with a savings account or investment.

To solve this problem, we will follow these steps:

  1. Identify the given values:

    • Principal (P) = GH₵ 2,450.00
    • Rate of Interest (R) = 3 1/5% per year
    • Time (T) = 1 year

  2. Convert the mixed fraction rate of interest into a decimal:

    • 3 1/5% = (3 * 5 + 1) / 5 % = 16/5 % = 3.2%

  3. Apply the simple interest formula:

    • Simple Interest (SI) = (P * R * T) / 100
    • SI = (2450 * 3.2 * 1) / 100
    • SI = 7840 / 100
    • SI = GH₵ 78.40

  4. Calculate the total amount:

    • Total Amount = Principal (P) + Simple Interest (SI)
    • Total Amount = 2450 + 78.40
    • Total Amount = GH₵ 2,528.40

Therefore, Mr. Tomaklo's total amount with the bank at the end of the year will be GH₵ 2,528.40. This step-by-step approach makes the calculation clear and easy to follow. We first identified the known quantities, then converted the interest rate to a usable decimal form. We calculated the interest earned using the simple interest formula, and finally, we added this interest to the initial principal to find the total amount. This method can be applied to any simple interest problem.

Now, let's break down the calculation in more detail to ensure a clear understanding of each step.

First, we identified the principal amount, which is GH₵ 2,450.00. This is the initial amount that Mr. Tomaklo deposited into his savings account. Next, we focused on the interest rate, given as 3 1/5%. To use this in our calculations, we need to convert it to a decimal. The mixed fraction 3 1/5 can be converted to an improper fraction by multiplying the whole number (3) by the denominator (5) and adding the numerator (1), which gives us 16. We then divide this by the original denominator (5) to get 16/5. To express this as a percentage, we divide 16 by 5, which equals 3.2%. So, the interest rate is 3.2%.

Now, we apply the simple interest formula: SI = (P * R * T) / 100. Substituting the values, we get SI = (2450 * 3.2 * 1) / 100. Multiplying 2450 by 3.2 gives us 7840. Then, multiplying by 1 (for the one year time period) doesn't change the result, so we have 7840 / 100. Dividing 7840 by 100 gives us 78.40. Thus, the simple interest earned is GH₵ 78.40.

Finally, to find the total amount, we add the simple interest to the principal: Total Amount = 2450 + 78.40, which equals GH₵ 2,528.40. This detailed breakdown shows each calculation step, making the process transparent and easy to understand. Understanding these steps is essential for anyone managing their finances, as it allows you to calculate the potential growth of your savings and investments.

Understanding interest calculations, particularly simple interest, is of paramount importance in personal finance and investment. It forms the bedrock upon which more complex financial concepts are built. For individuals, knowing how interest works can significantly impact their ability to manage their savings, debts, and investments effectively. For instance, when you deposit money into a savings account, understanding the interest rate helps you predict how much your money will grow over time. This knowledge enables you to set realistic financial goals, such as saving for a down payment on a house or building an emergency fund.

Similarly, when you take out a loan, understanding the interest rate and how it's calculated is crucial for determining the total cost of borrowing. Whether it's a mortgage, a car loan, or a personal loan, the interest rate dictates the amount you'll pay in addition to the principal. Knowing this allows you to compare loan offers, negotiate better terms, and make informed decisions about borrowing money. Moreover, understanding interest calculations is essential for making sound investment decisions. Different investment options offer varying interest rates or returns, and knowing how these rates translate into actual earnings can help you choose the investments that align with your financial goals and risk tolerance. In essence, mastering interest calculations is a fundamental skill for financial literacy and empowerment. It enables you to make informed decisions, manage your money wisely, and work towards achieving your financial aspirations. This knowledge is key to financial independence and security.

In conclusion, we have successfully calculated Mr. Tomaklo's total amount in his savings account after one year using the principles of simple interest. By understanding the formula and applying it step-by-step, we determined that he will have GH₵ 2,528.40 at the end of the year. This exercise highlights the practical application of simple interest calculations in everyday financial scenarios. The ability to calculate simple interest is a valuable skill for managing personal finances, understanding savings accounts, and making informed decisions about investments. It forms the basis for understanding more complex financial concepts and empowers individuals to take control of their financial future. Remember, financial literacy starts with understanding the basics, and simple interest is a crucial component of that foundation. By mastering these fundamental calculations, you can make informed choices about your money and plan for your financial goals with confidence.