Objectives

At the end of this lesson, you should be able to:

 compute interest, maturity value, future value, and present value in simple interest environment
 solve problems involving simple interests

Before you proceed with this lesson, you should be able to recall the following:

1. Conversion of percent to decimal

To convert from percent to decimal, divide the percent by 100, and remove the "%" sign.

Example:
13
13% = 100 = 0.13

2. Conversion of months to years

There are twelve months in one year. To convert months to years:

1 𝑦𝑒𝑎𝑟
years = number of months × 12 𝑚𝑜𝑛𝑡ℎ𝑠

Example: Convert 36 months to years.

1 𝑦𝑒𝑎𝑟
36 months = 12 𝑚𝑜𝑛𝑡ℎ𝑠 = 3 years

Learn about It!

Anthony borrowed ₱ from a lending company where he needs to pay an interest rate of 3% annually.
Find the:
a. simple interest for 2 years.
b. maturity value of the loan.

 Simple interest (I) is the computed return from the present value for a given duration of a transaction.
 Maturity value (F) is the total amount to be received or paid for a certain obligation.
 Present value (P) is the amount being borrowed or the amount being invested.

The following are the variables of simple interest:

P = principal amount (present value)
r = annual rate
t = time period (term)
I = amount of interest paid or received
F = maturity value (future value)
Simple interest formulas:

= rt
𝐼
P=𝑟𝑡

𝐼
r =𝑃𝑡 × 100

𝐼
t=𝑃𝑟

F = P + I or F=P (1+ rt)

How to Do
Step 1: Identify what is asked.

Step 2: Identify what are given.

Step 3: Identify which formula is to be used.

Step 4: Substitute the given values to the formula.

Step 5: Solve the problem.

a. I=?
P=₱150 000
r= 3%=0.03
t= 2years

Substitute.

I=Prt

I=(150 000)(0.03)(2)

I=9 000

Therefore, the simple interest after two years is ₱9 000.

b. F=?
P=₱150 000
r= 3%=0.03
t= 2years

Substitute.

F=P(1+rt)
F=150 000[1 + (0.03)(2)]

F=159 000

Therefore, the maturity value of the loan after two years is ₱ 159 000

Try It!
The simple interest of an investment is ₱4 500. Find the present value if the interest rate is 5% annually for 60
months.

Try It! Solution

Step 1: Identify what is asked.

present value

Step 2: Identify what are given.

I= ₱4 500

r =5%=0.05

t=60 months

1 𝑦𝑒𝑎𝑟
t= 60 months × 12𝑚𝑜𝑛𝑡ℎ𝑠 = 5years

Step 3: Identify which formula is to be used.

𝐼
P=𝑟𝑡

Step 4: Substitute the given values to the formula.

4 500
P=(0.05)(5)

Step 5: Solve the problem.

4 500
P= 0.25

P= 18 000

Therefore, the present value is ₱ 18 000.

Tips
  Do not be confused between interest and maturity value. Interest is the product of the principal, the rate,
and the time. Maturity value is the sum of the present value and the interest.
 To convert days to years:
1 𝑦𝑒𝑎𝑟
years = number of days × 360 𝑑𝑎𝑦𝑠

Note: Unless specified, 360 days is used in all simple interest applications.

Key Points
 Simple interest is the computed return from the present value for a given duration of a transaction.
 Maturity value (future value) is the total amount to be received or paid for a certain obligation.
 Present value is the amount being borrowed or the amount being invested.