PRELIM

WEEK/MODULE- 2

SIMPLE INTEREST

Simple interest is a quick and easy method of calculating the interest charge on a loan.
Simple interest is determined by multiplying the daily interest rate by the principal by
the number of days that elapse between payments.

This type of interest usually applies to automobile loans or short-term loans, although
some mortgages use this calculation method.

Interest is the amount paid for borrowing money.

Simple Interest is an interest which is based only on the original capital or principal.

𝑰 = 𝑷𝒊𝒏

where:
I= total interest earned
P= principal or capital
i= annual interest rate
n= number of interest periods (based in no. of years)

𝑭 = 𝑷(𝟏 + 𝒊𝒏)

F= total amount after n periods (future amount)

Ordinary Simple Interest- period is based on one banker year which is assumed to be
360 days per year or 12 months per year.

𝒏𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒅𝒂𝒚𝒔 𝒏𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒎𝒐𝒏𝒕𝒉𝒔

𝒏= =
𝟑𝟔𝟎 𝟏𝟐

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EXAMPLE: Find the simple interest earned on $850 invested at 5.1% in 54 months.

Solution:

EXAMPLE: Find the principal, if the principal plus interest at the end of one and one-
half years is $3360 for a simple interest rate of 8% per annum.

Solution:

Exact Simple Interest- period is based on actual days in a particular year, 365 days for
an ordinary year or 366 days for a leap year.

𝒏𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒅𝒂𝒚𝒔 𝒏𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒅𝒂𝒚𝒔

𝒏= 𝒐𝒓
𝟑𝟔𝟓 𝟑𝟔𝟔

Month Actual number of

days
January 31
February 28 or 29
March 31
April 30
May 31
June 30
July 31
August 31
September 30
October 31
November 30
December 31

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Note: The leap years are those years which are divisible by 4. However, if it is a century
year (ending with two zeros like 1900, 2000, etc.), the year must be divisible by 400.

EXAMPLE: Find the exact interest on $3000 invested at 4% for 219 days.

Solution:

EXAMPLE: What is the simple interest on $1500 for the period from January 15 to
October 24,1996 at 14% interest?

Solution:

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