MODULE

in

BUSINESS FINANCE

Remalyn C. Adviento-Ocampo, PhD

Norma O.Sambu, PhD
 Overview
This module in business finance is part of the section 3 of Mathematics in the Modern World. This module teaches you
about investment problems at your own pace. It covers simple interest , exact interest, ordinary interest and simple discount.

It has a detailed explanation and substantial examples of the different topics. You may consult your facilitator in case
there are parts which you could not understand. You may start browsing the material the soonest and it is pretty sure that you
an enjoy it.

Enjoy Reading an solving!!!

 LESSON

Objectives:
At the end of the lesson, the students will be able to

1. define simple interest,

2. Solve problems involving simple interest ,

3. Compare and contrast simple interest , and

4. Identify the appropriate formula for simple interest .

To do list( Tasks to be given):

The students are tasked to do the following:

1. Answer the pre-test of this module,

2. read the different parts of this material, and

3. answer the Self-Check Test (SCT)

4. answer the evaluation activity

Discussion of topic/lecture
Interest defines as the amount or fee of a borrowed money from a creditor in a certain period of time in an agreed
rate between the debtor and the creditor.

Note that …
A creditor is someone who lend money while a debtor borrows the money.

In computing simple interest, we use the formula,

I= Prt

In words, interest (I) is computed by multiplying the Principal (P) multiplied by rate (r) and time (t) periods. This fee
usually added to the principal upon payment is called “Simple” interest or “flat rate”.

Example 1: If someone invest 1,000 (principal) at 6% interest rate(rate) in a year (time), how much is the interest?

Solution: Since the given are P= 1,000, r=6% =.06 and t= 1 year, then I = Prt. By substitution, I= (1,000)(.06)(1)= 60.
Therefore, a fee of 60 pesos will be paid to the creditor plus a Principal of 1000 pesos. A total amount of 1060 will be paid to
the creditor. The total amount of 1060 is called Future value denoted by F. In symbol, F= P + I. Since I= Prt, we can also solve
F=P+Prt or by factoring P, we can denote as F = P(1+rt).
 Example 2: Solve the future value of a money worth 3,000 invested at 9% in 4 years.

Solution:

Given: P = 3,000 r= 9% = 0.09 t= 4 years

Find: F

Bear in mind that the problem can be solved in three ways depending upon the formula to be used.

Solution A: I = Prt
I= 3,000 ( 0.09) ( 4)
I= 1,080
F= P + I
F= 3,000 + 1,080
F= 4,080
Solution B: F= P + Prt
F= 3,000 +3,000(.09)(4)
F= 3,000 + 1,080
F= 4,080
Solution C: F= P( 1+ rt)
F= 3,000 ( 1 + (.09)(4))
F= 3,000 (1 +.36)
F= 4,080

Note that…

If Principal, rate or time is unknown, derive the formula I=Prt.

Example 3. How long does it take Ana to invest 2500 at 8% interest rate to have an income of 600?

Solution:

Step 1: Identify the given an unknown. Given: P=3,000 r= 8% =.08 I= 600

Unknown: t

Step 2: Derive the formula of time(t) from the general formula I=Prt.

I= Prt

I = Prt divide both sides by Pr

Pr Pr
I = Prt cancel Pr
Pr Pr
Then, t = I
Pr
Step 3: Substitute the given.
t= 600/(3000)(.08)
t= 600/240
t= 2.5 years
Therefore, it takes 2.5 year for Ana to invest her money.

Note that the solution of example 3 is also applicable when the unknown is Principal or rate. But when rate is solve,
always end your solution by percentage as its unit. Hence, always multiply your answer with 100.

Also, when time is in months, always divide the given months by 12. Since there are 12 months in a year.
Any question? If you have a
question, consult your facilita-
tor. If not, pull up the most
comfortable chair for you to
answer Quiz 1 of this chapter.