SIMPLE INTEREST

1. Determine the ordinary simple interest on ₱10,000.00 for 9 months and 10 days
if the rate of interest is 12%.
Given:
P = ₱10,000.00
i = 12%
d = 9 months and 10 days

Solution:
I = Pin
= 10,000 (0.12) (9x30)+10
360
I = ₱ 933.33

2. Determine the ordinary simple interest on ₱ 5,000.00 for the period from January
15 to June 20, 1978, if the rate of simple interest is 14%.
Given:
P = ₱5,000.00
i = 14%
d = January 15 to June 20, 1978 = 156 days

Solution:
I = Pin
= 5,000 (0.14) 156
360
I = ₱ 303.33

3. Annie buys a television set from a merchant who ask ₱ 1,250.00 at the end of 60
days ( cash in 60 days ). Annie wishes to pay immediately and the merchant offers
to compute the cash price on the assumption that money is worth 8% simple
interest. What is the cash price today?
Given:
F = ₱1,250.00
i = 8%
d = 60 days

Solution:
F = P(1 + in)
𝐹
𝑃=
(1 + 𝑖𝑛)
1250
𝑃=
60
(1 + (0.08) 360)

P = ₱ 1,233.55

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 4. A man borrows ₱ 10,000.00 from a loan firm. The rate of simple interest is 15%,
but the interest is to be deducted from the loan at the time the money is
borrowed. At the end of one year he has to pay back ₱ 10,000.00. What is the
actual rate of interest?
Given:
F = ₱ 10,000.00
i = 15%
d = n = 1year

Solution:
I = 10,000 (0.15) (1)
= ₱ 1,500.00

P = 10,000 – 1,500
= ₱ 8,500.00

F = P(1 + in)
10,000 = 8,500 (1+i)
i = 0.1765
i = 17.65%

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 Compound Interest

1. Suppose that you borrow P8000 now, promising to repay the loan principal plus
accumulated interest in four years at i=10% per year. How much would you repay
at the end of four years?

Solution:

F = 𝑃(1 + 𝑖)𝑛
= 8000(1 + 0.10)4
= 11,712.80 php

2. An investor(owner has an option to purchase a tract of land that will be worth

P10,000 in six years. If the value of the land increases at 8% each year, how much
should the investor be willing to repay now for this property?

Solution:

F = 𝑃(1 + 𝑖)𝑛
10,000 = P(1 + 0.08)6
P = 6,301.70 php

3. If P1,000 becomes P1,811.36 after 5 years when invested at an unknown rate of

interest compounded bimonthly(every two months), determine the unknown
nominal rate and the corresponding effective rate.

Solution:

F = 𝑃(1 + 𝑖)𝑛
𝑖 5(6)
1,811.36 = 1000(1 + 6)
1,811.36 𝑖 30
= (1 + 6)
1000
1 𝑖
(1.81136)( 30 ) = 1+ 6
r = I = 0.12 or 12% (Nominal Rate)

𝑟 𝑚
ER = (1 + 𝑚) − 1
0.12 6
= (1 + 6 ) − 1
ER = 0.1262 or 12.62%

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 4. Find the Nominal rate compounded monthly which is equivalent to 12%
compounded quarterly. What is the corresponding effective rate?

Given: r =12% (quarterly)

Monthly (NR) = Quarterly (ER)

Solution:

𝑟 𝑚
(1 + 𝑖)𝑚 − 1 = (1 + ) −1
𝑚
𝑟 𝑚
(1 + 𝑖)𝑚 𝑚𝑜𝑛𝑡𝑙𝑦 = (1 + ) 𝑞𝑢𝑎𝑟𝑡𝑙𝑦
𝑚

0.12 4/12
𝑖 = (1 + ) −1
4

𝑖 = 0.0099

NR montly = 0.0099(12) = 0.1188 or 11.88%

𝑟 𝑚
𝐸𝑅 𝑞𝑢𝑎𝑟𝑡𝑙𝑦 = (1 + ) − 1
𝑚
0.1188 4
= (1 + ) −1
4
ER = 0.1242 or 12.42%

5. The present worth of several future cash payments maybe defined as the sum of
the values of the future payments discounted at a given rate for the corresponding
periods to the present. Find the present value of installment payments P1000 now;
P2000 at the end of first year; P3000 at the end if second year; P4000 at the end
of the third year and P5000 at the end of the fourth year; if money is worth 10%
compounded annually.

Solution:

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 P= F(1+i)-n

P = 1000 + 2000(1 + 0.10)−1 + 3000(1 + 0.10)−2 + 4000(1 + 0.10)−3 +

5000(1 + 0.10)−4 = 𝑃11,717.85

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