Time Value of a

Money
Simple Interest
What is SIMPLE INTEREST?
 when interest on a deposit or loan is computed
once for the full term of the loan
Terminologies
 Borrower
 Lender
 Present Value
 Interest
 Interest Rate
 Time of the Loan
 Final Amount
Borrower or Debtor
 refers to the person who borrows the money for
any purpose

Lender or Creditor
 refers to a person or a financial institution that
extends credit to the individuals, with the
expectation that the full amount of the loan will
be repaid
Present Value or Principal Amount
 it is the current value of the money that lends to
the debtor

Final Amount or Maturity Value

 it is the sum of the principal and the interest
which is accumulated at certain time
Interest
 is the amount earned when money is loaned to
someone else or invested in a financial product
that promises earnings after a certain period of
time

Interest Rate
 it is the proportion of principal charged by the
creditor for the use of money
Time of the Loan
 refers to the number of units (days, months, &
time) for which the money is borrowed and for
the interest is calculated
Formula (Simple Interest)
I=P×r×t
where:
I – Simple Interest
P – Principal
r – Interest Rate
t – Time of the Loan
Formula (Final Amount in Simple Interest)
F=P+I
where:
I – Simple Interest
P – Principal
F – Final Amount
Example:
1) Given: P = Php 7,000 r = 0.02
t = 2 years I=?
Example:
2) Given: P = Php 7,000 r = 0.02
t = 2 years F = ?
 Principal
Interest Rate Time Amount
Value
Php 15,000 4% 3 months I=?
Php 8,000 ? 2.5 years I = 610
? 14.86% 9 months I = 2,785.25
Php 110,500 12.5% 1.5 years F=?
Php 20,000 9% ? F = 20,900
Example:
How much interest does Php 5,000 investment
earn at 5% over one year?
Example:
A business takes out a simple interest loan of
Php10,000 at a rate of 8%. What is the total
amount the business will repay if the loan is for 6
years?