I.

Overview

The idea of simple interest will help the students understand how banks and earning institution earn
from loans, how interest is calculated and all other factors involving the simple interest.

II. Desired Learning Outcomes

At the end of this module, the learner should be able to:

(1) Understand how banks and lending institution earn when giving loans and how depositors earn when
they save money in a bank
(2) Calculate loans, interest, rates, principal and term of simple interest
(3) Identify to which bank or lending institution they may opt in the future when availing of loans

III. Content/Discussion/Learning Resources/Links

Lesson 5.1 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. Problem sets were provided as exercises to be more familiarized in finding in
the simple interest, principal, term or time and the interest rate. To an investor, interest is a profit while to a
borrower it is an expense. The investor is the one who lends the money to a borrower.

The formula for Simple Interest is

I=Prt
Where: I = the simple interest in ₱ or any currency
P = the principal amount borrowed or capital invested, in ₱ or any currency
r = rate of interest in %
t = unit of time in year
Derived Formulas
I
P =O I o
rt
O I o
r = Pt
O I o
t = Pr
P r t
The technique in using the Interest Circle is very clear. Just cover with your finger the unknown part and you
can have the formula right away.

Final Amount Formulas

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

Final amount is the sum of money borrowed or invested plus the interest.

If other units of time are indicated such as number of months or weeks or days,
number of months
t= if month is given
12

number of weeks
t= 52 if week is given

number of days
t= if week is given
365
Example 1. Find the Interest and amount of ₱5,500.00 at 6% simple interest in 4 years.

Unknown: Interest

Given: P = ₱5,500.00 r = 6% or 0.06 t=4

Solution

I=Prt I = (₱5,500.00)(0.06)(4) I = ₱1,430.00

F=P+I F = ₱5,500.00 + ₱1,430.00 F = ₱6,930.00

Example 2. Find the Interest and amount on ₱15,500.00 at 5 ¼ % simple interest in 10 months.

Unknown: Interest

Given: P = ₱15,000.00 r = 5 ¼ % or 0.0525 t = 10/12

Solution

I=Prt I = (₱15,000.00)(0.0525)(10/12) I = ₱656.25

F=P+I F = ₱15,000.00 + ₱656.25 F = ₱15,656.25

Example 3. Find the Interest and amount on ₱8,500.00 at 4 ¾ % simple interest in 4 years and 8 months.

Unknown: Interest

Given: P = ₱8,500.00 r = 4 ¾ % or 0.0475 t = 4 8/12

Solution

I=Prt I = (₱₱8,500.00)( 0.0475)( 4 8/12) I = ₱1,884.17

F=P+I F = ₱8,500.00 + ₱1,884.17 F = ₱10,384.17

Example 4. If a principal of ₱12,500.00 earns interest of ₱1,720.00 in 2 years and 9 months, what interest is
in effect?

Unknown: interest rate

Given: P = ₱12,500.00 I = ₱1,720.00 t = 2 9/12

Solution

O I o O __1,720.00__ o= 0.05 = 5%
r= =
Pt (12,500)(2.75)
Example 5. How long will it take for ₱8,000.00 to earn ₱2,400 if it is invested at 6 ½ % simple interest?

Unknown: interest rate

Given: P = ₱8,000.00 I = ₱2,400.00 r = 6 ½ % or 0.065

Solution

O I o O __2,400.00__ o= 4.615 years

t= =
Pr (8,000.00)(0.065)
 SELF TEST

1. Find the missing value

a. P = ₱11,500 r = 4.5% t = 3 yrs
b. P = ₱22,000 I = ₱3,500 t = 2 ½ years
c. P = ₱38,000 I = ₱5,800 r = 7 ¼%
d. I = ₱3,700 r=8¾% t = 5 yrs 7 mos

2. Three months after borrowing money, Mark Ryan pays an interest of ₱2,700. How much did he
borrow if the simple interest rate is 5 ½ %?

3. Herbert Santos loans ₱80,000 at 4.75% simple interest. How long will it take him to get ₱5,000
interest?

4. Vincent who invested ₱75,000 had ₱100,000 returned to him 3 years and 8 months later, At what
rate did his money earn simple interest?