MATHEMATICS IN

THE MODERN
WORLD

Simple Interest
 EXPECTATION
At the end of this lesson, the students should be able to:

1. explain the role interest plays in a loan transaction;

2. compute the interest due on loan or investment;
3. find the maturity value on a loan or the future value on invested capital; and
4. compute the principal amount, rate and time in years, months and days.

PRETEST
1. An item costs ₱25.00 and the selling price is ₱30.00. Find the:
a. rate of markup based on cost.
b. rate of markup based on the selling price.
2. How much will a buyer pay for a double-burner gas stove listed at
₱2 650.00 if a discount of 15% is given to him?
3. Greg bought a laptop for ₱28 000.00 and spent ₱2 500.00 on its spares.
He later sold it for ₱25 500.00. How much is Greg’s profit?
4. A store owner sells 1 whole pad paper at ₱8.50 per pad. Its fixed cost is
₱5 000.00, and the variable cost is ₱4.50 per pad. Find the BEP in units
and in Peso.

RECAP
In business, when the total cost is higher than the earnings, the level of
sales is losing. Sometimes losing happens when there is markdown and discounts
in products that we are selling. But there is one point in the business that we will
neither earn a profit nor experience loss which is known as break-even point.

LESSON
In business, capital is very important. However, not all business owners
always have enough capital to sustain their business. More often than not, they
have to borrow money for use in business. It is in context that interest plays an
important role. Borrowers need to pay interest on the money that they borrow.
 Simple interest is the amount of money charged for the use of borrowed
money. This is interest expense from the point of view of the borrower, and the
interest income from the point of view of the creditor. Interest computed on the
original principal for any time period or length of time money is borrowed or
lent/invested is termed as simple interest.
The basic formula for simple interest is:
I = Prt

Where I – interest (amount paid for the use of money)

P – principal (amount borrowed/lent/invested)
r – rate (percent of interest being charged)
t – time (number of periods for which the money will be borrowed/
lent/invested)
The rate and time should always agree, that is, if rate is per annum,
time should be in years; if rate is per month, time should be in months; and
of rate is per day, time should be in days. In the absence of stipulation to
the contrary, a stated interest rate is understood to be on a per annum or
yearly basis.
To find the maturity value or future value F (total amount due upon
maturity.
F=P+I
If we substitute our basic formula for interest, we will have:
F=P+I
F = P + Prt
F = P (1 + rt)
Example:
1. Jana borrowed ₱2 500.00 at 10% interest for 2 years. Find the interest and the
maturity value.
Given: P = ₱2 500 Find: I and F
r = 10%
t = 2 years
Solutions: I = Prt

= ₱2 500 x 10% x 2 years

yr

= ₱2 500 x 0.1 x 2 = ₱500.00

F=P+I
= ₱2 500 + ₱500 = ₱3 000.00
Note: If only maturity value is being asked, you can use this formula.
F = P(1 + rt)
= ₱2 500 [1 + (10%)(2)]
= ₱2 500 [1 + (0.1)(2)]
= ₱2 500 [1 + 0.2]
= ₱2 500 [1.2] = ₱3 000.00
Knowing the maturity value, it would be easy to get the interest. We simply
deduct the principal from the maturity value, thus;
I=F–P
= ₱3 000 - ₱2 500 = ₱500.00
2. Rizza lent ₱1 500.00 to Ana at 1% per month for 2 years.
Given: P = ₱1 500 Find: I and F
r = 1%
t = 2 years
Solution A: Convert r to per annum because t is in years.
r = 1% x 12 months = 12%/year
mo. Yr
I = Prt
= ₱1 500 x 12% x 2 years
= ₱1 500 x 0.12 x 2 = ₱360.00
F=P+I
= ₱1 500 + ₱360 = ₱1 860.00
Solution B: Convert t to months because r is in a per month basis.
t = 2 years x 12 months = 24 months
yr
I = Prt
= ₱1 500 x 1% x 24 months
= ₱1 500 x 0.01 x 24 = ₱360.00
F = ₱1 500 + ₱360 = ₱1 860.00
Finding the Principal, Interest Rate and Time
Derived Formulas:
Prinicpal Amount (P) = I
rt

Interest Rate (r) = I

 Pt

Time (t) = I
Pr

Examples:
1. Finding the Principal Amount
A certain sum of money earns an interest of ₱3 630.00 in 3 years at the rate of
11%, how much the principal amount?
Given: I = ₱3 630 Find: P
r = 11%
t = 3 years
Solution: P= I
rt
= ₱3 630
(0.11)(3)
= ₱3 630
(0.11)(3)
= ₱3 630
0.33
= ₱11 000

2. Finding the interest rate

The simple interest on ₱4 500.00 in 3 years is ₱1 350.00. What is the rate of
interest?
Given: Interest = ₱1 350 Find: r
Principal = ₱4 500
Time = 3 years
Solution: r = I (100%)
Pt

= ₱1 350
(₱4 500)(3)
= ₱1 350
13 500
= 0.1
= 0.1 x 100
= 10%

3. Finding the time

How long will it take to earn an interest of ₱2 250.00 for a loan amount of
₱15 000.00 with an interest rate of 12%?
Given: I = ₱2 250 Find: t
P = ₱15 000
r = 12%
Solution: t= I
Pr
= ₱2 250
 (₱15 000)(.12)
= ₱2 250
1 800
= 1.25 years
t in months = 1.25 x 12 = 15 months
t in days = 1.25 x 360 = 450 days

ACTIVITIES
EXERCISE 1.

1. Sarah deposits ₱4 000.00 at a bank at an interest rate of 4.5% per year. How
much interest and maturity value at the end of 3 years?
2. Calculate the maturity value of a ₱5 000.00 loan with the simple interest rate of
10% per year. The duration of the loan is 3 years.
3. Alexis Chan, borrows funds at 10% for 2 years to build a home. Find the
principal that results in interest of ₱7 800.00.

EXERCISE 2.
Complete the table.
I P r t (years)

1. ₱1 000 ₱8 000 5% ____

2. ₱1 500 ______ 8% 3
3. ₱3 125 ₱9 500 _____ 1.5
4. ₱2 200 ₱12 000 _____ 2
5. ₱1 050 ₱7 000 12% ____

WRAP–UP

 Not all business owners have enough money to sustain their business. More
often, they borrow money and they need to pay the interest for the use of the
money they borrowed.
 The simple interest basic formula:
I = Prt

Where I – interest (amount paid for the use of money)

P – principal (amount borrowed/lent/invested)
r – rate (percent of interest being charged)
t – time (number of periods for which the money will be borrowed/
lent/invested)
 To compute for maturity value:
F=P+I
Or F = P [1 + rt]
 Derived formulas from the simple interest basic formula:
P= I
rt
r= I
Pt
t (in years) = I
Pr
t (in months) = I x 12
Pr
t (in days) = I x 360
Pr

VALUING
Simple interest is a cost of using a money. In loans, it may be treated as an
expenses on the part of the borrower and may be viewed as income on the part of
the creditor. If you are a business owner which is more favourable to you, a
borrower or a creditor? Why?

POSTTEST

1. Complete the table below.

I P r t (years)

a. ₱4 800 _____ 5% 3
b. ₱1 320 ₱10 000 ____ 1.5
c. ____ ₱6 100 4% 2
d. ₱6 030 ₱20 100 12% ____
e. ₱3 445 _____ 6% 1.25
2. Carla borrowed ₱2 600.0 from her friend at an interest rate of 1.5% per month.
a. How much interest will Carla have to pay after 6 months?
b. How much will she pay at the end of the period?
3. Sarah lent ₱10 200.00 at 1.5% per month. How much will she get after 2 years?
4. Angelo Alvez deposited ₱9 600.00 at 5% and earned ₱400.00 interest. Find the
number of days the deposit earned interest.
 REFERENCES
Lopez-Mariano, Norma D., PhD. 2016. Business Mathematics. Manila: Rex Printing
Company Inc.

Ballada, Susan CPA and Win Ballada, CPA 2012. Business Mathematics. Manila:
Authors
https://www.onlinemathlearning.com/simple-interest-formula.html