Simple Interest

Objectives

ØFind simple interest

ØFind the unknown principal, rate, or time

ØFind maturity value

ØSolving real-life problems involving simple ineterest

Annual Simple Interest
ü Principal which is the amount
invested or borrowed 𝐼! = 𝑃𝑟𝑡
ü Simple interest rate, usually where
expressed in percent
𝐼! = simple interest
ü Time or term of loan, in years
𝑃 = principal
𝑟 = rate
𝑡 = term or time, in years
Annual Simple Interest
Example 1: Solution:
A bank offers 0.25% annual Given: 𝑃 = 1,000,000
simple interest rate for a particular
deposit. How much interest will be 𝑟 = 0.25% = 0.0025
earned if 1 million pesos is 𝑡 = 1 year
deposited in this savings account
for 1 year? Find: 𝐼!
Annual Simple Interest
Example 1: Find: 𝐼!
A bank offers 0.25% annual
simple interest rate for a particular 𝐼! = 𝑃𝑟𝑡
deposit. How much interest will be 𝐼! = 1,000,000 0.0025 1
earned if 1 million pesos is 𝐼! = 2,500
deposited in this savings account
for 1 year?
The interest earned is
Subject for 20% PhP2,500.00
withholding tax
Annual Simple Interest
Example 2: Solution:
How much interest is Given: 𝑃 = 50,000
charged when P50,000 is borrowed
for 9 months at an annual interest 𝑟 = 10% = 0.10
rate of 10%? "
𝑡 = #$ year = 0.75 year

Find: 𝐼!
Annual Simple Interest
Example 2: Find: 𝐼!
How much interest is
charged when P50,000 is borrowed 𝐼! = 𝑃𝑟𝑡
for 9 months at an annual interest 9
𝐼! = 50,000 0.10
rate of 10%? 12
𝐼! = 50,000 0.10 0.75
𝐼! = 3,750
The interest earned is
P3,750.00
Annual Simple Interest
Example 3: Solution for (a)
Principal (P) Rate (r) Time (t) Interest If: 𝐼! = 𝑃𝑟𝑡
(a) 2.5% 4 1,500 %!
then : 𝑃 = &'
36,000 (b) 1.5 4,860
250,000 0.5% (c) 275 #,)**
𝑃 = (*.*$))(.)
500,000 12.5% 10 (d)
𝑃 = 15,000
Annual Simple Interest
Example 3: Solution for (b)
Principal (P) Rate (r) Time (t) Interest If: 𝐼! = 𝑃𝑟𝑡
(a) 2.5% 4 1,500 %!
then : 𝑟 = /'
36,000 (b) 1.5 4,860
250,000 0.5% (c) 275 .,01*
𝑟 = (21,***)(#.))
500,000 12.5% 10 (d)
𝑟 = 0.09 = 9%
Annual Simple Interest
Example 3: Solution for (c)
Principal (P) Rate (r) Time (t) Interest If: 𝐼! = 𝑃𝑟𝑡
(a) 2.5% 4 1,500 %!
then : 𝑡 = /&
36,000 (b) 1.5 4,860
250,000 0.5% (c) 275 $3)
𝑡 = ($)*,***)(*.**))
500,000 12.5% 10 (d)
𝑡 = 0.22 years
Annual Simple Interest
Example 3: Solution for (d)
Principal (P) Rate (r) Time (t) Interest If: 𝐼! = 𝑃𝑟𝑡
(a) 2.5% 4 1,500 𝐼! = (500,000)(0.125)(10)
36,000 (b) 1.5 4,860
250,000 0.5% (c) 275 𝐼! = 625,000
500,000 12.5% 10 (d)
Annual Simple Interest
Example 4: Solution:
When invested at an annual Given: 𝑟 = 7% = 0.07
interest rate of 7%, an amount
earned P11,200 of simple interest 𝑡 = 2 years
in two years. How much was 𝐼! = 11, 200
originally invested?
Find: 𝑃
Annual Simple Interest
Example 4: Find: 𝑃
When invested at an annual
interest rate of 7%, an amount 𝐼!
𝑃=
earned P11,200 of simple interest 𝑟𝑡
in two years. How much was 11,200
𝑃=
originally invested? (0.07)(2)
𝑃 = 80,000
The amount invested is
P80,000
Annual Simple Interest
Example 5: Solution:
If an entrepreneur applies Given: 𝑃 = 500,000
for a loan amounting to P500,000
in a bank, the simple interest of 𝐼! = 157, 500
which is P157,500 for 3 years, what 𝑡 = 3 years
interest rate is being charged?
Find: 𝑟
Annual Simple Interest
Example 5: Find: 𝑟
If an entrepreneur applies
for a loan amounting to P500,000 𝐼!
𝑟=
in a bank, the simple interest of 𝑃𝑡
which is P157,500 for 3 years, what 𝑟 = 157,500
interest rate is being charged? (500,000)(3)
𝑟 = 0.105 = 10.5%
The bank charged an annual simple
interest rate of
10.5%
Annual Simple Interest
Example 6: Solution:
How long will a principal Given: 𝑃
earn an interest equal to half of it
as 5% simple interest? 𝑟 = 5% = 0.05
#
𝐼! = $
𝑃 = 0.5𝑃

Find: 𝑡
Annual Simple Interest
Example 5: Find: 𝑡
How long will a principal
earn an interest equal to half of it 𝐼!
𝑡=
as 5% simple interest? 𝑃𝑟
0.5𝑃
𝑡=
(𝑃)(0.05)
𝑡 = 10 years
It will take 10 years for a principal
to earn half of its value at 5%
simple annual interest rate.
Maturity (Future) Value
Many persons or institutions are
interested to know the amount that 𝐹 = 𝑃 + 𝐼!
a lender will give to the borrower
on the maturity date. For instance, where
you may be interested to know the 𝐹 = maturity future value
total amount of money in savings
account after 𝑡 years at an interest 𝑃 = principal
rate 𝑟. This amount is called the
maturity value or future value 𝐹. 𝐼! = simple interest
Maturity (Future) Value
Many persons or institutions are
interested to know the amount that
a lender will give to the borrower Substituting 𝐼! by 𝑃𝑟𝑡 gives
on the maturity date. For instance, 𝐹 = 𝑃 + 𝑃𝑟𝑡
you may be interested to know the
total amount of money in savings 𝐹 = 𝑃(1 + 𝑟𝑡)
account after 𝑡 years at an interest
rate 𝑟. This amount is called the
maturity value or future value 𝐹.
Maturity (Future) Value
Many persons or institutions are
interested to know the amount that 𝐹 = 𝑃(1 + 𝑟𝑡)
a lender will give to the borrower
on the maturity date. For instance, where
you may be interested to know the 𝐹 = maturity future value
total amount of money in savings
account after 𝑡 years at an interest 𝑃 = principal
rate 𝑟. This amount is called the
maturity value or future value 𝐹. 𝑟 = interest
𝑡 = term / time in years
Maturity (Future) Value
Example 7:
Find the maturity value if 1
million pesos is deposited in a bank
at an annual simple interest rate of
0.25% after (a) 1 year and (b) 5
years?
Note:
There are two ways to solve the
problem.
Method 1: Solve the simple interest
𝐼! first and then ass it to 𝑃, that is
𝐹 = 𝑃 + 𝐼!
Method 2: Use the derived formula
𝐹 = 𝑃 1 + 𝑟𝑡 .
Maturity (Future) Value
Example 7:
Find the maturity value if 1 million pesos is deposited in a bank at
an annual simple interest rate of 0.25% after (a) 1 year and (b) 5 years?
Method 1: Method 2:
𝐼! = 𝑃𝑟𝑡 𝐹 = 𝑃 1 + 𝑟𝑡
𝐼! = 1,000,000 0.0025 1 𝐹 = 1,000,000 1 + 0.0025 1
𝐼! = 2,500 𝐹 = 1,002,500
The maturity of future value is
given by 𝐹 = 𝑃 + 𝐼!
𝐹 = 1,000,000 + 2,500
𝐹 = 1,002,500
The future or maturity value
after 1 year is P1,002,500
Maturity (Future) Value
Example 7:
Find the maturity value if 1 million pesos is deposited in a bank at
an annual simple interest rate of 0.25% after (a) 1 year and (b) 5 years?
Method 1: Method 2:
𝐼! = 𝑃𝑟𝑡 𝐹 = 𝑃 1 + 𝑟𝑡
𝐼! = 1,000,000 0.0025 5 𝐹 = 1,000,000 1 + 0.0025 5
𝐼! = 12,500 𝐹 = 1,012,500
The maturity of future value is
given by 𝐹 = 𝑃 + 𝐼!
𝐹 = 1,000,000 + 12,500
𝐹 = 1,012,500
The future or maturity value
after 5 year is P1,012,500
Simple Interest
Seat work Principa Rate Time Interest
l (𝑃) (𝑟) (𝑡) (𝐼)
Find the unknown 10,000 8% 15 (1)
Principal 𝑃, rate
𝑟, time 𝑡, and interest 𝐼 by (2) 2% 5 10,000
completing the table
360,000 (3) 2 3,600

500,000 10.5% (4) 175,500

880,000 9.25% 2.5 (5)