ENGINEERING ECONOMY

Lesson 1
Simple Interest
Prepared by:
Engr. Leo Abaquita
Learning Outcomes
1. To know and understand simple interest terminology. .
2. To learned how to use the formula for calculating simple
interest.
3. To understand the formula for calculating the total amount of
a loan or total value of an investment at the end of a specified
term.
What is Simple Interest ?
Simple interest is the interest charge on borrowing that's calculated
using an original principal amount only and an interest rate that
never changes.
- This refers to the straightforward crediting of cash flows associated
with some investment or deposit.
F=P+I
I = Prt

Where :
F = is the amount due at a time “t”
P = is the original capital invested
I = Interest
r = is the interest rate
Exact Interest for “D” days :

Ordinary Interest for “D” days :

Simple Discount - In the Simple discount situation, there is an

amount of money (future value) due on a certain future date, usually
within a year; the debtor can ask for paying in advance and, if the
creditor agrees with him, the money to be paid today (present value)
is less than the due capital; in fact the future value is subtracted by
the discount calculated in proportion to time and rate of discount
Banker’s Discount : is the difference between the amount
shown on a bill of exchange, etc. that a customer sends to a bank for
payment, and the amount that the customer receives, after the bank
has taken its payment:
THANK YOU!