SIMPLE INTEREST

and
SIMPLE DISCOUNT
ERIK A. TERORA
Course Instructor
Overview
 Terminologies and Notation
 Ordinary and exact Interest
 Interest between Dates
 Amount and Present Value
 Simple Discount
 Promissory Notes
Terminologies and Notation
Interest
 the cost of borrowing money
 the money paid for the use of
money
 fee charged for the use of the
money
Rate of Interest
 is the ratio of the interest earned in
one time unit on the principal
 is the rate, or percent, stated on an
annual (or yearly) basis
 stated as a percentage and is based
on a certain time period
Principal
 the money borrowed
 the amount of money borrowed or
invested
 capital originally invested in an
interest transaction
Simple Interest
 interest is computed on the
original principal during the whole
time, or term of the loan at the
stated annual rate of interest
Exact Interest
 based on a 365 day per year
calendar
Ordinary Interest
 based on a 360 day per year
calendar
 assumes 30 days in each month
Notations
P = Principal
I = Interest
r = Rate
t = Time
Simple Interest
The simple interest on a principal
at a given rate and time is expressed
as:
I = Prt
 Example 1
What is the simple interest on Р3,500 at 912 %
for 112 years?
Solution:
Given: P = P 3,500 ; r = 0.095 ; t = 1.5
I = Prt
= (3,500)(0.095) (1.5)
I = P 498.75
 Example 2
1
If Angelo borrowed P 23, 700 at 12 % simple
2
interest 2 years ago, how much is the accrued
interest today
Solution:
Given: P = P 23,700 ; r = 0.125 ; t = 2
I = Prt
= (23, 700)(0.125) (2)
I = P 5, 925
 Example 3
What is the simple interest on P 7,800 for 2
years at 14 %?
Solution:

Given: P = P 7, 800 ; r = 0.14 ;t= 2

I = Prt
= (7,800) (.14) (2)
I = P 2, 184
 Example 4
What simple interest rate is used if P 4,500
amounts to P 5, 175 in 2 years?
Solution:

Given: P = P 4,500 ; r = ? ; t = 2 I = P 5, 175

𝐼
r=
𝑃𝑡
5,175
r=
4,500 (2)
3
r = 0.575 or 57 %
4
Check:
Solution:

Given: P = P 4,500 ; r = 0.575 ; t = 2

I = Prt
= (4,500)(.575) (2)
I = P 5, 175
Problems Set No. 1 (Simple Interest)
1
1. P 9, 750 at 14 % for 3 years
4
2. 11, 700 at 12 % for 9 months.
1
3. What sum will yield P 760 simple interest at 8 % in 11
2
months?
4. What principal amount will produce P 145.75 simple interest in
1
98 days at 4 %?
2
5. Determine the number of years at which P 7,500 will grow to
1
P 10, 623.75 at 12 %.
5
Simple Interest for Fraction of a Year
If time is given in months,
𝑃𝑟 (𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑚𝑜𝑛𝑡ℎ𝑠)
𝐼=
12
If time is given in days. There are two ways in
converting the given number of days into a year.
𝑃𝑟 (𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑑𝑎𝑦𝑠)
Exact Simple Interest Ie =
365

Ordinary Simple Interest 𝑃𝑟 (𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑑𝑎𝑦𝑠)

Io =
360
Example 1
1
If P 9,875 is invested at 11 % simple interest, how
5
much interest will it accrue at the end of 10 months?
Solution
10
Given: P = P 9,875 r = 0.112 t=
12
I = Prt
(9,875)(0.112)(10)
=
12
I = P 921.67
Example 2
Suppose Mr. Toledo borrows P 17,900 on April 10 at 15 %
simple interest. How much interest is earned 190 days later?
a. Assume a 365 - day year
b. Assume a 360 - day year
Solution: (a)
190
Given: P = P 17,900 r = 0.15 t = 365
Ie = Prt
(17,900)(0.15)(190)
=
365
I = P 1,397.67
Example 2
Suppose Mr. Toledo borrows P 17,900 on April 10 at 15 %
simple interest. How much interest is earned 190 days later?
a. Assume a 365 - day year
b. Assume a 360 - day year
Solution: (b)
190
Given: P = P 17,900 r = 0.15 t = 360
Io = Prt
(17,900)(0.15)(190)
=
360
I = P 1,417.08
Seatwork No. 2
1. How many days will it take for P 25,000 to
earn a simple interest of P 895.84 at 6 %?
2. How much principal is necessary to
generate an amount of 32,500 at the end of
10 months if the simple interest rate is
12%?
3. Assuming 365 days per year, find the
1
simple interest on P 31, 500 at 10 % in
2
130 days.
Finding the Exact Time and Approximate Time
Between Two Given Dates
 exact or actual time refers to one
calendar year or 365 days
 approximate time refers to 360 days
per year assuming that each month is
30 days
 Calendar
January 31 July 31
February 28 August 31
March 31 September 30
April 30 October 31
May 31 November 30
June 30 December 31
1. Find the exact time between March 19
and August 6, 2010.
Solution:
a. Exact Time/Actual Time How it happened?
August 6 – 218 days Where did we get 218
March 19 - 78 days and 78 days?
140 days
218 = 31 + 28 + 31 + 30 + 31 + 30 + 31 + 6
78 = 31 + 28 + 19
March 12 days
April 30 days
May 31 days
June 30 days
July 31 days
August 6 days
140 days
b. Approximate Time
Year Month Day
2010 8 6
2010 3 19
0 4 17
Year Month Day
2010 7 36
2010 3 19
0 4 17
 4 months + 17 days
4 (30) + 17 days = 137 days

 if the time is given in days, you may

calculate the exact simple interest and
ordinary simple interest
1. Ie = Pr
𝑑 Exact Simple Interest using
365 Exact time

2. Ie = Pr
𝑑 Exact Simple Interest using
365 Approximate time
𝑑
3. I0 = Pr Ordinary Simple Interest using
360
Exact time
𝑑
4. I0 = Pr Ordinary Simple Interest using
360
Exact time
2. If P 5,000 is invested using the dates
given in example 1 using 6 % simple
interest, find: (a) exact simple interest
using exact time; (b) exact simple
interest using approximate time; (c)
ordinary simple interest using exact time;
and (d) ordinary simple interest using
approximate time.
 Solution
Given:
P = P 5,000
Thus,
r = 0.06
Exact time = 140 days
t = March 19 to August 6
Approximate time = 137 days

Find: Ie using exact and approximate time and Io

using exact and approximate time
 𝑑
Ie = Pr
a. 365
140
= (5,000)(0.06)
365

Ie = 115.07
𝑑
b. Ie = Pr
365
137
= (5,000)(0.06)
365
Ie = 112.60
 𝑑
Io = Pr
c. 360
140
= (5,000)(0.06)
360

Io = 116.67
𝑑
d. Io = Pr
360
137
= (5,000)(0.06)
360
Io = 114.17
Seatwork No. 3
1. What is the ordinary simple interest rate if P
9,000 earns 230 from February 16, 2011 to
June 12, 2011?
2. Find the ordinary interest of P 6,000 invested
from January 12, 2011 to March 15, 2011 at 5
1
% simple interest. Use approximate time.
2
Present Value and Discount
The amount P which must be invested
now at a given interest rate in order to
accumulate to S within a given time is
called the present value of S. If the amount
S is known, the principal P invested at
interest rate r for t years can be obtained
by solving for P in the formula 𝑆 = 𝑃 (1 + 𝑟𝑡).
Thus,
𝑺
𝑷=
(𝟏 + 𝒓𝒕)
Example No. 1
What sum of money which is invested
1
now at 9 % will amount to P 79,750 at the
2
end of 8 months?
Given:
8 2
𝑟 = 0.095 𝑆 = 𝑃 79,750 𝑡= 𝑜𝑟
12 3
Solution:
𝑺
𝑷=
(𝟏 + 𝒓𝒕)
𝟕𝟗, 𝟕𝟓𝟎
𝑷=
𝟐
𝟏 + (𝟎. 𝟎𝟗𝟓)
𝟑
𝑷 = 𝟕𝟓, 𝟎𝟎𝟎
 To discount S for t years at an interest rate r
means to find the present value of S, t years before
it is due. The difference between the amount due
and its present value is called the discount on S. By
definition,

𝑑𝑖𝑠𝑐𝑜𝑢𝑛𝑡 𝑜𝑛 𝑆 = 𝑆 − 𝑃
Example 2.
3
Discount P 12, 645 for 6 months at 10 %
4
simple interest. What is the discount on S?

Given
𝟔 𝟏
𝑺 = 𝑷 𝟏𝟐, 𝟔𝟒𝟓 𝒕= 𝒐𝒓 r = 𝟎. 𝟏𝟎𝟕𝟓
𝟏𝟐 𝟐
Solution
𝑺
𝑷=
(𝟏 + 𝒓𝒕)
𝟏𝟐, 𝟔𝟒𝟓
𝑷=
𝟏
𝟏 + (𝟎. 𝟏𝟎𝟕𝟓)
𝟐

𝑷 = 𝟏𝟐, 𝟎𝟎𝟎
 Thus,
𝑑𝑖𝑠𝑐𝑜𝑢𝑛𝑡 𝑜𝑛 𝑆 = 𝑆 − 𝑃
𝑑𝑖𝑠𝑐𝑜𝑢𝑛𝑡 𝑜𝑛 𝑆 = 12, 645 − 12,000
𝑑𝑖𝑠𝑐𝑜𝑢𝑛𝑡 𝑜𝑛 𝑆 = 𝑃 645

Note that the discount on the amount

S is the same as the simple interest on P.
Seatwork No. 4
1. Discount P36, 750 for 3 years and 4
months at 8 % simple interest.
2. What is the discount on P 52, 200 due
in 5 months at 8 % simple interest?
3. What is the present value of P 95,000
due in (a) 120 days; (b) 6 months; and
(c) 5 years using 5 % simple interest?
Bank Discount
If the charge for
a loan is based on The discount D on a given
the final amount S amount S, for a given time
t, and at a given discount
rather than on the
rate d is given by the
principal or present formula
value P, the charge
is called the bank 𝑫 = 𝑺𝒅𝒕
discount or simply
discount.
 Since 𝑫 = 𝑺𝒅𝒕 therefore
The proceeds P is 𝑷 = 𝑺 − 𝑺𝒅𝒕 or
the amount of money 𝑷 = 𝑺(𝟏 − 𝒅𝒕)
which the borrower
The size of the loan
receives. It is equal to to be discounted can be
the difference between determined by solving
the amount of the loan the above expression for
and the discount. In S.
symbols: 𝑷
𝑺=
(𝟏 − 𝒅𝒕)
𝑷=𝑺−𝑫
Example No. 1
If P 6,000 is due at the end of 5 months, what amount is
due now at 9 % simple discount? How much is the simple
discount?
Solution: and the amount
In this case, 𝑆 = 𝑃 6,000 , due now or the present
5
𝑡 = , and 𝑑 = 0.09 , hence, the
12
value is:
simple discount is 𝐷 = 𝑆𝑑𝑡 𝑃 =𝑆−𝐷
5
𝐷 = 6,000 0.09 𝑃 = 6,000 − 225
12
𝑫 = 𝑷 𝟐𝟐𝟓 𝑷 = 𝑷 𝟓, 𝟕𝟕𝟓
Example No. 2
Discount P 9,000 for 9 months at a discount rate of 8%.

Solution:
9 3
In this case,𝑆 = 𝑃 9,000, 𝑡 = 𝑜𝑟 , and 𝑑 = 0.08 .
12 4

𝑃 = 𝑆(1 − 𝑑𝑡)
3
= 9,000 1 − 0.08
4

𝐏 = 𝑷 𝟖, 𝟒𝟔𝟎
Example No. 3
Tranquilino Cruz needs P 67,500 on June 14. He plans to
repay the loan on September 12. How much should he request
from a lender whose discount rate is 9%?
Solution:
90 1
In this case, P = 𝑃 67,500, 𝑡 = 𝑜𝑟 , and 𝑑 = 0.09 .
360 4
𝑃
𝑆=
(1 − 𝑑𝑡)
𝑺 = 𝑷 𝟔𝟗, 𝟎𝟓𝟑. 𝟕𝟏
67,500
𝑆=
1
1 − 0.09
4
Seatwork No. 5 (Bank Discount)
1. If 24,000 is due at the end of 75 days, what is the
present value and the discount on it at 8% simple
discount?
1
2. At 8 % simple discount, find the present value of
2
45,600, which is due at the end of 2 years and 3
months.
3. How much loan would Cathy Oposa ask if she needs P
26,000 cash which will be repaid in six months and the
1
discount rate is 9 %?
2
Discounting Promissory Notes
What is a promissory note?
 written promise
 consists of maker, face value, date
of the note, maturity date and term
of the note
 Alangalang, Leyte
February 21, 2019

Ninety days after date, I promise to pay to the

order of Nora Isidro thirty thousand pesos.

Value received, with interest at 8 %

Due: August 2, 2019

Sgd. Cora Cruz

Negotiable Promissory Note
 words “order of ” Alangalang, Leyte
appears on the note February 21, 2019

 the borrower gives the Ninety days after date, I promise to

pay to the order of Nora Isidro thirty
lender the right to thousand pesos.

transfer or sell the note Value received, with interest at 8 %

Due: August 2, 2019
by endorsing and Sgd. Cora Cruz

delivering it to any
person or to a bank
Interest-bearing Note
Alangalang, Leyte
February 21, 2019
 words “with
interest” at a Ninety days after date, I promise to
pay to the order of Nora Isidro thirty
specified legal rate thousand pesos.
is written on the Value received, with interest at 8 %
note Due: August 2, 2019

Sgd. Cora Cruz

 Alangalang, Leyte
February 21, 2019

Ninety days after date, I promise to pay to the

order of Nora Isidro thirty thousand pesos.

Value received, with interest at 8 %

Due: August 2, 2019

Sgd. Cora Cruz

 THE PERSON WHO OWES THE MONEY AND WHO EXECUTES THE
MAKER MONEY

FACE VALUE THE AMOUNT LOANED OR BORROWED

DATE OF THE NOTE INDICATED DATE IN THE NOTE

MATURITY DATE THE DATE DUE

TERM OF THE NOTE THE LENGTH OF TIME THE MONEY IS BORROWED

Steps in Discounting a Promissory Notes
1. Find the interest due on the note.
2. Find the maturity value by adding the interest
due on the note to the face value of the note.
3. Find the maturity date.
4. Find the term of the discount (length, of time
from the date the note was discounted to the
maturity date)
5. Find the amount of the discount.
6. Find the proceeds.
Example No. 1
Find the bank discount and the proceeds if-a
non interest bearing note for P 54,000.00 is
discounted 75 days before it is due at 8 %.
Solution:
75 15
In this case, 𝑆 = 𝑃 54,000, 𝑡 = 𝑜𝑟 , 𝑎𝑛𝑑 𝑑 = 0.08.
360 72
Thus, the bank discount is
𝐷 = 𝑆𝑑𝑡
15 𝑫 = 𝑷 𝟗𝟎𝟎
= 54,000 (.08)
72
Example No. 2
On October 21, 2010, Rina Eugenio discounted
the note below at a bank which charges a discount
rate of 9%. How much did she receive?
San Jose del Monte, Bulacan
August 7, 2010

One hundred and thirty-five days after date, I promise to

pay to the order of Rina Eugenio twenty-four thousand pesos.

Value received, with interest at 8 %

Sgd. Flor Baustista

Solution
135 3
In this case, 𝑡 = 𝑜𝑟 , P = 24,000 and r =
360 8
0.08. Hence, the interest is:
𝐼 = 𝑃𝑟𝑡
3
= 24,000 0.08
8
𝑰 = 𝑷 𝟕𝟐𝟎
and the amount due at the maturity is:

S=𝑃+𝐼
= 24,000 + 720 S = 𝑃 24, 720
 The Maturity Date and the Term of Discount
can be found:
August 7 219
Term of Note + 135
354
The Maturity Date is December 20, 2010
December 20 354
October 21 + 294
60
The term of discount is 60 days.
The discount on P 24, 720 for 60 days at 9 % is:

𝐷 = 𝑆𝑑𝑡
60
= 24,720 (.09)
360
𝑫 = 𝑷 𝟑𝟕𝟎. 𝟖𝟎
and the proceeds is:
P=𝑆 −𝐷
= 24, 720 − 370.80
𝑷 = 𝑷 𝟐𝟒, 𝟑𝟒𝟗. 𝟐𝟎