Simple Interest

- an interest that only the original principal bears

interest for the entire term of the loan. It is simply
defined as I = Prt.

where: I – simple interest

P – principal
r – rate of interest which is to be paid per unit of time
t – unit of time usually expressed in years or fractional part of a
year
• The amount paid for the use of borrowed money is called interest.

• The capital or sum of money invested is called principal.

• The fractional part of the principal that is paid on the loan

and usually expressed as percent is the rate of interest.

• The number of units (days, months, years) of time for

which the money is borrowed and interest is calculated
is known as time or term.

• The sum of the principal and interest which is

accumulated at a certain time is referred to as final
amount or maturity value.
• The amount received by the borrower is the present
value or proceeds of the loan.
• The person who borrows money for any purpose is
called a debtor or maker.

• The person or business institution which loans the

money is the lender.

If the interest is computed with a denominator of 360, the

interest is called ordinary (Io) and if the denominator is
365, the interest is called exact (Ie).
 
 I I I
r P t
Pt rt Pr

FPI P  FI
 P  Pr t I  FP
F  P  1  rt 

Discounting - the process of determining the present

value of any amount due in the future.

F
P
(1  rt )
 Illustrative Examples:

1. Find the interest and amount on ₱48, 500 at 15%

simple interest for 4 years.

Given: P = ₱48, 500 r = 15 % t = 4 years

Solution:

I  Pr t FPI
 Php48,500  15%   4   Php48,500  Php29,100
I  Php29,100 F  Php77, 600
2. A man borrowed ₱95, 000 from the bank at the rate
17 ½% a year. What is the interest if it will be paid after
two years? How much is the maturity value at the end
of the term?

Given: P = ₱95, 000 r = 17 ½% t = 2 years

Solution:

F  P  1  rt  I  FP
  1    Php128, 250  Php95, 000
 Php95, 000 1  17 %   2  
  2   I  Php33, 250
F  Php128, 250
3. What is the interest rate of ₱35, 500 loan if the loan bears
a simple interest at the end of 2 years the amount is
₱42, 000?

Given: P = ₱35, 500 t = 2 years F = ₱42, 000

Solution:
I
r
I  FP Pt
 Php42, 000  Php35,500 
Php6,500
I  Php6,500 Php35,500  2 
 0.091549295  100%

r  9.15%
4. How long will it take for ₱80, 000 to earn ₱24, 000 if it is
invested at 6 ½% simple interest?

Given: P = ₱80, 000 I = ₱24, 000 r = 6 1/2%

To get the exact time, the value is subtracted by its
Solution: whole number which indicates the year. The difference
is multiplied by 12 months, then subtract the whole
I number. Lastly, the remaining is multiplied by 30 days
t and round off to a whole number.
Pr
4.615384615  4  0.615384615
Php24, 000
 0.615384615  12  7.38461538 mos.
 1 
Php80, 000  6 %  7.38461538  7  0.38461538
 2 
 4.615384615 0.38461538  30  11.5384614 days

t  4 years, 7 mos. & 12 days

5. A businessman borrows ₱88, 600 for 3 years at 15%
simple interest. How much must he pay?

Given: P = ₱88, 600 t = 3 yrs r = 15%

Solution:

F  P  1  rt 
 Php88, 600 1   15%   3  
 Php128, 470
6. Find the maturity value on ₱15, 200 for 225 days
at 15 ¾% simple interest.

Given: P = ₱15, 200 t = 225 days r = 15 ¾%

Solution:

F  P  1  rt 
  3   225  
 Php15, 200 1  15 %   
  4   360 
  225  
 Php15, 200 1   0.1575   
  360 
 Php15, 200  1.0984375 
F  Php16,696.25
7. Discount ₱13, 450 for 11 months at 16 4/5% simple
interest.

Given: F = ₱13, 450 t = 11 mos.r = 16 4/5%

Solution:

F
P
(1  rt )

Php13, 450

 4  11 
1   16 %  
 5  12 
P  Php11, 655.12
8. Find the ordinary and exact interest and amount on
₱12,600 for 115 days at 5 3/8% simple interest.

Given: P = ₱12, 600 t = 115 days r = 5 3/8%

Solution:

P  r  no. of days P  r  no. of days

Io  Ie 
360 365
 3 
 3 
Php12, 600  5 %   115  Php12, 600  5 %   115 
 8    8 
 365
360
Ie  Php213.38
I o  Php216.34

Fo  P  I o Fe  P  I e
 Php12, 600  Php213.38
 Php12, 600  Php216.34
Fe  Php12,813.38
Fo  Php12,816.34
Simple Discount
When we hear the word discount, we often say that we are given a
share from what we pay to the cashier when we buy items. In business,
a discount is an amount that is deducted from the final amount and
usually known as diminishing.

• A discount is a deduction from the final amount F or maturity value

MV of a loan or obligation.
• A simple discount is often called bank discount or interest-in-
advance.
• A proceeds is the amount that the borrower receives.
Formulas:
D
D  Fdt t
Fd
P  F  1  dt  where:
D = amount of discount
F = final amount
D d = discount rate
d F
D P
Ft F t = time or term of discount
dt 1  dt  
Illustrative Examples:

1. Mr. Co borrowed ₱14, 500 for 1 year from Mr. Uy who charged
5 ½% simple discount. How much money did Mr. Co receive?

Given: F = ₱14, 500 d = 5 ½% t = 1 year

Solution: * There are two ways to solve for the present value. These are shown below .

D  Fdt P  FD
 1   Php14,500  Php797.50
 Php14,500  5 %   1
 2  P  Php13, 702.50
D  Php797.50

Alternative Solution: P  F  1  dt 
  1  
 Php14,500 1   5 %   1 
  2  
P  Php13, 702.50
2. How much loan would Cely ask for if she needs ₱16, 900 cash
which will be repaid in 2 yrs and 6 mos. with 5 4/5% simple
discount?

Given: P = ₱16, 900 t = 2 yrs and 6 mos. d = 5 4/5%

Solution:
P D  FP
F
1  dt  Php19, 766.08  Php16,900
Php16,900 D  Php2,866.08

 4  6 
1  5 %   2 
 5   12 
F  Php19, 766.08
3. If you borrow ₱100, 000 from a bank for one year and five
months at 18 7/8% simple discount, how much will you receive
from the bank?

Given: P = ₱100, 000 t = 1 yr. and 5 mos. d = 18 7/8%

Solution:
P  F  1  dt 
  7   5 
 Php100, 000 1  18 %  1  
  8   12  
P  Php73, 260.42