SIMPLE INTEREST

Definition
Interest (I) is the amount earned from invested or loaned capital.
It is also deemed as the fee or rent lenders charge to borrowers
for the temporary use of the borrowed money.

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 KEY TERMS

 Simple Interest (I)- an interest computed on principal in

specified time.
 Principal (P) - the amount borrowed or invested.
 Rate of Interest (r) - the percentage of the principal that will
be charged for specified period of time.
 Maturity Value (F) - the sum of the principal and the interest
due.

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SIMPLE INTEREST FORMULAS

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where: I is the interest
P is the principal
r is the rate (percent)
t is the time (in years)
F is the maturity value

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Example 1. What amount of interest will be charged
on ₱7,300 for 3 years at a simple interest rate of 12%
per annum and what is the total amount due?

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 Solution

Given:
P = ₱7,300
r = 12% = 0.12
t = 3 years
I=?
F=?
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Example 2. A man paid ₱9,250 on a loan made 6
months before at simple interest. Find the interest
generated.

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 Solution

Given:
F = ₱9,250
r = 7% = 0.075
t = 6 months = 0.5 year
P=?

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Example 3. How many months will an investment of
₱52,750 earn ₱6,330 at 16% simple interest?

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 Solution

Given:
P = ₱52,750
I = ₱6,330
r = 16% = 0.16
t=?

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 TYPES OF INTEREST

 Exact interest - interest which makes use of time

where a year is equal to 365 days
 Ordinary interest - interest which makes use of time
where a year is equal to 360 days.

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 EXACT INTEREST

where: I – interest
P – principal
r – rate
D – number of days

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 ORDINARY INTEREST

where: I - interest
P - principal
r - rate
D – number of days

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Example 1. Determine the exact and ordinary
interest of ₱25,000 invested at 12% for 100
days.

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 SOLUTION

Given:
P = ₱ 25,000
r = 12% = 0.12
D = 100 days

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Example 2. On August 6, Cindy went to the ABC Bank
and took out a loan of ₱85,000 at 10% ordinary interest
for 90 days. What is the maturity value of the loan?

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 SOLUTION 1

Given:
F = ₱ 85,000
r = 10% = 0.1
D = 90 days

F =?
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 SOLUTION 2

Given:
F = ₱ 85,000
r = 10% = 0.1
D = 90 days

F =?
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 INTEREST BETWEEN TWO DATES

 Actual Time () – uses the exact number of days in a

month
 Approximate Time () – uses 30 days for each month

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 Types of Interest Between Two Dates

 Exact Interest at Actual Time

 Exact Interest at Approximate Time
 Ordinary Interest at Actual Time
 Ordinary Interest at Approximate Time

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 Exact Interest at Actual Time

Where: – exact interest at actual time

P – principal
r – rate
- actual time

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Exact Interest at Approximate Time

where: – exact interest at approximate time

P – principal
r – rate
- approximate time

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 Ordinary Interest at Actual Time

where: - ordinary interest at actual time

P - principal
r - rate
– actual time

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Ordinary Interest at Approximate Time

where: – ordinary interest at approximate time

P – principal
r – rate
- approximate time

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 Example:

Find the exact and ordinary interest of

₱30,000 at % simple interest using both the
actual and approximate number of days from
April 11, 2013 to February 19, 2014.

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 MONTH
April 11, 2013 19 19
May 31 30
June 30 30
July 31 30
August 31 30
September 30 30
October 31 30
November 30 30
December 31 30

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January, 2014 31 30
February 10, 2014 19 19
Total 314 308

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Given:
P = 30,000 r = 12% = 0.1225
= 314 days = 308 days
=? =?
=? =?

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Exact Interest at Actual Time

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Exact Interest at Approximate Time

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Ordinary Interest at Actual Time

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Ordinary Interest at Approximate Time

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END OF LESSON

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