SIMPLE

INTEREST

By: Engr. Vistal

LEARNING OBJECTIVES:

 Understand the concept of Simple Interest

 Solve problems involving simple interest

By: Engr. Vistal

What is INTEREST?

 It is the amount of money or payment for the use of a

borrowed money or capital.

 Interest is categorized as SIMPLE and COMPOUND.

By: Engr. Vistal

SIMPLE INTEREST

- It is defined as the interest on a loan or principal that is based only on

the original amount of the loan or principal.

- This means that the interest charges grows in a linear function over a
period of time. In other words, the interest is constant every period.

By: Engr. Vistal

TYPES OF SIMPLE INTEREST

1. Ordinary Simple Interest

- based on one (1) banker’s year. One banker’s year is equivalent to 12
months of 30 days each.

2. Exact Simple Interest

- based on the exact number of days in a given year. An ordinary year
has 365 days while a leap year (which occurs once every 4 years) has
366 days.

Note: A year is a leap year if it is exactly divisible by 4 and divisible by 400 for a
centennial year. ( Centennial years are 1800, 1900, 2000, etc)

By: Engr. Vistal

HOW TO SOLVE THE SIMPLE INTEREST?

I=Pin F=P+I F=P(1+in)

Where:P = principal
F = future value / maturity value
i = interest per period
n = number of interest period

By: Engr. Vistal

SAMPLE PROBLEMS

1. P 40 000 is borrowed for 75 days at 1.6 % per annum simple interest.

How much will be due at the end of 75 days?

Given: P = 40 000 Solution: F=P(1+in)

n = 75 days
= 40 000 [ 1 + 0.016 (75/360) ]
i = 1.6 % = 0.016
F=? F = P 40 133.33

By: Engr. Vistal

2. If you borrow money from your friend with simple interest of 12 %, find the
present worth of P 50 000, which is due at the end of 7 months.

Given: F = 50 000 Solution: F=P(1+in)

i = 12 % = 0.12
50 000 = P [ 1 + (0.12) (7/12) ]
n = 7 months
P=? P = P 46 728. 97

By: Engr. Vistal

3. Compute the interest on P 5000 for the period from January 10, 2004 to
October 28, 2004 at 16 % interest.

Given: P = 5 000 Jan 10 to Jan 31 = 21

i = 16 % = 0.16 Feb = 29
n=? Mar = 31
F=? April = 30
May = 31
Sol’n: I=Pi n June = 31
July = 31
= (5000)(0.16)(292/366) Aug = 31
Sep = 30
I = P 638.25
Oct = 27
n = 292

By: Engr. Vistal

4. A man invested P 110,000 for 31 days and the net interest after deducting 20 %
withholding tax is P 890.36. Compute the rate of return annually.

Given: P = 110 000 I=Pin

n = 31 days
I (taxed) = 890.36 1112.95 = (110 000) (i ) (31/360)
i (tax) = 20 %
i = 0.1175 = 11.75 %
0.8 I = 890.36
I = 1112.95

By: Engr. Vistal

By: Engr. Vistal