INTEREST

OBJECTIVES
In this lesson, the students will be able to:
1.Compute for loan interest,
2.Differentiate ordinary interest from exact
interest,
3.Calculate interest using unpaid balance
method,
4.Convert interest rate per year to equivalent
monthly rate and vice versa, and
5.Compute interests from monthly installment
payments.
 DEFINITION
Interest is the percent of the amount of credit
extended. In loans, it may be treated as an expense
on the part of the borrower or debtor and may be
viewed as an income on the part of the lender or
creditor. Short-term and long-term credits or
transactions are commonly offered by banks or any
credit companies. Short-credits are credits good for
one day or up to one year, while long term credits
are those for longer than one year.
To compute the simple interest, we use:
I = PRT
Consider the problem.
October of last year, Carl borrowed an amount of
₱200,000 from PQR Cooperative at an interest rate of
2% of finance his house renovation. How much is the
interest if his due date is October of next year?
Most businesses and people acquire assets without
paying its full cost at the time of purchase. The seller
may then charge the buyer for this privilege. The
amount of charge for such a privilege is called interest.
In the loan made by Carl, the loan for interest as
follows:
Given:
P = ₱200,000
R = 2% = 0.02
T = 1 year
Solution:
I = PRT
= 200 000 (0.02)(1)
= ₱4,000
The amount of money ₱200,000 which was borrowed
from the cooperative is called the principal, P, and the
interest charged, I = ₱4,000, is a percent of principal.
The period of time where the lender or creditor will
charge the interest starting from loan date up to the
loan repayment date is called loan term or interest
period, T, which is 1 year in the problem and the quoted
percent is the rate 2%, which is R.