SIMPLE

INTEREST
 SIMPLE INTEREST AND SIMPLE DISCOUNT
Lesson I
SIMPLE INTEREST
Simple Interest is the payment for the use of some of money over a period. As a result, the interest is
computed on the original principal during the whole time at the given interest rate.

Formula: Interest = I = P r t or I=F-P

Derived formulas from the simple interest formula:
a. Present Value = P = or P = or P=F-I
b. rate = r = or r=
c. time = t = or t=
d. Future Value = F = or F=
Wherein:
I = Simple Interest
P = Principal, Face Value, Present Value, or Proceeds

r = rate of interest

t = time (should be expressed in years)

F = future value or final amount

Io = Ordinary Interest

Ie = Exact Interest

D = Simple Discount

d = discount rate
Simple interest is supported by the Future Value and the Principal

I=F–P

When time (t) is expressed in days, it may be computed as:

Io = Pr x Ie = Pr x
When time (t) is expressed between dates, the following methods/formulas are applied:
1. Ordinary Interest for the actual number of days.
Io = Pr x (this formula is known to be the Banker’s Rule**)

2. Ordinary Interest for the approximate number of days.

Io = Pr x

3. Exact Interest for the actual number of days.

Ie = Pr x

4. Exact Interest for the approximate number of days.

Io = Pr x

**It is called the Banker’s rule because this method frequently gives the highest interest. Furthermore, banker’s rule
is used in finding simple interest between dates unless otherwise specified in the problem.
Illustration Problems:

1. Find the interest if P3,000 is invested at 6% interest rate for 5 years.

Solution:
I=Prt
I = 3,000x .06 x 5
I = P900.00

2. How much does P2,500 earns if it is invested for 9 months at 2.5% interest rate.

Solution:
I=Prt
I = 2,500 x .025 x
I = P46.88

(note: if time is expressed in months, convert this into years by dividing the given months by 12)
3. An amount of P15,000 will earn 750 in 2 years, find the rate.
Solution:
r=

r=

r = .025 or 2.5%

4. Brent promised to pay Patrick the amount of P5,750 at the end of 3 months. If money is worth 5%, find the
present value.
Solution:

P = P5,679.01
5. How long will P5,000 to amount to P7,500 at 5% simple interest?

Solution:
First, find the interest:

I=F–P I = 7,500 – 5,000 I = P2,500

Now, solve for the time:

t=

t=

t = 10 yrs.

(note: time should be in years, in case your time is in month, you have to convert
this into years.)
6. Zyra borrowed P15,000 from Misha on March 23, 2005 and promised to pay the principal and simple
interest at 9% to discharge the debt on December 18, 2005. What is the amount should be paid on the
maturity date?

Solution:
Original Date: March 23, 2005 (31-23) = 8
April = 30
May = 31
June = 30
July = 31
August = 31
September = 30
October = 31
November = 30
Maturity Date: December = 18
Actual Time: 270days
Since there was no mentioned method to use in finding for interest, use the banker’s rule to solve
for the interest:

Ordinary Interest for the actual number of days

Io = Pr x

Io = (15,000) (.09) x

Io = P 1,012.50

Now, solve for the amount to paid on the maturity date

F=P+I
F = 15,000 + 1,013.50
F = P 16,013.50
7. Using the same problem above (#6), find the simple interest using the following
methods:
a. Exact Interest for the actual number of days.
b. Ordinary Interest for the approximate number of days.
c. Exact Interest for the approximate number of days.

Solutions:
d. Exact Interest for the actual number of days.

Ie = Pr x

Ie = (15,000) (.09) x

Ie = P998.63
To compute for letters b and c, first find for the approximate day:

Original Date: March 23, 2005 (30-23) = 7

April = 30
May = 30
June = 30
July = 30
August = 30
September = 30
October = 30
November = 30
Maturity Date: December = 18
Approximate Time: 265days
b. Ordinary Interest for the approximate number of days.
Io = Pr x

Io = (15,000) (.09) x

Io = P993.75

c. Exact Interest for the approximate number of days.

Io = Pr x

Io = (15,000) (.09) x

Io = P980.14
8. Accumulate P22,500 for 3 years at 8% simple interest.

Solution:
Simple Interest:
I = Prt
I = (22,500) (.08) (3)
I = P5,400.00

Final Amount:
F = P+I
F = 22,500 + 5,400
F = P 27, 900.00
9. How much did Bernard borrowed from Vince if the interest he paid after 5 months
at 7 ½% simple interest is P4,500.

Solution:

P=
P = 144,000.00
10. How much final amount would Cassy receive if she invests P85,000 for 4
year at 9% simple interest?

Solution:
F = P (1 + rt)
F = 85,000 (1 + .09 x 4)
F = 115,600.00

Alternative Solution (using the formula F = P + ):

I=Prt
I = 85,000 x .09 x 4
I = 30,600.00

F=P+I
F = 85,000 + 30,600
F = 115,600.00
THANK YOU VERY
MUCH!!!