Lesson 1

Simple Interest
 Objectives

At the end of this lesson, the learner should be able to

● correctly compute for the simple interest; and

● correctly solve word problems involving simple

interest.
 Essential Questions

● How can you compute for the simple interest?

● How can you solve word problems involving simple

interest?
 Warm Up!

Before we start learning about simple interest, let us

familiarize ourselves with the terms that will be used in our
discussion by watching a video about borrowing and lending.

Casas, Isabel. “Money Market: Lending and Borrowing”.

YouTube video, 2:44. Posted [March 2017].
https://www.youtube.com/watch?v=Oo5AfTUHksQ
 Guide Questions

● What is the difference between a lender and a borrower?

● What is a principal amount?

● What is an interest?
 Learn about It!

Interest
1 amount that a person gets or pays on top of the original investment or loan

Example:

A person borrows ₱10 000 with a 2% simple interest, payable

after a year. The interest is 2% of ₱10 000, which is ₱200.
Learn about It!

Lender or creditor
2 refers to the party lending money or extending credit
Learn about It!

Borrower or debtor
3 refers to the party using the money or credit
 Learn about It!

Principal
4 refers to the amount of money extended for credit or the amount of money
deposited in a bank for safekeeping

Example:

A person borrows ₱10 000 with a 2% simple interest, payable

after a year. The principal is ₱10 000.
 Learn about It!

Interest Rate
5 refers to the charged amount for using the money over a certain period;
commonly expressed in percent, but is converted to decimal

Example:

A person borrows ₱10 000 with a 2% simple interest, payable

after a year. The interest rate is 2%.
 Learn about It!

Time of interest
6 refers to the period covered from the time that the money (principal) is borrowed
until its due date

Example:

A person borrows ₱10 000 with a 2% simple interest, payable

after a year. The time of interest is one year.
Learn about It!

Maturity Date
7 due date of the payment of the principal
Learn about It!

Simple Interest
8 refers to an interest computed on the original principal during the whole period
or time of borrowing
Learn about It!

9 Formula for Simple Interest

The formula for the simple interest is

where is the interest amount, is the principal, is the simple interest rate, and is
the time written in years
 Learn about It!

Example:

If a person borrows ₱100 from another person with a 5%

simple interest, then in one year the interest on top of the
borrowed money will be ₱5.

In this problem, the principal amount is ₱100, the interest

rate is 5%, the time is 1 year and the amount of interest is
₱5.
 Learn about It!

Maturity Value
10 refers to the sum of the principal and interest; sometimes called as the future
value of the principal amount
 Learn about It!

Formula for Maturity Value

11 The formula for the maturity value is

Since , we have
 Learn about It!

Example:

In the example from the previous slide, the maturity value will
be the sum of ₱100 and ₱5 which is ₱105. This is the amount
that the borrower needs to pay the lender.
 Try It!

Example 1: Tony borrowed ₱100 000 in a bank to finance his

new business venture. How much interest will Tony pay if the
bank charged him a 4% simple interest rate for the loan
payable in two years?
 Try It!

Example 1: Tony borrowed ₱100 000 in a bank to finance his new business venture. How
much interest will Tony pay if the bank charged him a 4% simple interest rate for the loan
payable in two years?

Solution:
1. Identify the given from the problem.

Principal
Interest rate
Time
 Try It!

Example 1: Tony borrowed ₱100 000 in a bank to finance his new business venture. How
much interest will Tony pay if the bank charged him a 4% simple interest rate for the loan
payable in two years?

Solution:
2. Substitute the values to the formula .
 Try It!

Example 1: Tony borrowed ₱100 000 in a bank to finance his new business venture. How
much interest will Tony pay if the bank charged him a 4% simple interest rate for the loan
payable in two years?

Solution:
2. Substitute the values to the formula .

Therefore, Tony will pay ₱8 000 interest after two years.

 Try It!

Example 2: Steve placed his money worth ₱150 000 in an

investment instrument that earns 6% simple interest rate per
year. How much will his money be after 4 years?
 Try It!

Example 2: Steve placed his money worth ₱150 000 in an investment instrument that earns
6% simple interest rate per year. How much will his money be after 4 years?

Solution:
1. Identify the given from the problem.

Principal
Interest rate
Time
 Try It!

Example 2: Steve placed his money worth ₱150 000 in an investment instrument that earns
6% simple interest rate per year. How much will his money be after 4 years?

Solution:
2. Compute for the interest .
 Try It!

Example 2: Steve placed his money worth ₱150 000 in an investment instrument that earns
6% simple interest rate per year. How much will his money be after 4 years?

Solution:
3. Compute for the maturity value .
 Try It!

Example 2: Steve placed his money worth ₱150 000 in an investment instrument that earns
6% simple interest rate per year. How much will his money be after 4 years?

Solution:
3. Compute for the maturity value .

Therefore, Steve will have ₱186 000 after four years.

 Try It!

Example 2: Steve placed his money worth ₱150 000 in an investment instrument that earns
6% simple interest rate per year. How much will his money be after 4 years?

Alternative Solution:
1. Substitute the values to the formula
 Let’s Practice!

Individual Practice:

1. Chris owes Carol ₱20 000. He promised to pay the said

amount in 6 months at 5% simple interest. How much is
the interest?

2. Peter invested his money in an investment instrument that

earns 8.25% simple interest. What is the maturity value of
Peter’s money worth ₱50 000 after years?
 Let’s Practice!

Group Practice: To be done in groups with 4 members

Bruce has ₱500 000 as part of his inheritance. He wants to

invest the money to make it grow. He has two options where
he can invest his money. Option A is a 3-year investment that
earns 5.5% simple interest and option B is a 4-year
investment that earns 5% simple interest. In which
investment should Bruce invest his money to generate more
growth in his money?
Key Points

Interest
1 amount that a person gets or pays on top of the original investment or loan

2 Lender or creditor
refers to the party lending money or extending credit

Borrower or debtor
3 refers to the party using the money or credit

4 Principal
refers to the amount of money extended for credit or the amount of money
deposited in a bank for safekeeping
Key Points

Interest rate
5 refers to the charged amount for using the money over a certain period;
commonly expressed in percent, but is converted to decimal

6 Time of interest
refers to the period covered from the time that the money (principal) is borrowed
until its due date

Maturity Date
7 due date of the payment of the principal
Key Points

8 Simple Interest
refers to an interest computed on the original principal during the whole period
or time of borrowing

9 Formula for Simple Interest

The formula for the simple interest is

where is the interest amount, is the principal, is the simple interest rate, and is
the time written in years.
Key Points

Maturity Value
10 refers to the sum of the principal and interest; sometimes called as the future
value of the principal amount

11 Formula for Maturity Value

The formula for the maturity value is

Since , we have
 Synthesis

● How do you solve problems involving simple interest?

● In what ways can we save and grow our money?

● How can we solve word problems involving simple interest

where the time and rate of interest are unknown?