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Chapter 1 MOI NOTES

Chapter 1 – 3 formulas Simple Interest Formula SI = Prt where: SI = Simple Interest P = Principal r = interest rate t = time Maturity Value Formula MV = P + SI MV = P [1 + (rt)] where; MV = maturity value SI = simple interest P = principal r = interest rate t = time Manipulating the Simple Interest Formula Principal is Unknown (P = ?) P = Interest/(rate x time) Rate is Unknown (r = ?) r = interest/(Principal x time) Time is Unknown

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Sheena Faith Sebigan
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42 views

Chapter 1 MOI NOTES

Chapter 1 – 3 formulas Simple Interest Formula SI = Prt where: SI = Simple Interest P = Principal r = interest rate t = time Maturity Value Formula MV = P + SI MV = P [1 + (rt)] where; MV = maturity value SI = simple interest P = principal r = interest rate t = time Manipulating the Simple Interest Formula Principal is Unknown (P = ?) P = Interest/(rate x time) Rate is Unknown (r = ?) r = interest/(Principal x time) Time is Unknown

Uploaded by

Sheena Faith Sebigan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Chapter 1 – 3 formulas EX: Venus deposited P5,000 in a bank at 6.

5%
simple interest for 2 years. How much will she earn
Simple Interest Formula after 2 years, assuming that no withdrawals were
made?
SI = Prt
SI = (P5,000)(.065)(2yrs)
SI = (P5,000)(.13)
where: SI = Simple Interest
P = Principal SI = 650
r = interest rate
t = time
EX: Find the interest to be paid by Anna for a loan of
Maturity Value Formula P200,000 for one year at simple interest rate of 4%.

MV = P200,000 [1 + (.04)(1yr)]
MV = P + SI MV = P200,000 (1.4)
MV = P [1 + (rt)] MV = 208,000

where; MV = maturity value


SI = simple interest
P = principal
r = interest rate
EX: A bank loaned Ana money at 8% simple interest
t = time
for 90days. If the interest is P4,000, find the principal
amount borrowed.
Manipulating the Simple Interest
Formula P 4,000
P 4,000
P = .08( 90 days ) =
1. Principal is Unknown (P = ?) 0.02
360
Interest P = P200,000
P = rate x time
EX: If Ana applied for a P175,000 loan in a bank the
interest of which is P5,810 for 125days, what interest
rate is being charged?
2. Rate is Unknown (r = ?)
P 5,810
P 5,810
interest r = P 175,000( 125 dys ) =
r = Principal x time 360
60,763.8889

r = 0.095616 or 9.56%

3. Time is Unknown (t = ?) EX: What would be the time period of Anna’s loan for
P266,000, at 11% ordinary interest, if the amount of
interest interest is P10,150?
t = Principal x rate
P 10,150 P 10,150
Simple Interest – only once t= = = 0.3468(360)
266,000(.11) 29,260
Compound Interest – more than once
a year or longer
t = 124.88 ≈ 125days
Maturity Value/Future Value
- the amount applied by the barrower on
loan date

bank discount

BD = (MV)(r)(t)

where: MV = maturity value


r = discount rate
t = time

PROCEEDS

Proceeds = MV – bd
Proceeds = MV (1 – rt)

where: MV – maturity value


bd – bank discount
r – interest rate
t – time

Effective Rate Of A Bank Discount Note

bank discount (bd )


EIR =
proceeds x time

where: EIR = effective interest rate

Discounting a Simple Interest Note


Step 1: Solve for maturity date
MV = P (1 + rt)

Step 2: Count the number of days of the


discount period.

Step 3: Solve for the bank discount


BD = MV (rt)

Step 4: Solve for proceeds


Proceeds = MV – BD

Bank Discount – interest deducted in


advance

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