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Simple Interest

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Adriel Maglaqui
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39 views26 pages

Simple Interest

Uploaded by

Adriel Maglaqui
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Introduction to

Mathematics of
Money
The mathematics of finance is not
limited to those who are in the banking sector
or in the business industry. It applies to every
one and affects the daily activities of people
from different walks of life. Borrowing or
lending money, buying household appliances
in cash or installment basis, depositing money
in a bank, and purchasing farm machinery, all
entail investments, as well as other activities
that involves buying and selling shares of
stocks and bonds.
SIMPLE
INTEREST
Lesson 1
The Simple Interest Formula
Simple interest is used on short
term notes – often on duration less
than 1 year. The concept of simple
interest, however, forms the basis
of much of the rest of the lessons
in the next two sections, for which
time period may be longer than a
year.
Key Terms
◼ Interest: an amount paid or earned for the use
of money.
◼ Simple interest: interest earned when a loan or
investment is repaid in a lump sum.
◼ Principal: the amount of money borrowed or
invested.
◼ Rate: the percent of the principal paid as
interest per time period.
◼ Time: the number of days, months or years that
the money is borrowed or invested.

5
Cleaves/Hobbs: Business Math, 7e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved
Simple interest is given by the following
formula:

I = Prt
I = interest
P = principal
r = annual interest rate (written as a
decimal)
t = time (in year)
7
Cleaves/Hobbs: Business Math, 7e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved
1. A bank pays simple interest
at the rate of 8% per year for
certain deposits. If a customer
deposits 10,000php and make
no withdrawals for three years,
what is the interest rate earned
in that period of time?
2. What interest rate would
yield 1,200php interest on
10,000php in 2 years?
2. What interest rate would
yield 1,200php interest on
10,000php in 2 years?

P r t
3. How long would it take to
earn 8,000 on a principal of
20,000 at 5% simple interest?
4. A 2-year loan of 20,000php
is made 4% simple interest.
Find the interest earned.
5. Find the principal amount
that will gain P5,450 interest at
6% interest rate in 7 years.
6. An amount of 500,000 is
invested in a 10-year trust that
pays 6% annual simple interest.
What is the total amount of
the trust fund at the end of ten
years?
Simple Accumulated Value
The amount of money originally invested
added to the amount of interest earned on
that investment, is known as the
accumulated value/amount (A). Sometimes
called as Future Value

A = P + I = P + Prt
or
A = P(1 + rt)
6. An amount of 500,000 is
invested in a 10-year trust that
pays 6% annual simple interest.
What is the total amount of
the trust fund at the end of ten
years?
7. If you deposit Php16,500 in
an account paying 10% simple
interest, for 2 years, determine
its future value.
8. Sam and Diane needed to
have 20,000php available to
pay for their daughter's first
year of college. Find the lump
sum they must invest now if
the investment is paying 8%
interest rate per year.
11.2.3 Find the ordinary interest rate per day
and the exact interest rate per day.

◼ Ordinary interest: a rate per day that


assumes 360 days per year.
◼ Exact interest: a rate per day that
assumes 365 days per year.
◼ Banker’s rule: calculating interest on a
loan based on ordinary interest and
exact time which yields a slightly higher
amount of interest.
19
Cleaves/Hobbs: Business Math, 7e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

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