Republic of the Philippines

CAVITE STATE UNIVERSITY

Cavite City Campus

MATHEMATICS OF
INVESTMENT

ALYSSA BIANCA B. AGUILAR

Instructor I, CvSU – CCC
 CvSU Mission
CvSU Vision Republic of the Philippines Cavite State University shall provide excellent,
The premier university in
historic Cavite recognized for CAVITE STATE UNIVERSITY equitable and relevant educational opportunities in
the arts, science and technology through quality
excellence in the development of Cavite City Campus instruction and relevant research and development
activities.
globally competitive and morally Brgy. 8, Pulo II, Dalahican, Cavite City It shall produce professional, skilled and
upright individuals. morally upright individuals for global competitiveness.

CHAPTER 1
SIMPLE INTEREST AND DISCOUNT
Objectives:
After the completion of the chapter, students should be able to:

• define or explain the terms maturity value, principal, interest, rate and time;
• apply simple interest formula to cases of loans and investments at simple interest;
• develop more common formulas in computing simple interest;
• differentiate simple discount with simple interest; and
• find the principal and proceeds of loans that are being discounted.

1.1 INTEREST
Refers to the amount paid for the use of money or price paid for the use of credit
It can be a mechanism of imposing penalty to a borrower for not paying a matured financial obligation
at a specified time.
Emanates from certain transactions which are economic or financial in character.

Two Parties in a Transaction

1. Lender or Creditor
2. Borrower or Debtor

ELEMENTS
1. PRINCIPAL – amount of money extended for creditor or the money deposited in the bank for
safekeeping
2. INTEREST RATE – charged amount for using the money over a certain period. (%)
3. TIME – period covered from the time the money is borrowed until its due date. (1 year or 12 months)
4. MATURITY DATE – due date

1.1.1 SIMPLE INTEREST COMPUTATION

an interest that is computed only once from the time the amount is borrowed until it is paid.

𝑰 = 𝑷𝑹𝑻

I = Interest
P = Principal amount
R = rate of interest (%)
T = Time (in years)

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SAMPLE PROBLEMS
1. On April 1, 2017, Angel borrowed P 300,000 for additional working capital from Premier Lending Co. at 7%
interest, payable in a year. Find the simple interest.

GIVEN FORMULA
P = P300,000 I = PRT
R = 7% or 0.07
T = 1 year SOLUTION
I = (300,000)(0.07)(1)
UNKNOWN I = 21, 000
I=?
Simple Interest ANSWER
Angel paid a simple interest of P21,000.

2. On February 1, 2015, Princess borrowed P 400,000 at 8% interest from ABC Lending, which is payable after 6
months. Find the simple interest.

GIVEN FORMULA
P = P400,000 I = PRT
R = 8% or 0.08
T = 6 mos = 0.5 yr SOLUTION
I = (400,000)(0.08)(.5)
UNKNOWN I = P 16,000
I=?
Simple Interest ANSWER
The simple interest amounts to P 16,000.

3. Find the simple interest of P 200,000 at 6% for 2 years and 3 months.

4. On May 1, 2016, Hazel borrowed a sum of money from Community Bank, payable for 2 years at 8% simple
interest. She paid P 6,000 for the interest of her loan. How much was borrowed by Hazel?

5. On July 1, 2014, Clare deposited P 400,000 at BDO. The deposit earned a simple interest of P 96,000 for 3 years.
How much was BDO’s interest rate?

6. William borrowed P 150,000 from his organization’s fun where he was charged with 10% simple interest. He
paid P 30,000 as interest upon payment of the principal on the maturity date. How long did it take him to pay
the money in full?

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1.1.2 MATURITY VALUE or AMOUNT
- Refers to the sum of the principal and interest or also known as the Final Amount
- Future value of the principal amount

FORMULA
𝑴 = 𝑷 + 𝑰
𝑴 = 𝑷(𝟏 + 𝒓𝒕)
where:
𝑀 = 𝑀𝑎𝑡𝑢𝑟𝑖𝑡𝑦 𝑉𝑎𝑙𝑢𝑒
𝑃 = 𝑃𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙
𝐼 = 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡

SAMPLE PROBLEMS
1. Kaye borrowed P 12,000 which is payable after 3 years and 8 months with simple interest of 12%.
Determine the amount or maturity value of the loan.

2. How much is needed to settle a loan of P7,500 at 9 2/5% due in 2 years and 6 months?

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ACTIVITY 1.1 _________________ SIMPLE INTEREST
Solve the following problems:
1. Michelle borrowed P24,000 from Christine payable in 4 months. At 8% simple interest rate, how much will
Christine earn?

2. How much was borrowed by Mr. Kho if, after 2 years and 3 months, he paid 8% simple interest of P3,240?

3. What is the simple interest rate if Joshua paid an interest of P2,100 after 2 years and 6 months on a P12,000
loan?

4. How long did Aerin use P10,000 that she borrowed if she paid 9.5% simple interest of P1,425?

5. How much should Teddy pay for a P13,000 loan if he is charged with 12.25% interest after 9 months?

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ACTIVITY 1.2 ________________ SIMPLE INTEREST
Complete the table.
Principal Rate Time Interest Maturity Value
1. P25, 000 5% 10 years

2. 15% 6 months P7,500

3. 9.4% 3.5 years P16,612.5

4. P250,000 10% P300,000

5. P325,000 1 ½ year P41,437.50

Show all pertinent solutions.

1. 2.

3.

4. 5.

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1.1.3 GUIDELINES IN MEASURING TIME
1. If the time stated in the problem is expressed in number of days, the year should likewise be
measured in days. There are two methods of measuring the year in terms of the number of days.
These are:
a. Ordinary interest
b. Exact interest
2. Unless otherwise specified, it is assumed that both the loan date and the maturity date are on the
same year.
3. If the loan date is given and the maturity period is expressed in months, the maturity period date
shall coincide with the loan date, regardless of the number of days in each month.
4. If the loan date and the due date are given in the problem, the number of days between the two
given dates are computed using the exact time method and approximate time method.

1.1.4 ORDINARY AND EXACT INTEREST METHODS

ORDINARY INTEREST METHOD – uses 360 days in a year
EXACT INTEREST METHOD – uses 365 days in a year, and 366 in a leap year.

SAMPLE PROBLEM
1. How much is the interest payable by Mr. Mendoza if he borrows P20,000 at 7% payable after 250 days?
Using ORDINARY INTEREST: Using EXACT INTEREST:
IO = PRT IE = PRT
= (20,000Php)(0.07)(250/360) = (20,000Php)(0.07)(250/365)
IO = 972.22Php IE = 958.90Php

2. How much is the interest payable by Ms. Agoncillo if she borrows P45,000 at 6.5% payable after 200 days?
ORDINARY INTEREST EXACT INTEREST

1.1.5 EXACT TIME AND APPROXIMATE TIME

SAMPLE PROBLEM
1. Bryan borrowed 20,000Php at 8% on March 15, 2017, which is payable on August 20, 2017.
How many days are there from March 15, 2012 to August 20, 2012?

EXACT/ACTUAL TIME METHOD – determined by APPROXIMATE TIME METHOD – it is assumed that

adding the exact number of days between the there are 30 days in each month
loan date and maturity date.
March (31-15) = 16 days March (30-15) = 15 days
April = 30 days April = 30 days
May = 31 days May = 30 days
June = 30 days June = 30 days
July = 31 days July = 30 days
August = 20 days August = 20 days
EXACT TIME = 158 days APPROXIMATE TIME = 155 days
**exclude the first day and include the last day

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2. Aly borrowed 50,000Php at 6% interest on December 3, 2016 in which she paid full on December 19, 2017.
How many days are there from the loan date to the maturity date?
EXACT TIME APPROXIMATE TIME

3. How many days are there from November 23, 2011 to July 2, 2012?
EXACT TIME APPROXIMATE TIME

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ACTIVITY 1.3 ___________________ TIME
Find the exact time and approximate time of the following loan dates and maturity dates:
1. March 18, 2013 to April 11, 2014
EXACT TIME APPROXIMATE TIME

2. August 7, 2017 to November 30, 2017

EXACT TIME APPROXIMATE TIME

3. February 24, 2016 to March 24, 2020

EXACT TIME APPROXIMATE TIME

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1.1.6 METHODS OF COMPUTING INTEREST
1. Ordinary interest method using exact or actual time (Banker’s Rule)
Exact Time
I = PxRx
360

2. Ordinary interest method using approximate time

Approximate Time
I = PxRx
360

3. Exact interest method using exact time

Exact Time
I = PxRx
365

4. Exact interest method using approximate time

Approximate Time
I = PxRx
365

SAMPLE PROBLEM
On May 15, 2012, Sol borrowed 50,000Php from Community Bank at 10% interest rate. The loan is payable on
October 10, 2012.
Find the Simple Interest using the four methods.

Given: Unknown:
P = 50,000Php Simple Interest
R = 10% or 0.1

For Time
MONTH EXACT TIME APPROXIMATE TIME

May

June

July

August

September

October

TOTAL

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Formula, Solution and Answers:

SIMPLE
Exact Time Approximate Time
INTEREST
Exact Time Approximate Time
I = PxRx I = PxRx
360 360

Ordinary
Interest

Exact Time Approximate Time

I = PxRx I = PxRx
365 365

Exact Interest

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ACTIVITY 1.4 _____________ METHODS OF SOLVING SIMPLE INTEREST
Ms. Crisostomo borrowed P120,000 at 12% on December 3, 1994 which is payable on December 19, 1995. Find
the simple interest using the four methods.
Given: Unknown:

For Time
MONTH(s) EXACT TIME APPROXIMATE TIME

TOTAL

Formula. Solution and Answers:

SIMPLE
Exact Time Approximate Time
INTEREST

Ordinary
Interest

Exact Interest

How much is the maturity value using Banker’s Rule? ___________________

Formula, Solution, Answer:

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1.1.7 GUIDELINES IN CONVERTING TIME
1. If the answer in computing for time is a whole number, it is automatically equal to year or years.
2. If the answer in computing for time is a whole number and a decimal, the whole number represents the
years, and the decimal represents a fraction of a year.
The decimal is converted into days as follows:
a. If ordinary interest is used, the decimal is multiplied by 360.
b. If exact interest is used, the decimal is multiplied by 365.
3. Any fraction or decimal arising from the multiplication made, whether lower, equal, or higher than 0.5, is
rounded up to the higher amount.

SAMPLE PROBLEM
1. Jessica borrowed 50,000Php from First Bank at 8% interest. She paid 8,900Php interest plus the principal
on the due date. Determine the time involved using ordinary and exact interest.

Given: Answer:
P = 50,000Php Ordinary interest method
I = 8,900Php T = 2.225 years
R = 8% = (0.225)(360)
= 81 days
Unknown: T = 2 yrs and 81 days
T=?
Exact interest method
Formula: T = 2.225 years
T = I/PR = (0.225)(365)
= 82.125
Solution: T = 2 yrs and 83 days
8900
T = 50,000 𝑥 0.08
T = 2.225 years

2. Romeo is planning to accumulate 50,000Php by investing 30,000Php at Mini Bank with 12% simple
interest per year. How long will it take him to accumulate the 50,000Php?

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ACTIVITY 1.5 ______________ ORDINARY AND EXACT TIME
Solve the following problems: Find the time using Ordinary and Exact Time method.
1. Jane deposited P15,000 in a local bank at 20% simple interest. How long will it take the amount to
double itself?

2. Mr. Clean wanted his P8,000 to earn P1,080 at 9% simple interest. How long should she invest the
money?

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