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Simple Interest and Simple Discount: Intended Learning Outcomes

This chapter discusses simple interest and simple discount. Simple interest is interest calculated on the principal amount only, without compounding. The key formulas are: I = Prt (interest = principal x rate x time) F = P + I (final amount = principal + interest) P = principal, I = interest, r = annual interest rate as a decimal, t = time in years. Examples are provided to demonstrate calculating simple interest, principal, time and interest rate using these formulas.

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mike guiamal
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32 views

Simple Interest and Simple Discount: Intended Learning Outcomes

This chapter discusses simple interest and simple discount. Simple interest is interest calculated on the principal amount only, without compounding. The key formulas are: I = Prt (interest = principal x rate x time) F = P + I (final amount = principal + interest) P = principal, I = interest, r = annual interest rate as a decimal, t = time in years. Examples are provided to demonstrate calculating simple interest, principal, time and interest rate using these formulas.

Uploaded by

mike guiamal
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 3

CHAPTER 1

Simple Interest and Simple Discount

Intended Learning Outcomes


By the end of this topic/chapter, you must be able to:
1. Differentiate simple interest from simple discount and identify their
features.
2. Perform drills on simple interest and simple discount.
3. Solve problems on simple interest and simple discount and their
relevant applications.

With the advancement of technology through computerization, most people


deposit money through banking system and other financial institutions to
finance their business activities. This act of depositing money is helpful both
to the depositor and the income-generating activities of the bank. On the
other hand, individuals who need cash or financial credit avail themselves of
loans from banks or credit institutions with an agreement to pay the original
amount with corresponding interest.

Simple Interest
Interest is the sum of money paid for the use of another person’s money. It is
an expense to the one who borrows money and an income to the one who
lends money. The one who borrows money is called the creditor and the one
who lends money is called the investor. The amount of money borrowed or
invested is called the principal. The sum of the principal and the interest is
called the amount.

Simple Interest and Its Features

Simple interest is defined as the interest on a deposit or loan, which is


computed once for the full term of the loan. The simple interest is obtained
using the formula
I = Prt

where: I – simple interest


P – principal
r – rate or which is expressed in decimal number or fraction
t - time which is expressed in years
If the time is given in months or days, convert this to year using the
following formulas:

MathEd 324: Mathematics of Investment


1
no . of months
t=
1. 12

no . of days
t=
2. 360
no . of days
t=
3. 365

Note: Unless specified, 360 days is used in all simple interest


computations.t)

Examples:
3 months 1
3 months= = year
12months / yr 4
200 days 5
200 days= = year
360 days / yr 9

The final amount or maturity value F at the end of t years can be found
using the formula
F=P+I

Derived Formulas:
I I
P= r=
rt Pt
I
t=
Pr F= P ( 1+ rt )
F
P=
1+rt

Examples:
1. If P1,500 was borrowed at 8% simple interest, how much will the
interest be for 2 years?
Given: Solution:
P = P1,500 I = Prt
r = 8% or 0.08 = (1,500)(0.08)(2)
t = 2 years I = P240

2. If the interest at 9% after 4 months is P300, how much was


borrowed?
Given: Solution:
I
P=
I = P300 rt
300
=
1
( 0 . 09)( )
r = 9% or 0.09 3

MathEd 324: Mathematics of Investment


2
4 1
t= or year
12 3 P = P10,000

3. Accumulate P8,000 for 1 year and 6 months at 10% simple interest.


Given: Solution:
P = P8,000 F = P(1 + rt)
t = 1.5 years = 8,000[1 + (0.1)(1.5)]
r = 10% or 0.1 F = P9,200

4. Discount P20,000 for 60 days at 9% simple interest.


Given: Solution:
F
P=
F = P20,000 1+rt
20 , 000
=
60 1 1
t= = year 1+( 0 . 09)( )
360 6 6
r = 9% or 0.09 P = P19,704.43

5. If P1,912.50 is the interest for investing P9,000 for 2 years and 6


months, find the rate of interest.
Given: Solution:
I
r=
I = P1,912.50 Pt
1, 912 .50
=
P = P9,000 (9 , 000 )( 2. 5)
t = 2.5 years r = 8.5%

MathEd 324: Mathematics of Investment


3

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