SIMPLE INTEREST

Interest is the fee charged for the use of borrowed money. It is normally a
percentage of the amount borrowed.

Interest that is computed only on the principal amount and is paid at the end of the
loan period is called Simple Interest.

Simple interest ( I ¿ depends on three factors:

Principal ( P ) - the amount of money borrowed or the capital invested
Interest rate (r ) - express in percent charged in a specified period of time
Time or Term (t ) - the duration on which the principal amount is invested or loaned.

The formula for computing simple interest is:

I =Prt

If the given time is expressed in:

a. years - I =P •r •number of years
number of months
b. months - I =P •r •
12
c. days
number of days
 Ordinary Interest I o=P •r •
360
number of days
 Exact Interest I e =P• r •
365
Example:

1. Given: P = ₱ 20 000
r = 4% = 0.04
t = 2 years
Find: I
Solution: I =Prt
I = ( ₱ 20 000 ) ( 0.04 ) ( 2 )
I = ₱ 1 600

2. If Christine borrowed ₱ 50 000 from the bank at an interest rate of 10%, how
much is the interest in 9 months?

Given: P = ₱ 50 000
r = 10% = 0.10
t = 9 months

Solution: I =Prt
9
I = ( ₱ 50 000 ) ( 0.10 ) ( )
12
I = ₱ 3 750
 3. Find the ordinary and exact interest on ₱ 15 000 at 4% simple interest for 45
days.
Given: P = ₱ 15 000
r = 4 % = 0.04
t = 45 days

Solution: I o=Prt
45
I o=¿ ( ₱ 15 000 ) ( 0.04 ) ( )
360
I o = ₱ 75.00
I e =Prt
45
I e =¿ ( ₱ 15 000 ) ( 0.04 ) ( )
365
I e = ₱ 73.97

4. Find the interest earned if ₱ 5 000 is invested at 13% simple interest for 90
days.
Given: P = ₱ 5 000
r = 13 % = 0.13
t = 90 days

Solution: I =Prt
90
I =¿ ( ₱ 5 000 ) ( 0.13 ) ( ¿
360
I = ₱ 162.50

Note: If the type of interest is not specified in any problem, always use
ordinary interest (Banker’s Rule).

At the end of the term of a loan transaction, the borrower pays back the
principal amount together with the interest. This amount is called final amount
or maturity value ( F ).
F=P+ I or F=P+ Prt
F=P(1+rt )

Example:

1. Agnes borrowed ₱ 35 000 from a lending firm that charges 5 ½ % interest

rate. How much will she pay after 3 months?
Given: P = ₱ 35 000
r = 5 ½ % = 0.055
3
t = 3 months =
12
 Solution: F=P(1+rt )
3
¿₱ 35 000 [ 1 + (0.055) ( )]
12
F = ₱ 35 481.25

2. Find the interest and maturity value if ₱ 20 000 is borrowed at 12 ½% simple

interest for 4 years.
Given: P = ₱ 20 000
r = 12 ½ % = 0.125
t = 4 years

Solution: I =Prt
I = ( ₱ 20 000 ) ( 0.125 ) (4)
I = ₱ 10 000
F=P+ I
F=¿ ₱ 20 000 + ₱ 10 000
F = ₱ 30 000

There are cases that the principal amount, rate of interest and the time are
missing. In this instance, we can derive the other formulas.

I I I F
r= t= P= or P=
Pt Pr rt 1+rt

Example:

1. Given: I = ₱ 8 000
r = 8% = 0.08
t = 2 years
Find: P
I
Solution: P=
rt
₱ 8 000
P=
( 0.08 ) (2)
P = ₱ 50 000

2. How much should be invested today in a fund that pays 5% simple interest in
order to have ₱ 50 000 in 3 years?
Given: F = ₱ 50 000
r = 5% = 0.05
t = 3 years

F
Solution: P=
1+rt
 ₱ 50 000
P=
1+ ( 0.05 ) (3)
P = ₱ 43 478.26

3. Karlo borrowed ₱ 25 000 from a bank. He paid an interest of ₱ 1 200 for 3

months, at what rate was the interest charged?
Given: P = ₱ 25 000
I = ₱ 1 200
t = 3 months

I
Solution: r=
Pt
₱ 1200
r=
3
( ₱ 25 000 ) (
)
12
r = 0.192 = 19.2%

4. How long will it take for ₱ 35 000 to earn ₱ 4 500 if the rate of interest is 8%?

Given: P = ₱ 35 000
I = ₱ 4 500
r = 8% = 0.08

I
Solution: t=
Pr

₱ 4 500
t=
( ₱ 35 000 ) (0.08)
t = 1.60714… years
t = 1 year, 7 months, 9 days

Note: 1.60714… = 1 year

.60714… x 12 months = 7.28571… or 7 months

.28571… x 30 days = 8.5714… or 9 days

Name:______________________________________Score:_________________
Section:_____________________________________Date:__________________

ACTIVITY 1
Simple Interest

A. Complete the table:

Principal Rate Time Interest Final Amount

₱ 15 000 3 years ₱ 950

₱ 100 000 10% 1½ years

₱ 55 000 9% 45 days

₱ 5 400 13.8% ₱ 1 117.80

₱ 75 000 210 days ₱ 2 500

₱ 10 000 12.4% 8 months

7 ¼% 2 years ₱ 30 000

₱ 100 000 3 months ₱ 101 125

₱ 4 500 7 ½% ₱ 45.00

₱ 18 000 8 months ₱ 1 100

B. Solve the following:

1. What is the maturity value if ₱ 20 000 is invested for 3 years at 12% simple
interest?

2. Find the interest and final amount on ₱ 50 000 at 9 ½% for 90 days.

3. How long will it take for ₱ 8 000 to have a maturity value of ₱15 000, if the
interest rate is 12% simple interest?

4. Mr. Dalisay wishes to have ₱ 1 000 000 in his fund at the end of 15 years. If
he invested ₱ 300 000 at the start of the term, what interest rate is applied?

5. How much should be invested today in a fund that pays 13 ½% in order to

have ₱ 158 000 in 3 ½ years?

6. How long will it take for ₱ 35 200 to earn ₱ 7 400 if invested at 5 ½% simple
interest?

7. What simple interest rate is applied if ₱ 5 000 becomes ₱ 5 500 in 100 days?

8. Mr. de Leon borrowed some money at the rate of 5% per annum for the first 2
years, at the rate of 9% per annum for the next 3 years, and at the rate of
12% per annum for the period beyond 5 years. If he pays a total interest of
₱ 10 625 at the end of 9 years, how much money did he borrow?

9. Find the exact and ordinary interest earned if ₱ 40 000 is invested at 15%
simple interest for 200 days.
 10. Determine the interest and maturity value of ₱ 70 000 if it is invested a 15%
simple interest for 145 days using exact and ordinary interest.

SIMPLE DISCOUNT

A simple discount (D) is an interest collected or deducted in advance from the final
amount or maturity value.

Formula: D=Fdt

where: F = final amount or maturity value

d = discount rate
t = time/term

The amount that is left after the interest is deducted is called proceeds.
P=F−D
P=F−Fdt
P=F (1−dt)

Other Formula:
D
discount rate d=
Ft

D
time t=
Fd

Example:

1. Determine the interest to be deducted in advance if ₱ 20 000 is due after 8

months with a discount rate of 12%.
Given: F = ₱ 20 000
d = 12% = 0.12
8
t = 8 months =
12

Solution: D=Fdt
8
D=¿ ( ₱ 20 000 ) ( 0.12 ) ( )
12
D = ₱ 1 600
2. Determine the interest in advance to be deducted for a loan worth ₱ 50 000
due after 1 year and 3 months with a discount rate of 15%. How much will be
the proceeds?

Given: F = ₱ 50 000
d = 15% = 0.15
3 15
t = 1 year & 3 months = 1 =
12 12

Solution: D=Fdt
15
D=¿ ( ₱ 50 000 ) ( 0.15 ) ( )
12
D = ₱ 9 375

P=F−D
P=¿ ₱ 50 000 - 9 375
P = ₱ 40 625
Other solution:
P=F (1−dt)
15
P=¿ ₱ 50 000 [ 1 – (0.15) ( )]
12
P = ₱ 40 625
D=F−P
D=¿ ₱ 50 000 – 40 625
D = ₱ 9 375

3. What is the simple discount rate if the proceed is ₱ 85 000 from a loan of
₱ 100 000 payable in 3 years?
Given: F = ₱ 100 000
P = ₱ 85 000
t = 3 years

Solution: D=F−P
D=¿ ₱ 100 000 - ₱ 85 000
D = ₱ 15 000
D
d=
Ft
₱ 15 000
d=
( ₱ 100 000 )( 3 )
d = 0.05 = 5%
4. How long will it take for ₱ 50 000 to amount to ₱ 72 500 if the discount rate is
6%?
Given: F = ₱ 72 500
P = ₱ 50 000
d = 6% = 0.06

Solution: D=F−P
D=¿ ₱ 72 500 - ₱ 50 000
D = ₱ 22 500

D
t=
Fd
₱ 22 500
t=
( ₱ 72 500 )( 0.06 )
t = 5.17241… years
t = 5 years, 2 months, 2 days

5. The proceeds of a 2 year loan is ₱120 000. If the discount rate is 12%, how
much is the maturity value?
Given: P = ₱ 120 000
d = 12% = 0.12
t=2
P
Solution: F=
1−dt
₱ 120 000
F=
1−( 0.12 ) (2)
F = ₱ 157 894.74
Name:______________________________________Score:_________________
Section:_____________________________________Date:__________________

ACTIVITY 2
Simple Discount

SOLVE THE FOLLOWING: Show your solution.

1. Find the proceeds of ₱ 50 000 due at the end of 8 months if the discount rate
is 10 ½%?

2. Find the discount interest if F = ₱ 14 000, d = 8% and t = 9 months.

3. Discount (or find the present value of) ₱ 20 000 for 150 days at a discount
rate of 7%.

4. Accumulate ₱ 50 000 for 3 years and 9 months at 7 ½% simple discount.

5. How long will it take for ₱ 20 500 to amount to ₱ 30 000, if the discount rate is
5 4/5%?

6. ABC bank charges 10 ¼% for discounting loans. If Aldrin agrees to repay

₱ 55 000 after 7 months, how much does he receive now?

7. If ₱ 25 000 is the present value of ₱ 30 500 due at the end of 16 months, find
the discount rate.

8. Mary needs ₱ 100 000 on June 12, 2018, and will settle the loan on February
12, 2019. What is the size of the loan she should borrow from Mr. Sotto who
charges 5% discount rate?

9. Find the amount due on December 5, 2019, if the present value on

Oct 5, 2019 is ₱ 50,000 at 4% simple discount.

10. If ₱ 11 200 is the present value of ₱ 13 700 due at the end of 16 months, find
 a. discount interest rate
b. simple interest rate

COMPOUND INTEREST

Compound interest is the interest obtained from the periodic addition of simple
interest to the principal amount. When interest is periodically added to the principal
amount, this new sum becomes the new principal amount for a specified number of
periods. The result of this periodic addition is called the compound amount (F).
The number of times that the interest is computed in a year is called the
frequency of conversion (m). Interest may be compounded:
annually m=1

semi-annually m=2

quarterly m=4

monthly m = 12

The total number of conversion period (n) is determined by the product of the
frequency of conversion and the number of years the investment is placed. Thus,
n=t(m)

The rate of interest in a compound interest, called the nominal rate ( j ), is the rate
charged which may be converted several times per year. To determine the interest
rate (i ) per period, we have:
j
i=
m

Thus, the interest rate at 12% compounded:

12%
annually = 12%
1
 12%
semi-annually = 6%
2

12%
quarterly = 3%
4

12%
monthly = 1%
12

Example:

1. If ₱ 20 000 is invested in a bank that pays 4 % compounded annually, how

much is in the account at the end of 3 years?

Year Principal Interest Final Amount

0 ₱ 20 000 0 ₱ 20 000
1 ₱ 20 000 ₱ 800 ₱ 20 800
2 ₱ 20 800 ₱ 832 ₱ 21 632
3 ₱ 21 632 ₱ 865.28 ₱ 22 497.28

The compound amount (F) after 3 years is ₱ 22 497.28.

The compound interest earned is I =F – P
I = ₱ 22 497.28 - ₱ 20 000
I = ₱ 2 497.28

The process described above is not convenient to use if the term is long and
the frequency of conversion is more than once a year. For this reason, it is
suggested that we use the formula for calculating the compound amount (F).
n
F=P ( 1+i )

where: P = present value or principal amount

i = interest rate per period
n = total number of conversion period
Calculating the final amount of the example above, we have:
 Given: P = ₱ 20 000
t=3
m=1
j = 4% = 0.04

Solution:
n = tm n = (3)(1) = 3

j 0.04
i= i= = 0.04
m 1
n 3
F=P ( 1+i ) F=₱ 20 000 ( 1+0.04 )

F = ₱ 22 497.28

2. Find the compound amount and interest if ₱ 40 000 is invested for 4 years at
10% compounded semi-annually?

Given: P = ₱ 40 000
t=4
m=2
j = 10% = 0.1
Solution:

n = tm n = (4)(2) = 8

j 0.1
i= i= = .05
m 2

F=P ( 1+i )n
8
F=₱ 40 000 (1+ 0.05 )

F = ₱ 59 098.22

I =F – P

I = ₱ 59 098.22 – ₱ 40 000

I = ₱ 19 098.22
Name:______________________________________Score:_________________
Section:_____________________________________Date:__________________

ACTIVITY 3
Compound Interest

SOLVE THE FOLLOWING: Show your solution.

1. Find the compound amount and interest if:

a. ₱ 45 000 is invested at 5% compounded quarterly for 4 years

b. ₱ 30 000 is invested at 7% compounded semi-annually for 5 years

c. ₱ 15 000 is invested at 12 ½ % compounded annually for 6 years

 d. ₱ 5 000 is invested at 15% compounded monthly for 4 years and 9 months.

2. Find the compound interest earned at the end of 1 year and 3 months if
₱ 25 000 is invested at 12% compounded monthly.

3. Accumulate ₱ 12 000 for 3 years and 9 months at 5 ½ % compounded

quarterly.

4. Maricel borrows ₱ 10 000 with interest at 15% compounded monthly. How

much should she pay at the end of 2 years and 6 months to settle her debt?

5. When her granddaughter was born, Melay invested ₱ 20 000 at 12%

compounded quarterly. How much money will her granddaughter have on her
18th birthday?

6. Find the amount at the end of 15 years if ₱ 55 000 is invested at an interest

rate of 5% compounded semi-annually for the first 10 years and 3%
compounded quarterly for the next 5 years.
7. Manolo deposited ₱ 120 000 in a fund that pays 5% compounded annually for
the first 3 years, 4 ½% compounded semi-annually for the next 2 years and 3%
compounded quarterly thereafter. If money is invested for 10 years, how much
is in the fund after 10 years?

PRESENT VALUE AT COMPOUND INTEREST

The present value (P) is the principal amount invested today and will
accumulate an amount at a specified time in the future. The present value may be
derived from the compound amount formula,
n
F=P ( 1+i )

F
P= or P=F ( 1+i )
−n
( 1+i )n

Example:
1. What is the present value of ₱ 60 000 due in 4 years if money is worth 15%
compounded quarterly?
Given: F = ₱ 60 000
t=4
m=4
j = 15% = 0.15

Solution:
n = tm n = (4)(4) = 16
j 0.15
i= i= = .0375
m 4
−n
P=F ( 1+i )
−16
P=₱ 60 000 ( 1+ 0.0375 )
P = ₱ 33 292.13
 2. How much should be invested today in a fund to accumulate a sum of
₱ 70 000 in 3 years if the interest rate is 6 ½% compounded semi-annually?
Given: F = ₱ 70 000
t=3
m=2
j = 6 ½ % = 0.065

Solution:
n = tm n = (3)(2) = 6
j 0.065
i= i= = .0325
m 2
−n −6
P=F ( 1+i ) P=₱ 70 000 (1+ 0.0325 )
P = ₱ 57 777.36

Name:______________________________________Score:_________________
Section:_____________________________________Date:__________________

ACTIVITY 4
Present Value

SOLVE THE FOLLOWING: Show your solution.

1. Find the present value of ₱ 300 000 due at the end of 5 years if it is invested at 5%
compounded:
a. annually

b. semi-annually

c. quarterly

d. monthly
2. What sum is needed to accumulate to ₱ 50 000 in 3 years and 5 months if the
interest rate is 7% compounded monthly?

3. Jake wants to have ₱ 20 000 in 2 years to buy a new cell phone. How much
money should he invest today in a fund that earns 3% compounded quarterly
to get this amount?

4. How much must be deposited today in a bank to accumulate ₱ 100 000 after
5 years if the money earns 3.5% compounded semi-annually?

5. How much must be invested today at 3% compounded monthly to have

₱ 1 000 000 in 15 years?

6. Find the present value and compound interest of ₱ 30 000 due at the end of 5
years and 6 months if interest is at 15% compounded quarterly.
 7. A certain amount was invested in a fund at a rate of 7 ½% simple interest for
the first 5 years, at 18% compounded monthly for the next 5 years, and at
14% compounded semi-annually for the remaining years. If the total amount
in the fund after 13 years is ₱ 95 300, find the initial amount invested in the
fund.

CREDIT CARDS

Credit card is a payment card used by individuals to purchase goods or

services. It is a pre-approved loan for a certain amount of money from the issuing
bank. It has a maximum amount or a credit limit. If you pay the balance in full each
month before the due date, it has zero interest; otherwise, you will pay an additional
charge called finance charge.

Many credit cards also charge an annual fee, late payment fees, fees for over
the credit limit, and cash-advance fees.

To calculate finance charge, some credit card companies use the average
daily balance (ADB) method. The average daily balance is computed by getting the
total amount owed each day of the month divided by the number of days in the billing
period.
total amount owed each day of the month
Average daily balance (ADB) =
number of days∈the billing period

Then, the finance charge is computed by multiplying the average daily balance and
the interest rate per month.
Finance charge = ADB × Interest rate per month

To compute for the current balance,

Current Balance = Previous balance−Payments + New charges+ Finance Charge

Example:
1. Rose had an unpaid credit bill of ₱ 4 000 with a due date of June 1. She
made a purchase of ₱ 2 000 on June 10 and ₱ 1 100 purchase on June 20. A
payment of ₱ 3 000 was made on June 17. The next billing date is July 1.
The interest on the average daily balance is 3.5% per month. Find the finance
charge and the current balance of the bill.
Solution:
To determine the finance charge:
a. Prepare a table showing the unpaid balance for each purchase, the number
of days the balance is owed and the daily balance (unpaid balance times the number
of days).

Date Payments/ Unpaid Number of Days Daily

Purchase Balance Balance
June 1 ₱ 4 000 9 (June 1- June 9) ₱ 36 000
June 10 ₱ 2 000 6 000 7 (June 10-16) 42 000
June 17 - 3 000 3 000 3 (June 17-19) 9 000
June 20 1 100 4 100 11 (June 20- June 30) 45 100
Total ₱ 132 100

The sum of the total amount owed each day of the month is ₱ 132 100 and
the total number of days from June 1 to June 30 is 30 days.

b. Find the average daily balance.

total amount owed each day of the month

Average daily balance (ADB) =
number of days∈the billing period

₱ 132100
ADB = = ₱ 4 403.33
30

c. Find the finance charge

Finance charge = ADB x Periodic rate

Finance charge = ₱ 4 403.33 × 0.035

= ₱ 154.12

d. Find the current balance

Current Balance = Previous balance−Payments + New charges+ Finance Charge

Current Balance = ₱ 4 000 - ₱ 3 000 + ₱ 3 100 + ₱ 154.12

Current Balance = ₱ 4 254.12

The finance charge is ₱ 154.12 and the current balance is ₱ 4 254.12.

Name:______________________________________Score:_________________
Section:_____________________________________Date:__________________

ACTIVITY 5
Credit Cards

SOLVE THE FOLLOWING:

1. A credit card had a previous balance of ₱ 7 000 on May 9. A purchase of
₱ 2 300 was made on May 14, and a payment of ₱ 1 050 was made on May
26. Find the average daily balance, finance charge and current balance if the
billing date is June 9 and the interest rate is 3.5% per month.

2. A credit card account had a balance of ₱ 6 200 on December 1. A purchase

of ₱ 1 800 was made on December 9 and a payment of ₱ 2 500 was made on
December 20. Find the average daily balance if the billing date is on
January 1.
3. Cardo’s bill of ₱ 6 000 was due on November 5. A purchase of ₱ 3 100 was
made on November 9 and ₱ 5 200 was charged on November 21. A payment
of ₱ 3 000 was made on November 16. The interest on the average daily
balance is 2.5% per month. Find the average daily balance, finance charge
and current balance if the billing date is every 5 th of the month.

4. A credit card statement shows an unpaid balance of ₱ 8 150 on April 3.

Purchases made were : April 8 purchase of ₱ 2 000; April 15 purchase of
₱ 9 200; April 18 payment of ₱ 4 000; and April 23 purchase of ₱ 5 520. Find
the average daily balance, finance charge and current balance if the billing
date is on May 3 and the interest rate is 2.75% per month.

5. Christine made the following transactions: purchase of ₱ 5 520 on July 5 ;

purchase of ₱ 12 080 on July 12; payment of ₱ 5 000 on July 17 using her
credit card which had an unpaid bill of ₱ 7 200 on July 2 . The interest on the
average daily balance is 2.5% per month. The next billing date is August 2.
Find the average daily balance, finance charge and current balance.