SOLVING PROBLEMS INVOLVING

SIMPLE INTEREST
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 An annual simple interest is based on 3 factors
namely:
1. Principal which is the amount invested or
borrowed
2. Simple interest rate, usually expressed in percent
3. Time or term of loan, in years

2
Annual Simple Interest
𝐼𝑠 = 𝑃𝑟𝑡
Where
𝐼𝑠 = simple interest
𝑃 = principal
𝑟 = rate
𝑡 = time or term, in years
3
 A bank offers 0.25% annual simple
interest rate for a particular deposit. How
much interest will be earned if 1 million
pesos is deposited in this savings account
for 1 year?

4
Given: P = P1,000,000 r = 0.25% = 0.0025
t = 1 year
Find: 𝐼𝑠
𝐼𝑠 = 𝑃𝑟𝑡 = (1,000,000)(0.0025)(1)
𝐼𝑠 = 𝑃2,500
Ans: The interest earned is P2,500.

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 Interest in savings account in the
Philippines is subject to 20% withholding
tax. If 20% withholding tax will be
applied, then the actual interest earned is
2,500 0.8 = 𝑃2,000

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 How much interest is charged when
P50,000 is borrowed for 9 months at an
annual simple interest rate of 10%?

7
Given:
P = P50,000, r = 10% = 0.10, t = 9
9
months, = year = 0.75 year
12
Note:
When the term is expressed in months
𝑀
(M), it should be converted to years by 𝑡 = .
12
8
Find: 𝐼𝑠
𝐼𝑠 = 𝑃𝑟𝑡
9
= 50,000 0.10
12
= (50,000)(0.10)(0.75)
𝐼𝑠 = P3, 750
Ans: The simple interest charged is P3, 750
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Complete the table below by finding the
unknown
Principal Rate (r) Time (t) Interest (𝑰𝒔 )
(P)
(a) 2.5% 4 1, 500
36, 000 (b) 1.5 4, 860
250, 000 0.5% (c) 275
500, 000 12.5% 10 (d)
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Principal (P) Rate (r) Time (t) Interest (𝑰𝒔 )
(a) 2.5% 4 1, 500

a. The unknown principal (P) can be obtained

𝐼𝑠
by 𝑃 =
𝑟𝑡
1,500
Therefore, 𝑃 = = 𝑃15,000
0.025 4
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Principal (P) Rate (r) Time (t) Interest (𝑰𝒔 )
36, 000 (b) 1.5 4, 860
b. The unknown rate (r) can be obtained by
𝐼𝑠
r=
𝑃𝑡
4,860
Therefore, r = = 0.09 = 9%
36,000 1.5
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Principal (P) Rate (r) Time (t) Interest (𝑰𝒔 )
250, 000 0.5% (c) 275
c. The unknown time(t) can be obtained by
𝐼𝑠
t=
𝑃𝑟
275
Therefore, t = = 0.22 years or
250,000 0.005

= 12 ∗ 0.22 = 2.64 months 13

Principal (P) Rate (r) Time (t) Interest (𝑰𝒔 )
500, 000 12.5% 10 (d)
d. The unknown interest(𝐼𝑠 ) can be obtained
by
𝐼𝑠 = 𝑃𝑟𝑡
Therefore,
𝐼𝑠 = 500,000(0.125)(10) = 𝑃625,000
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 So, when any of the factors is unknown, use
the following to find for it:
Unknown Formula
Principal (P) 𝐼𝑠
𝑃=
𝑟𝑡
rate (r) 𝐼𝑠
𝑟=
𝑃𝑡
time (t) 𝐼𝑠
𝑡=
𝑃𝑟 15
1. When invested at an annual interest
rate of 7%, an amount earned P11,200
of simple interest in two years. How
much money was originally invested?

16
2. If an entrepreneur applies for a loan
amounting to P500,000 in a bank, the
simple interest of which is P157,500 for
3 years. What interest rate is being
charged?

17
3. How long will a principal earn an
interest equal to half of it at 5% simple
interest?

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 Sometimes it is interesting to know the
amount that a lender will give to the borrower
on the maturity date. For instance, you may be
interested to know the total amount of money
in a savings account after t years at an interest
rate r. This amount is called the maturity value
of future value (F).
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Maturity (Future) Value
𝐹 = 𝑃 + 𝐼𝑠
Where
𝐹 = maturity (future) value
𝑃 = principal
𝐼𝑠 = simple interest
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Since 𝐼𝑠 = 𝑃𝑟𝑡, if we substitute it to 𝐹 = 𝑃 + 𝐼𝑠 , we get
𝐹 = 𝑃 + 𝑃𝑟𝑡
Therefore, 𝐹 = 𝑃 1 + 𝑟𝑡
Where
𝐹 = maturity (future) value
𝑃 = principal
𝑟 = interest
𝑡 = term/time in years
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 Find the maturity value if 1 million
pesos is deposited in a bank at an annual
simple interest rate of 0.25% after
a. 1 year
b. 5 years

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Given
P = 𝑃1,000,000 𝑟 = 0.25% =
0.0025
Find
a. Maturity or future value F after 1 year
b. Maturity or future value F after 5 years
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Find the unknown principal P, rate r, time t,
and interest I by completing the table.
Principal (P) Rate(r) Time (t) Interest (I)
10,000 8% 15 (a)
(b) 2% 5 10,000
360,000 (c) 2 3,600
500,000 10.5% (d) 175,500
880,000 9.25% 2.5 (e)
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a. When t = 1
𝐹 = 𝑃 1 + 𝑟𝑡 = 1,000,000 1 + 0.0025 ∗ 1
= 𝑃1,002,500
b. When t = 5
𝐹 = 𝑃 1 + 𝑟𝑡 = 1,000,000 1 + 0.0025 ∗ 5
= 𝑃1,012,500
Note: Solve F using 𝐹 = 𝑃 + 𝐼𝑠
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1. What are the amounts of interest and
maturity value of a loan for P150,000 at
6.5% simple interest for 3 years?
2. At what simple interest rate per annum will
P25,000 accumulate to P33,000 in 5 years?
3. How long will P40,000 amount to P51,200 if
the simple interest rate is at 12% per
annum?
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4. In order to have P200,000 in 3 years, how
much should you invest if the simple
interest is 5.5%?
5. Angel deposited P20,000 in a bank that
pays 0.5% simple interest. How much will
her money after 6 years?
6. At what simple interest rate will an amount
of money double itself in 10 years?
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1. At what simple interest rate per annum will
P30,000 accumulate to P45,000 in 5 years?
2. How long will P50,000 amount to P72,000 if
the simple interest rate is at 12% per
annum?
3. In order to have P200,000 in 3 years, how
much should you invest if the simple
interest is 5.5%?
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