Lesson 1.

3
Time-Value of
Money
Simple interest
Introduction
When people need to secure funds
for some purposes, one of the ways
they usually resort to is borrowing.
On the other hand, the person or
institution , which lends the money
would also wish to get something in
return for the use of money.
Terminologies T
1. Debtor or maker - the person who
borrows money for any purpose
2. Lender - the person or institution
E
which loans the money
3. Interest - the payment for the use of R
borrowed money
4. Principal - the capital or sum of M
money invested
S
Terminologies T
5. Rate of interest - the fractional part of
the principal that is paid on the loan E
6. Time or term - the number of units of
the time for which the money is
borrowed and for which interest is
R
calculated
M
S
Terminologies T
7. Final amount or maturity value - the
sum of the principal and interest which
is accumulated at a certain time
E
8. Present value - the amount received by
R
the borrower
M
S
Simple Interest
Interest in which only
the original principal
bears interest for the
entire term of the loan
Simple Interest
John F borrows P10,000 at the rate of
12% per year. E
X
If the loan is a simple interest loan, then
the interest on P10,000 is
A
P1,200. M
At the end of one year, John F should pay
P
the lender a total amount of L
E
P11, 200.
Formula: 𝑰 = 𝑷 ∙ 𝒓 ∙ 𝒕
𝑭=𝑷+𝑰
𝑰=𝑭−𝑷
where:
𝑰 - simple interest
𝑷 - principal amount
𝒓 - rate or percent of interest
𝒕 – unit of time ( in year)
The term or time may be stated in any of the
following ways:

1. When the time is expressed in number of

year(s), our formula will be:
𝑰 = 𝑷 × 𝒓 × 𝒏𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒚𝒆𝒂𝒓𝒔

2. When the time is expressed in number of

month(s):
𝒏𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒎𝒐𝒏𝒕𝒉𝒔
𝑰= 𝑷 × 𝒓 ×
𝟏𝟐
1. Find the interest on 𝑷 𝟖, 𝟎𝟎𝟎 at 5 ½ %
simple interest for 3 years.
2. Find the interest and the final
amount on P 1,300 at 7 ¼%
simple interest for 9 months.
2. Find the interest and the final
amount on P 1,300 at 7 ¼%
simple interest for 9 months.

Formula: 𝑰 = 𝑷 ∙ 𝒓 ∙ 𝒕
1 9
𝐼 = 𝑃1,300 𝑥 (7 + )% 𝑥 = 𝑃70.69
4 12
2. Find the interest and the final
amount on P 1,300 at 7 ¼%
simple interest for 9 months.

Formula: 𝑰 = 𝑷 ∙ 𝒓 ∙ 𝒕
1 9
𝐼 = 𝑃1,300 𝑥 (7 + )% 𝑥 = 𝑃70.69
4 12
2. Find the interest and the final
amount on P 1,300 at 7 ¼%
simple interest for 9 months.

Formula: 𝑰 = 𝑷 ∙ 𝒓 ∙ 𝒕
1 9
𝐼 = 𝑃1,300 𝑥 (7 + )% 𝑥 = 𝑃70.69
4 12
2. Find the interest and the final
amount on P 1,300 at 7 ¼%
simple interest for 9 months.

Formula: 𝑰 = 𝑷 ∙ 𝒓 ∙ 𝒕
1 9
𝐼 = 𝑃1,300 𝑥 (7 + )% 𝑥 = 𝑃70.69
4 12
2. Find the interest and the final
amount on P 1,300 at 7 ¼%
simple interest for 9 months.

Formula: 𝑰 = 𝑷 ∙ 𝒓 ∙ 𝒕
1 9
𝐼 = 𝑃1,300 𝑥 (7 + )% 𝑥 = 𝑃70.69
4 12
2. Find the interest and the final
amount on P 1,300 at 7 ¼%
simple interest for 9 months.

Formula: 𝑰 = 𝑷 ∙ 𝒓 ∙ 𝒕
1 9
𝐼 = 𝑃1,300 𝑥 (7 + )% 𝑥 = 𝑃70.69
4 12
2. Find the interest and the final
amount on P 1,300 at 7 ¼%
simple interest for 9 months.

Formula: 𝑰 = 𝑷 ∙ 𝒓 ∙ 𝒕
1 9
𝐼 = 𝑃1,300 𝑥 (7 + )% 𝑥 = 𝑃70.69
4 12
𝐹 = 𝑃 + 𝐼 = 𝑃1,300 + 𝑃70.69
= 𝑃1,370.69
2. Find the interest and the final
amount on P 1,300 at 7 ¼%
simple interest for 9 months.

Formula: 𝑰 = 𝑷 ∙ 𝒓 ∙ 𝒕
1 9
𝐼 = 𝑃1,300 𝑥 (7 + )% 𝑥 = 𝑃70.69
4 12
𝐹 = 𝑃 + 𝐼 = 𝑃1,300 + 𝑃70.69
= 𝑃1,370.69
2. Find the interest and the final
amount on P 1,300 at 7 ¼%
simple interest for 9 months.

Formula: 𝑰 = 𝑷 ∙ 𝒓 ∙ 𝒕
1 9
𝐼 = 𝑃1,300 𝑥 (7 + )% 𝑥 = 𝑃70.69
4 12
𝐹 = 𝑃 + 𝐼 = 𝑃1,300 + 𝑃70.69
= 𝑃1,370.69
2. Find the interest and the final
amount on P 1,300 at 7 ¼%
simple interest for 9 months.

Formula: 𝑰 = 𝑷 ∙ 𝒓 ∙ 𝒕
1 9
𝐼 = 𝑃1,300 𝑥 (7 + )% 𝑥 = 𝑃70.69
4 12
𝐹 = 𝑃 + 𝐼 = 𝑃1,300 + 𝑃70.69
= 𝑃1,370.69
PRACTICE

1. If a principal of P 2,500 earns

interest of P185 in 3 years and 3
months, what interest rate is in
effect?
PRACTICE
1. If a principal of P 2,500 earns interest of
P185 in 3 years and 3 months, what
interest rate is in effect?

𝐼 = 𝑃𝑟𝑡
3
𝑃185 = 𝑃2,500 𝑟 (3 + )
12
185
𝑟= 𝑥100%
3
2500 𝑥(3 + )
𝑟 = 2.28%
12
PRACTICE
1. If a principal of P 2,500 earns interest of
P185 in 3 years and 3 months, what
interest rate is in effect?

𝐼 = 𝑃𝑟𝑡
3
𝑃185 = 𝑃2,500 𝑟 (3 + )
12
185
𝑟= 𝑥100%
3
2500 𝑥(3 + )
𝑟 = 2.28%
12
PRACTICE
1. If a principal of P 2,500 earns interest of
P185 in 3 years and 3 months, what
interest rate is in effect?

𝐼 = 𝑃𝑟𝑡
3
𝑃185 = 𝑃2,500 𝑟 (3 + )
12
185
𝑟= 𝑥100%
3
2500 𝑥(3 + )
𝑟 = 2.28%
12
 𝐴
𝑝
2. A principal earns interest of P 385𝑝
in 2 years and 9 months at a simple 𝑙
𝑖
interest rate of 9.5 %. Find the𝑐
principal invested. 𝑎
𝑡
𝑖
𝑜
𝑛
 𝐴
𝑝
𝑝
3. How long will it take for P8,000
𝑙
to earn P2, 400, if it is invested at 𝑖
6½% simple interest? 𝑐
𝑎
𝑡
𝑖
𝑜
𝑛
ORDINARY AND EXACT
INTEREST
Ordinary Interest (𝑰𝒐 )

Assumed that there are 360 days in a

year

𝒏𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒅𝒂𝒚𝒔
𝑰𝒐 = 𝑷 × 𝒓 ×
𝟑𝟔𝟎
Exact Interest (𝑰𝒆 )

Assumed that there are 365 days in a

year

𝒏𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒅𝒂𝒚𝒔
𝑰𝒆 = 𝑷 × 𝒓 ×
𝟑𝟔𝟓
REMINDER
• Ordinary interest is greater than
exact interest.
• When interest ( 𝑰𝒐 or 𝑰𝒆 ) is not
specified in any problem, it is
assumed as ordinary interest (𝑰𝒐 ).
EXAMPLE
1.) Find the ordinary interest on P 5, 500
for 95 days at 𝟕 𝟒Τ𝟓 % simple interest.
2.) Find the ordinary interest on P6, 600
for 100 days at 𝟖. 𝟏 % simple interest.
EXAMPLE

3.) Find the exact interest on P7, 700

for 150 days at 𝟏𝟎 𝟏Τ𝟒 % simple
interest.
4.) Find the exact interest on P9, 900
for 215 days at 𝟏𝟐% simple interest
PRACTICE
5.) Brian borrowed 𝑷𝟑𝟎, 𝟎𝟎𝟎 from
a financing company charging
𝟒
𝟏𝟏 %
𝟓
simple interest for 180
days. How much did Brian pay
back the company at the end
of the term?
6.) At what simple exact interest
rate should Rainey invest his
P25 500 so that it earns P1 500
in 2 years and 150 days?
7.) Find the amount due if P12,
𝟑
200 was invested at 𝟏𝟐 𝟖 % for
125 days using:
a.) Ordinary Interest
b.) Exact Interest
8.) One hundred twenty five days
after borrowing money, Krizia
pays an interest of P2, 850. How
much did she borrow if the
𝟕
simple interest rate is 𝟖 𝟖 %?
9. Tisha is having difficulty in deciding as to
which investment firm she will choose:
Executive Ventures, which offers 𝟏𝟏 𝟏Τ𝟒 %
simple exact interest; or Elite Financing
Corporation offering 𝟏𝟎 𝟕Τ𝟖 % simple ordinary
interest. If she is to invest P200, 000 for 120
days which investment firm will you
recommend?
10.) Asiong wants to have P80, 000
after 210 days. How much should
𝟏
he invest now at 𝟏𝟐 𝟓 % simple
exact interest?