Scribd
Upload
35 views14 pages

Finding Simple Interests

Simple and compound interest are distinguished. Simple interest (Is) is computed return from present value for a given transaction duration. Compound interest is interest earned on prior interest. Formulas are provided to calculate simple interest (Is = Prt) and maturity value (F = P + Is or P(1+rt)). Two examples are worked through applying the formulas to calculate simple interest and maturity value for loans with given principal, interest rate, and time.

Uploaded by

Rhomel Phillipe' de Guzman
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
35 views14 pages

Finding Simple Interests

Simple and compound interest are distinguished. Simple interest (Is) is computed return from present value for a given transaction duration. Compound interest is interest earned on prior interest. Formulas are provided to calculate simple interest (Is = Prt) and maturity value (F = P + Is or P(1+rt)). Two examples are worked through applying the formulas to calculate simple interest and maturity value for loans with given principal, interest rate, and time.

Uploaded by

Rhomel Phillipe' de Guzman
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 14

Simple and

Compound Interests
Objectives:
1. Illustrate simple and compound
interests.
2. Distinguish between simple and
compound interests.
3. Solve problems involving simple
and compound interests.
Conversion of percent (%) to
decimal:
*To convert percent to decimal,
divide the percent by 100, and remove
the % sign.
Example:
Convert 13% to decimal.

Answer: 0.13
Conversion of months to years:
*To convert months to years,
multiply the number of months by
1/12months.
Example:
Convert 36months to years.

Answer: 3 years
Definitions:
Simple interest (IS) – is the computed
return from the present value for a given duration of
a transaction.
Maturity Value (F) – is the total amount
to be received or paid for a certain obligation.
Principal (P) – is the amount being
borrowed or invested.
Variables for simple interest:

P = principal amount
r = simple interest rate
t = term or time in years
Is = simple interest
F = maturity value (future value)
Annual Simple Interest:
Is = Prt

Maturity (Future) Value:


F = P + Is

Since Is = Prt, then: F = P + Prt or


F = P(1+rt)
Solve the following:
1. Anthony borrowed P150,000 from a
lending company where he needs to
pay an interest rate of 3% annually.
Find the:
a. simple interest for 2 years
b. maturity value of the loan
Solution:
Step 1: Identify what is asked.
a. Simple interest for 2 years;
b. Maturity value of the loan

Step 2: Identify the given.


P = P150,000
r = 3% or .03
t = 2 years
Step 3: Identify which formula is to be used.
Is = Prt
F = P + Is or P (1 + rt)
Step 4: Substitute the given values to the
formula and solve the problem.
Is = P150,000 (0.03)(2)
= P9,000
Therefore, the simple interest is P9,000.
For the future value (maturity value):
F = P + Is or P (1 + rt)
F = P150,000 + P9,000
= P159,000

Therefore, the maturity value after 2 years


is P159,000.
2. How much interest is charged
when P50,000 is borrowed for 9
months at an annual interest rate
of 10%?
Solution:
Step 1: Identify what is asked.
Simple interest for 9 months

Step 2: Identify the given.


P = P50,000
r = 10% = 0.10
t = 9/12 year
Step 3: Identify which formula is to be used.
Is = Prt

Step 4: Substitute the given values to the formula


and solve.
Is = P50,000 (0.10)(9/12)
= P3,750

Therefore, the simple interest charged is P3,750.

You might also like