DPB2033 CHAPTER 4

SIMPLE INTEREST | PROMISSORY NOTES | BANK DISCOUNT |

LOANS | COMPOUNDED INTEREST | ANNUITY |

FAM 1
 LEARNING OBJECTIVES
• Able to explain the concept of simple interest
• Able to use simple interest formula to calculate interest, interest rate, present
values, future values and dates with data provided
• Able to calculate and use the concepts of exact simple interest , ordinary simple
interest, exact time and approximate time
• Able to apply banker’s rule to investment and loan problems
• Able to solve problems using equation values
• Able to list the main features of a promissory note
• Able to compute bank discount, the proceeds, the face value and maturity values
of promissory notes
• Able to compute simple interest rate that a bank earns when a promissory note is
discounted

FAM 2
 LEARNING OBJECTIVES
• Able to calculate instalment payments, and amount of interest charged on personal
loan and housing loan with yearly rest
• Able to calculate for early payments
• Able to explain the concepts of time value money
• Able to use the compound amount formula to find the future value, present value
and compound interest of investment and loans
• Able to solve the annuity payments, the number of payments and the interest rate
• Able to identify the problems where the present value and future value of annuity
formula can be appropriately applied

FAM 3
 FOUR BASIC CONCEPTS
1. Exact time
- The exact number of days between two given dates

2. Approximate time
- It assume a months has 30 days

3. Ordinary simple interest Banker’s Rule

- Use 360 days per year !!!
4. Exact simple interest
- Uses 365 days per year
FAM 4
 From 19 December 2018 to 29 April 2019. Find :
EX i. The exact time

A ii. The approximate time

M Solution :
PL Number of days

E
Month Exact Time Approximate
time
December 12 11
January 31 30
February 28 30
March 31 30
April 29 29
Total 131 130

FAM 5
 SIMPLE INTEREST

• INTEREST calculated on the original principal for entire period it is

borrowed/invested.

Where I = simple interest

I = Prt P = principal
r = rate of simple interest
t = time or term in year

FAM 6
EX Atif saves RM 4000 for 3 years in his saving account. He is

A
earning a simple interest rate of 3% per annum. Find the simple
interest earned by him.
M
PL
E

FAM 7
 EX
1. Alif saves RM5000 for 5 years in his savings account. He is earning
simple interest of 4% per annum. Find the simple interest earned ER
by him.
CI
2. Alif borrowed RM150,000 from bank A for 8 years with rate 3% SE
per annum. Calculate the simple interest that Alif must pay back
to the bank.

3. Ms Melisa deposited RM4000 to the bank and obtained a simple

interest RM300 after 3 years. What was the simple interest rate
offered

4. Alex borrows RM7,000 for 100 days at 9% per annum simple

interest. How much is the interest charged?

FAM 8
 EX
5. RM2000 was invested on 1 March 2019. The simple interest
offered was 5% per annum. Find the interest received at ER
31 December 2019 when using the following concepts:
CI
a) Exact time and exact simple interest SE
b) Exact time and ordinary simple interest
c) Approximate time and exact simple interest
d) Approximate time and ordinary simple interest

FAM 9
 SIMPLE AMOUNT FORMULA

• SIMPLE AMOUNT,S is the sum of the original principal and the interest
earned.
S = P ( 1 + rt ) Where S = simple amount
P = principal
Or r = rate
t = time or term in year
S = P + Prt
Or

S = P+I FAM 10
 Atiqah borrows RM30,000 for a period of 8 months with the
EX simple interest rate of 5% per annum. How much money that she
has to pay at the end of 8 months?
A
M
PL
E

FAM 11
 EX
ER
1. Adam borrowed RM150,000 from bank A for 3 years with rate 3.5%
per annum. Calculate the total loan that Alif must pay back to the
bank.
CI
2. Mr Kamarul deposited RM8 000 to the bank and obtained a simple SE
interest RM600 after 3 years. What was the simple interest rate
offered and how much interest could she earn if she deposited
RM15 000 in the same bank for nine months?

3. Edwin invest RM3,600 at 4.5% per annum simple interest in a bank.

Find the amount in the account after 2 years.

4. FAES corporation borrows RM155,000 for three years at a simple

interest rate of 8% per annum. Calculate the amount to be paid by the
Ani Corporation.

FAM 12
 EX
5. Mr Teh invest RMX in a bank. After 36 months, his investment will be
worth RM5,439. If the simple interest rate is 8.5% per annum, find the ER
value of X?
CI
6. Two years ago, Bee Wah invested RMP in her account which earns r% SE
simple interest per annum. After 18 months. She noticed that the
amount had become RM10,450 and today the amount is RM10,600.
Find the value of P and r.

7. Five years ago, Eliza invested RM6,600 in a bank at a simple interest

rate of 7.2% p.a. Find :
a) the amount of the account today
b) The number of years required if Eliza wanted the amount in the
account to become RM9,537.12

FAM 13
 PROMISSORY NOTE
• PROMISSORY NOTE is a debt instrument and commonly issued on short-term basis
• Way of company to raise money for its working capital
• There are two types of promissory note:
i. interest bearing notes
ii. non-interest bearing notes

Maturity value = Face value + Interest due

Or
S =P+I
FAM 14
 PROMISSORY NOTE
Main features of a promissory note are as follows:

i. Maker – the person who signs the note, promisor, obligor

ii. Payee – person to whom the payment is to be made, promisee, obligee
iii. Date of the note- The date on which the note is made
iv. Term of the note – The length of period till the note is due for payment
v. Face value – the amount stated on the note
vi. Maturity value -total sum of money which the payee will receive on the maturity date
vii. Maturity date -the date on which the maturity value is due

FAM 15
EX
A
M
PL
E

FAM 16
EX
A
M
PL
E

FAM 17
 EX
1. A promissory note dated 15 August 2010 reads “two months from
ER
date, I promise to pay RM5,000 with interest at 8% per annum CI
i. Find the maturity date of the note
ii. Find the maturity value of the note SE
2. The maturity value of a 60-days interest bearing promissory note is
RM2,020. If the interest rate is 6% per annum, what is the face value
of the note

3. The interest on a 90-day promissory note is RM200. if the interest rate

is 8% per annum, find the face value of the note

FAM 18
 EX
ER
4. The maturity value of a 60-day interest bearing promissory note is CI
SE
RM450. If the interest rate is 6% per annum, what is the face value of
the note

5. The interest on a 90-day promissory note is RM46. If the interest rate

is 7% per annum, Find the face value of the note

6. On 30 June 2017, Susan Ray, a business owner issued a 180 days, 18%
note to the Denmark Company at face value of RM10,000. Calculate
the interest income and the maturity value of the note.

FAM 19
 BANK DISCOUNT
• BANK DISCOUNT is the deduction of the interest charged in advance for short-term
loans.

D = Sdt
• The net amount received by the borrower is called PROCEEDS

R=S-D Where D = Bank discount

S = Amount of maturity value
R = S - Sdt d = discount rate per year
t = time or term in year
R = S(1 – dt) R = Proceeds
FAM 20
 •
EX
A
M
PL
E

FAM 21
1. Sharifah borrows RM8,000 for three months from a lender who
EX
charges a discount rate of 10%. Find: ER
CI
i. the discount
ii. the proceeds
SE
2. Aliya wishes to borrow RM15,000 for 12 months. If the person she is
borrowing from offers a discounted loan at 4%, how much did she
receive?

3. Juliana borrows RM5,000 for 3 months from a lender who charges a

discount rate of 2%. Find the discount and the proceeds

4. Sarina needs RM10,000 now to start a business. How much should she
borrow from the bank for two years at a 5% bank discount?

FAM 22
DISCOUNTING PROMISSORY NOTE

• Promissory note can be sold to bank before its maturity date if the holder is in need of
cash.

• Selling the note to the bank is called DISCOUNTING THE NOTE

• The date when the note is discounted is called the DISCOUNT DATE.

• The amount received on the date of discounting is called the PROCEEDS

FAM 23
DISCOUNTING PROMISSORY NOTE

S = P ( 1 + rt )
I = Prt

Maturity value = Face value + Interest Where D = Bank discount

D = Sdt P = Face value
S = Maturity value
I = Interest
Proceeds = Maturity value – Bank discount R = Proceeds

FAM 24
 Aiman is a businessman, receives a promissory note for RM1,500 with
EX interest of 10% per annum that is due in 120 days. The note is dated 10
April 2019. The note is discounted on 15 May 2019 at a bank that
A charges 12% discount.
Determine:
M a. The maturity date
PL b. The maturity value
c. The discount period
E d. The proceeds

FAM 25
 •
EX
A
Months Days
April 30-10 = 20

M May
June
31
30 The maturity date is 8 August 2019
PL July
August
31
8
E Total 120 days

FAM 26
 •
EX
A Date of the note
10 April
Date of the note
15 May
Maturity date
8 August

M Discount period

PL
85 days

The discount period is 85 days

FAM 27
1. Melissa is the businesswoman receives a promissory note for EX
ER
RM8000 with interest of 9% per annum. The note dated 12 May 2010
is due in 90 days. The note is discounted on 15 July 2010 at a bank
CI
that charges 6% discount. Find:
a) the maturity date
b) the maturity value
c) the proceeds
SE
2. Mr. Faris writes a promissory notes dated 3rd July 2013. He wrote “
hundred and eighty days after the date, I promise to pay the order of
Farhan Ahmad, Ringgit Malaysia: Two Thousand Five Hundred Only”
for the value received with interest at the rate of 11.0% per annum
until paid. From the information given, you are required to find:
a) The maturity date of the note
b) The interest of the note
c) The maturity value
d) If Faris sells the note to the bank which discount it at 12% per
annum on the 20th September 2013, calculate the proceed value
received by Farhan FAM 28
3. Amin received a promissory note RM1500 dated 15 May 2017 for 180 days with EX
interest of 10%. The promissory note have been sold on 30 Jun 2017 at rate of 8%.
How much is the proceed that Amin will received? ER
4. Mr. Lee is a holder of the mortgage note 60 days, worth RM15,000 at the rate of 5%
CI
per annum. Note is dated 18 October 2017. On 12 November of the same year, he
was discounting the note at the rate of 6.5% per annum. Determine :
SE
a) Maturity date of the note
b) Maturity value of the note
c) Discount period
d) Proceeds received by Mr. Lee

5. Calculate the amount of money that must be paid by Abu to Ahmad if he had
borrowed RM3000 from Ahmad. The date of promissory note is 7 April 2018 and
will be paid on 7 July 2018 with an interest rate of 8.5% per annum. Due to financial
difficulties, Ahmad had kept the note at the bank on 7 May 2018 with a discount
rate of 9%. Calculate the proceed that Ahmad received.

FAM 29
 LOANS

PERSONAL LOAN HOUSING LOAN

FAM 30
 Compute the monthly payment to the finance company that has
lent RM10,000 to Mr. Ray in order to purchase new motorcycle
and the loan is to be paid within 5 years with an interest rate of
4% per annum.

Solution:

PERSONAL
LOANS

FAM 31
 A laptop has a cash price RM5999. If Aini intends to pay through
monthly repayment, she is required to pay a deposit of 10% of
the cash payment. The balance must be paid by equal monthly
payments with fixed interest rate of 2% for 2 years. Calculate:
a. Total interest charged
b. Instalment price
c. Monthly payment
PERSONAL
LOANS Solution:

b.

FAM 32
 b.

PERSONAL c.
LOANS

FAM 33
 Ben borrowed RM350,000 to buy a house price at RM400,000.
Interest is set at 3.9% per year and the payback period is 30
years. Calculate the monthly payment necessary for this loan.

HOUSING Solution
LOAN

FAM 34
 Solution

HOUSING
LOAN

FAM 35
 EX
1. Brian borrowed RM420,000 from CIMB Bank to buy a house priced
at RM498,888. Interest rate is 4% per year and the payback period ER
CI
is 30 years. Calculate the monthly payment be for this loan.

2. Mr Ammar wanted to buy a detached house at price of RM378,000. SE

Developers required Mr Ammar to pay 10% deposit and the rest
can be borrowed from a finance company which offers interest at
the rate of 5.1% per year for 25 years. Mr. Ammar need to pay the
additional charges such as legal fees of RM3000 and insurance
RM1700. You are required to calculate:
a) Total interest charged
b) Total loan
c) Monthly payments

FAM 36
3. Kirana took a personal loan of RM50,000 from a financial
EX
institution. The loan was charged interest of 2.5% per annum. ER
Calculate the monthly repayments should be pay if the given
repayments period is 15 years. CI
SE
4. Mr Charles planning to buy a Mazda 3 which cost RM139,000. If he
can afford to pay 10% from the price as a deposit and the balance
will be borrowed from the bank which charges 3.6% per annum,
calculate the payment to be paid each months if he plans to paid
the loan in 9 years

FAM 37
5. Mr Yusoef had a plan to buy a KTM duke 1250cc bike which EX
cost at RM40,000. For this purpose, he will trade in his old
bike at RM12,000. The balance of the payment will borrow ER
from AEON Credit at 5.3% for 5 years. How much is the total
loan and monthly payment that he had to pay?
CI
SE

FAM 38
REBATE AND EARLY PAYMENTS

I = interest
n = the remaining number of instalment payable
N= the actual number of instalment payable
MP = Monthly payments

FAM 39
 Miss Ana borrowed RM 50,400 from a finance company to buy a new car at 3.6%
per annum for 7 years. He paid RM751.2 per month and intends to settle his debts
EX after his 40th instalment. How much should she pay for an early settlement?

A
M
PL
E

FAM 40
EX
A
M
PL
E

FAM 41
 EX
ER
1. Alisya borrowed RM68,000 from a finance company to buy a new car
at a rate of 4% per annum for 9 years. Alisya paid RM856.30 per
month. If she intends to paid all his loan after paying instalment for
60 times, how much does Alisya has to pay in order to settle all her CI
loans?
SE
2. Mr Abraham want to buy a double-storey house valued at
RM480,000. He had to pay 10% deposit and the balance will be
finance from the finance company. The interest rate charged is 5%
per annum and the period of the loan is 28 years. If he wanted to
paid all the balance of the loan after 192 payments, calculate the
amount that he had to pay for the early settlement

FAM 42
 COMPOUND INTEREST
• Compound interest computation is based on the principal that changes from time to time.
• Interest that earned is compounded or converted into principal and will earn interest
thereafter

FAM 43
 RM 1,000 is invested for 3 years. Find the interest received at the end of
EX the three years if the investment earns 5% compounded annually.

A Solution:

M YEAR

PL
Principal = RM1,000
Interest for the 1st year = 1,000 x 0.05 x 1 = RM50

E 1 Amount at the end of 1st year = RM1,000 + RM 50 = RM 1,050

Interest for 2nd year = 1,050 x 0.05 x 1 = RM52.5
2 Amount at the end of 2nd year = RM1,050 + RM52.5 = RM1,102.5
Interest for 3rd year = 1,102.5 x 0.05 x 1 = RM55.13
3 Amount at the end of 3rd year = RM 1,102.5 + RM55.13 = RM1157.63
Compound interest earned = Amount – Original Principal
= 1157.63 – RM1000 = RM157.63

FAM 44
COMPOUND INTEREST

Where,
S = compound amount
P = principal
k = annual nominal rate
m = compounding frequency in year
t = years

Where,
I = Interest
S = compound amount
P = principal
FAM 45
 Katie decided to invest RM5,000 in a savings account at an annual interest
EX rate of 7%. What is the amount after 3 years if the compounding takes
place :
A a) Monthly

M b) Quarterly

PL Solution:

E a) b)

FAM 46
1. Find the future values for the following investments:
EX
ER
i. RM20,000 at 5% compounded annually for 5 years
CI
ii. RM30,000 at 6% compounded semi-annually for 5 years and 6
SE
months
iii. RM11,500 at 8% compounded quarterly for 2 ¾ years
iv. RM120,000 at 5% compounded monthly for 3 ¼ years
v. RM120,000 at 9% compounded daily for 270 days
vi. RM40,000 at 12% compounded every 4 months for 6 years
vii. RM19,999 at 4.5% compounded every 2 months for 2 years

FAM 47
 RM120,000 was invested for 9 years and 6 months. If the investment
was offered 5% compounded semi-annually for the first 1 year, 6%
EX compounded monthly for the next 2 years and 3 months, 7%
compounded quarterly for the next 5 years and 8% compounded daily
A for the rest of the period. Find the future value of this investment.
M
PL
E

FAM 48
1. Find the future values for Mr Mohamad if he wishes to make an
EX
investment of RM20,000 at Koperasi Tentera. He was told that the ER
investment was offered 2% compounded monthly for the first 2 year,
3.5% compounded quarterly for the next 3 years and 5% compounded CI
SE
yearly for the next 5 years. Mr Mohamad decided to invest for 8 years.

FAM 49
PRESENT VALUE OF COMPOUND
INTEREST
Where,

S = compound amount
P = principal
k = annual nominal rate
m = compounding frequency in year
t = years

FAM 50
 A debt will be worth RM4000 in 3 years time. Assuming the money is worth 14%
compounded semi-annually.
EX Find :
A a.
b.
The present value of the debt
The value of this debt at the end of the first year
M c. The value of this debt at the end of four years

PL
E Solution:

a. Present value,

FAM 51
 Solution:

EX b. Present value,

A
M
PL Solution:
E c. Future value,

FAM 52
 ANNUITY

• This concept enable people to plans for the future in terms of investments and savings.
• Annuity is a series of equal payments made at equal intervals of time.

Where,
S = compound amount
R = periodic payment
k = annual nominal rate
m = compounding frequency
in year
t = years
I= interest
n=number of payment made

FAM 53
 RM200 is deposited every months for 2 years and 9 months at an interest rate of 5.5%
compounded monthly. What is the future value for this annuity at the end of the
EX investment period? How much interest earned?

A Solution:

M
PL
E

FAM 54
1. Calculate the amount to be received by Mr. Zikry who makes contribution RM157
EX
per month for 10 years if the investment compounded each month at the rate of
10%.
ER
2. Ms Aina wants to make sure that her son will be able to withdraw up to RM400 per
month when he study at the higher institution in 4 years. If the money that Ms Aina
CI
put in her account will be charged 8% compounded monthly, find the total amount
in the account.
SE
3. An employee will retire within 12 years from now. At the time of retirement, he
hopes to have a sum of RM138,500. He has made an investment which the
payments are made annually. If the interest is 8% compounded yearly, calculate the
monthly investment to be made by him.
4. Mr Rafik needs RM65,000 in 15 years from now to start a business when he retired.
If he save each month with the same amount with interest of 4% compounded
monthly, calculate the monthly savings made by Mr. Rafik.
5. Calculate the amount of money to be received by Mr. Goh who make a contribution
to the investment company RM157 per month for 10 years if compounded every
month at the rate of 10%.

FAM 55
 PAST YEAR QUESTIONS
• Identify the number of days from 18 April to 13 October of the same year using
the approximate time method
[5 marks]
• Kenanga wants to buy a new car worth RM95,000. she has to pay 10% as a down
payment and the remaining will be borrowed from a bank that charges an
interest rate of 3.5% per year for 9 years. Find the:
• Value of the down payment [1.5 marks]
• Loan amount [1.5 marks]
• Total interest charged [2 marks]
• Monthly payment [3 marks]

FAM 56
 PAST YEAR QUESTIONS
• If Kenanga decides to pay all her debt after 60th payment, calculate the amount
she should pay for an early settlement
[12 marks]

FAM 57
THANK YOU

FAM 58