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Final Module 8 Simple Interest

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Final Module 8 Simple Interest

mmw last lesson

Uploaded by

Rizzalyn Salvador
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© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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BULACAN STATE UNIVERSITY

COLLEGE OF SCIENCE

MMW 101
MATHEMATICS IN THE MODERN WORLD

Module 8
Simple Interest
Simple Interest
Objectives of the module:

At the end of the module, you should be able to:


1. solve problems involving simple interest, and
2. differentiate ordinary interest from exact interest.

Investing, saving or borrowing money all involve interests. A person may


increase his purchasing power by investing his money in stocks, time deposit, and
the like as this would give high returns to his money. He may also save his money in
a bank to earn interest. A businessman in need of additional capital for his business
may get a loan from a bank or a lending institution. He then needs to return the
money that he borrowed, and an additional amount called the interest.

Simple interest is the amount of money paid back by the borrower for using
the borrowed money for a certain period of time or the money earned by the lender.
Investments or deposits in bank also earn interests. Calculating the simple interest
involves the amount (principal), the interest rate, and the time.

FORMULA:
I = Prt Formula 1

Where:
I – the interest earned
P – the principal
r – the rate of interest per year
t – the time (in years)
❖ Note: If t is given in months, then
𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑚𝑜𝑛𝑡ℎ𝑠
t= .
12

Derived Formulas:
𝐼
P=
𝑟𝑡

𝐼
r=
𝑃𝑡
𝐼
t=
𝑃𝑟
1
The final amount/maturity value (F) at the end of the term (t years) is the sum
of the principal and the interest.

F=P+I or F = P + Prt or F = P (1 + rt) Formula 2

Examples:

1. How much interest would Php 250,000.00 earn at a simple interest rate of 2.5%
for 2 years? Find the final amount.

Given:
P = Php 250,000.00
r = 2.5% = 0.025
t = 2 years
I=?
Solution:
I = Prt
I = Php 250,000.00 (0.025) (2)
I = Php12,500.00
Final amount:
F=P+I
F = Php250,000.00 + Php12,500.00
F = Php262,500.00

2. At what simple interest rate must Php75,000.00 be invested for 42 months to earn
Php10,500.00?
Given:
P = Php75,000.00
t = 42 months = 42/12
I = Php10,500.00
r =?
2
Solution:
𝐼
r= 𝑃𝑡
𝑃ℎ𝑝10,500.00
r= 𝑃ℎ𝑝75,000.00(42/12)

𝐫 = 4%
3. Mr. Torres paid an interest of Php2,250.00 on a loan of Php100,000.00 at an
interest rate of 3%. For how long must he pay the loan?
Given:
P = Php100,000.00
r = 3% = 0.03
I = Php2,250.00

Solution:
𝐼
t= 𝑃𝑟
𝑃ℎ𝑝2,250.00
t= 𝑃ℎ𝑝100,000.00 (0.03)

𝐭 = 0.75 year or 9 months


4. Judith deposited a certain amount of money at a simple interest rate of 0.25%. If
her money at the bank at the end of 3 years amounted to Php75,562.50, how
much did she deposit in the bank?
Given:
F = Php75,562.50
t = 3 years
r = 0.25% = 0.0025
Solution:
𝐹
F = P (1 + rt) or P = 1+𝑟𝑡
𝐹
P = 1+𝑟𝑡
𝑃ℎ𝑝75,562.50
P= 1+0.0025 (3)

P = Php75,000.00

3
5. Jasmin needs to buy a laptop for her daughter. She loaned Php50,000.00 to be
paid for two years. She has to pay Php7, 062.50 every quarter. At what simple
interest rate was the loan made?
Given:
P = Php50,000.00
t = 2 years
quarterly payment = Php7,062.50
Solution:
Let us first determine the total amount to be repaid. If Jasmin will pay
Php7,062.50 every quarter for 2 years, then 8 payments will be made amounting to
Php56,500.00 (Php7,062.50 x 8 quarters). Deducting the amount that she loaned
from the total payments, the simple interest will be obtained.
Php56,500.00 - Php50,000.00 = Php6,500.00 (simple interest)
We can now solve for the simple interest rate.
𝐼
r= 𝑃𝑡
𝑃ℎ𝑝6,500.00
r= 𝑃ℎ𝑝50,000.00 (2)

𝐫 = 6.5%

Exact Simple Interest and Ordinary Simple Interest


There are two types of simple interest. These are the exact simple interest
and the ordinary simple interest. In an exact simple interest, the interest is computed
using 365 days in a year while 360 days is used for ordinary simple interest.

Examples:
1. Clarisse made a loan of Php175,000.00 at a rate of 7% for 75 days. How much
exact simple interest must she pay for the loan?
Given:
P = Php175,000.00
r = 7% = 0.07
t = 75 days or 75/365
4
Solution: I = Prt
I = Php175,000.00 (0.07) (75/365)
I = Php2,517.12

2. How much ordinary simple interest must Mr. Ramos pay for a loan of
Php50,000.00 for 90 days if the interest rate is at 9%?
Given:
P = Php50,000.00
r = 9% = 0.09
t = 90 days or 90/360

Solution: I = Prt
I = Php50,000.00 (0.09) (90/360)
I = Php1,125.00

3. Mrs. Sanchez borrowed Php60,000.00 from a cooperative. The rate of interest is


at 6.5% and she has to pay it back at the end of 300 days. Which has a lower
interest, the exact simple interest or the ordinary simple interest?
Given:
P = Php60,000.00
r = 6.5% = 0.065
t = 300 days
Solution:
For exact simple interest: For ordinary simple interest:
I = Prt I = Prt
I = Php60,000.00 (0.065) (300/365) I = Php60,000.00 (0.065) (300/360)
I = Php3,205.48 I = Php3,250.00

The computed simple interests show that the exact simple interest is lower than the
ordinary simple interest.

5
References:
Earnheart, Richard and Adina, Edgar (2018). Math in the Modern World. Quezon
City: C&E Publishing, Inc.

Sirug, W.S. (2018). Mathematics in the Modern World. Intramuros, Manila:


Mindshapes Co., Inc.

Sterling, M.J. (2008) Business Math for Dummies. Hoboken, New Jersey : WILEY
Publishing, inc.

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