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A 2 Interest

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14 views12 pages

A 2 Interest

Uploaded by

Alyzza
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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BUSINESS MATH

INTEREST
Objectives
01 Define Interest

02 Illustrate how to calculate


simple interest
"Imagine you borrow Php 10,000 from a
friend, and they say you have to pay
back an additional Php 500 after one
year. Why are you paying extra money
on top of the Php 10,000?"

What is the extra Php 500 represent?


Pre -Test
INTEREST
•Interest is a percentage of an initial amount, or "principal", added to that
principal over a given period of time. In the case of a loan, that period of
time will be the agreed length of time within which you will repay the loan.

• With an investment or savings deposit, it will be over the life of the


investment or while there is money in the savings account (Online Math Learning, 2020).

• for the lender, interest is the amount or income he or she earns for
lending or investing his or her money. From the borrower’s viewpoint,
interest is the amount he or she has to pay for the use of money he or
she has borrowed or loaned (Solano and Alarcon, 2016).
SIMPLE INTEREST
Simple Interest is the interest computed based on
the principal only (the amount of
money borrowed or invested).
It is usually used for short-term loans
or investments (Solano and Alarcon, 2016).
Simple interest can be computed using the formula
I = Prt
where,
I = interest after t year
P = Principal
r = rate of interest
t = time in years
SIMPLE INTEREST
The maturity value (F) or the total amount the
borrower has to repay is equal to the sum of the
principal plus the interest. It is also referred to as
the future value.

F=P+I
Since I = prt
we get: F = P + Prt
F = P (1 + rt)
Activity
a. What would be the interest Rene has to pay if
he borrowed ₱10,000.00 for 1 year with an
interest rate of 6% per annum?

b. What is the total amount that Rene


will pay at the end of 1 year?

c. Compute for the interest on a credit purchase


of ₱30,000.00 at 8% for 10 and 15 months.
Solutions:
b. c.
a.

a. Solution: b. Use the formula for the Interest for 10 months


I= Prt maturity or future value. I= Prt
= (₱10,000)(0.06)(1) F = P + I = 30,000 (0.08) (10)
= ₱ 600.00 = ₱10,000.00 + ₱600.00 12
F = ₱10,600.00 = ₱ 2,000
Rene will pay the interest
of ₱600.00. Rene will pay the total amount of
Interest for 15 months
₱10,600.00 at the end of the
I= Prt
year.
= 30,000 (0.08) (15)
12
= ₱ 3,000
What I Need to Remember
KEY POINTS:
• Simple Interest is the simplest form of calculation of interest
payable or receivable on the money advanced in exchange for
its use.
• It is calculated by looking at the principal amount borrowed,
the rate of interest, and the time period it will cover.

• It is more advantageous for borrowers than compound interest,


as it keeps overall interest payments lower.

• Car loans, amortized monthly, and retailer installment loans,


also calculated monthly, are examples of simple interest; as the
loan balance dips with each monthly payment, so does the
interest.
Francis wants to know which credit company offers
lower interest at the same interest rate of 9% if he
plans to borrow a quick cash of ₱30,000 for 90
days. Company A uses the ordinary interest method
to compute for the interest while Company B applies
exact interest method. Which company will he
choose? What is the difference between interests
offered by the two companies?
THANKS FOR
LISTENING

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