LESSON 12-13

(Week 12-13)

MATHEMATICS OF INVESTMENT (SIMPLE INTEREST)

The learner…
1. Identify the principal value, interest rate and time in years on problem
regarding simple interest; and
2. Solve problems involving simple interest.

Before you begin with the study of this topic, you are advised to make sure
that you are free from all distractions as all the principles here have to be fixed
firmly in your mind. Read the instructions below as these will help as you engage in
your self-study.

 Follow carefully all the instructions indicated in this module.

 Prepare all the materials needed like pen and paper.
 Take note of important key concepts.
 At the end of the discussion, practice exercises are provided.
 You may ask your parent’s help in dealing with your study.
 If you want your teacher may help you with the lesson.
 In case you want to clarify something, your teacher is here to guide you.

This module is intended for learners who wish to continue learning at home
due to the present pandemic.
Learners should master the topics on the Logarithm to understand better the
concept of exponential functions and its graph.

The Simple Interest I is the amount equal to P x r x t, where P is the

Principal, r is the annual interest rate and t is time in years.

The amount borrowed is called the principal. The rate of interest is the
percentage of principal payable per period of time. The rate of interest is
often expressed as a percentage per year (or per annum), e.g. 5% per year.
Problem 1

Find the amount of simple interest for the following:

a. P 2500 at 3.5% annual simple interest rate for 2 years

I= Prt
I= 2500 x 0.035 x 2

I= P 175

b. P 5300 at 2% annual simple interest rate for 3.5 years

I= Prt
I= 5300 x 0.02 x 3.5

I= P 371

c. P 10,000 at 4% annual simple interest rate for 6 months

When in months 6/12 = ½ years

I= Prt
I= 10,000 x 0.04 x ½

I= P 200

The future value of or the accumulated value of an amount P is the

value of P including all the interest earned at some future time t.

Problem 2
A person deposits P5,000 in a bank account which pays 6% simple interest per year.
Find the value of his deposit after 4 years.

Formula for simple interest is

I = Prt
Here, P = 5000, t = 4, r = 6%= 0.06

I = (5000)(0.06)(4)
I = P 1200

The formula to find the accumulated value is

 = Principal + Interest
= 5000 + 1200
= 6200

Hence, the value of his deposit after 4 years is P6,200.

Problem 3

Glen received P2,250 loan from bank. After six months, he paid back P2,295
and closed the loan. Find the rate of interest.
Solution :
Interest = Amount - Principal
I = 2295 - 2250
I = 45
Formula for simple interest is
I = Prt

Given : Time period is 6 months.

In simple interest formula, we use time period in years.
But, the time period given in the question is in months.
So, let us change the given time period in years.
6 months = 6 / 12 year
6 months = 1 / 2 year
So, the time period is 1/2 year.

Formula for simple interest is

I = Prt

Here, I = 45, P = 2250, t = 1/2

45 = 2250 ⋅ r ⋅ 1/2
I = Prt

45 = 1125 ⋅ r Divide both sides by 1125.

45 /1125= 1125 r /1125
0.04 = r

0.04 ⋅ 100 % = r
To convert the decimal 0.04 into percentage, multiply it by 100.
4% = r

Hence, the rate of interest is 4%.

If P borrowed (or invested) at an annual simple interest rate r, then its future value
at time t, is denoted by A(t), is given by A(t)=P(1+rt).

Problem 4
 Jose deposited P 1000 today in a bank providing 3% simple interest per year.
He wants to have savings worth P1450 in the future. If he will not withdraw any
amount, how long must he wait?

Given: P =P 1000, r=0.03, and, and A= P1450

A(t)=P(1+rt)
P 1450=1000(1+0.03t)
1450/1000=1000(1+0.03t)/1000
1.45= 1 +0.03t
1.45-1= 0.03t
0.45= 0.03t
0.45 0.03 t
=
0.03 0.03

15=t t= 15

It will take 15 years for Jose’s deposit to be worth P 1450.

The present value of an amount A is the amount needed now to accumulate

A in time t.

A
Formula P=
(1+rt )

Problem 5

Find the present value of the following at the given annual simple interest rate:

1. P 1,000 at 3% interest rate for 2 years

A 1000
P= = = P 943.40
(1+rt ) [1+ ( 0.03 x 2 ) ]

2. P 2,500 at 1.5% interest rate for 5 years

A 2500
P= = = P 2,325.58
(1+rt ) [1+ ( 0.015 x 5 ) ]

3. P 10,000 at 5% interest rate for 5 years

A 10,000
P= = = P 6,666.67
(1+rt ) [1+ ( 0.05 x 10 ) ]

Problem 6
 As preparation for John’s college studies, his parents want to save an amount
of P 200,000 after 3 years. If they decide to deposit in a bank offering an annual
simple interest rate of 2.5%, how much do they need to deposit now?

Given: A= P200,000, r= 2.5% or 0.025, t=3

A 200,000
P= = = P 186, 046.51
(1+rt ) [1+ ( 0.025 x 3 ) ]

John’s parents need to deposit P 186, 046.51.

This amount is called the present value of P200,000 at 2.5% simple rate of interest
per year.

The Simple Interest I is the amount equal to P x r x t, where P is the

Principal, r is the annual interest rate and t is time in years.

A. Complete the table below. (Show your solution)

A
P=
(1+rt )

A P r t
P 5000 5% 2 years
P 7000 P 6000 3 years
P 10, 000 P 9,000 2%
P 10,000 3% 5 years

B. Simple Interest (Show your solution)

I = Prt

1.Mark decided to borrow P10,000 at an annual simple interest rate of 5%. After
three years, how much interest does she need to pay? How much is her debt after
three years?
2.Find the amount of simple interest for the following:
a. P 3,500 at 4.5% annual simple interest for 2 years
b. P 15,000 at 2% annual simple interest for 3 years
 c. P 10,000 at 4% annual simple interest for 6 months
3. Katrina deposited P 1,000 today in a bank providing 3% annual interest per year.
She wants to have savings worth P 1, 450 in the future. If she will not withdraw any
amount, how long must she wait?

4. Find the present value of the following at the given annual simple interest rate:
a. P10,000 after 2 years at 3% interest rate
b. P 25,000 after 5 years at 1.5% interest
c. P 100,000 after 10 years at 5% interest
5. At what simple interest rate must your deposit of P 25,000 be credited if you
want to earn P 5,000 worth of interest in 5 years?