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Solving Problems Involving Simple Interest

Here are the solutions to the seatwork problems: 1. Given: P = P30,000 F = P45,000 t = 5 years To find: Interest rate r Using the future value formula: F = P(1 + r)^t P45,000 = P30,000(1 + r)^5 (1.5) = (1 + r)^5 r = 0.1 or 10% 2. Given: P = P50,000 F = P72,000 r = 12% = 0.12 To find: Time t Using the future value formula: P72,000 = P50,

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2K views28 pages

Solving Problems Involving Simple Interest

Here are the solutions to the seatwork problems: 1. Given: P = P30,000 F = P45,000 t = 5 years To find: Interest rate r Using the future value formula: F = P(1 + r)^t P45,000 = P30,000(1 + r)^5 (1.5) = (1 + r)^5 r = 0.1 or 10% 2. Given: P = P50,000 F = P72,000 r = 12% = 0.12 To find: Time t Using the future value formula: P72,000 = P50,

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SIMPLE

INTEREST
SOLVING PROBLEMS INVOLVING
SIMPLE INTEREST
1
SIMPLE INTEREST
An annual simple interest is based on 3 factors namely:
1. Principal which is the amount invested or borrowed
2. Simple interest rate, usually expressed in percent
3. Time or term of loan, in years

2
SIMPLE INTEREST
Annual
  Simple Interest

Where
simple interest
principal
rate
time or term, in years

3
ILLUSTRATIVE EXAMPLE
A bank offers 0.25% annual simple interest
rate for a particular deposit. How much interest
will be earned if 1 million pesos is deposited in
this savings account for 1 year?

4
SOLUTION
Given:
  P = P1,000,000 r = 0.25% = 0.0025 t
= 1 year
Find:

Ans: The interest earned is P2,500.

5
ADDITIONAL INFO
  Interest in savings account in the Philippines
is subject to 20% withholding tax. If 20%
withholding tax will be applied, then the actual
interest earned is

6
ILLUSTRATIVE EXAMPLE 2
How much interest is charged when P50,000
is borrowed for 9 months at an annual simple
interest rate of 10%?

7
SOLUTION
 
Given:
P = P50,000, r = 10% = 0.10, t = 9 months, =
year = 0.75 year
Note:
When the term is expressed in months (M), it
should be converted to years by

8
SOLUTION
 
Find:

= P3, 750
Ans: The simple interest charged is P3, 750

9
ILLUSTRATIVE EXAMPLE 3
Complete the table below by finding the
unknown
Principal (P) Rate (r) Time (t) Interest ()
(a) 2.5% 4 1, 500
(a)
36, 000 2.5%
(b) 4
1.5 1,
4, 500
860
250,
36, 000 0.5%
(b) (c)
1.5 275
4, 860
500,
250, 000
000 12.5%
0.5% 10
(c) (d) 275
500, 000 12.5% 10 (d)
10
SOLUTION
Principal (P) Rate (r) Time (t) Interest ()
(a) 2.5% 4 1, 500

a.  The unknown principal (P) can be obtained by

Therefore,

11
SOLUTION
Principal (P) Rate (r) Time (t) Interest ()
36, 000 (b) 1.5 4, 860
b.  The unknown rate (r) can be obtained by

Therefore,

12
SOLUTION
Principal (P) Rate (r) Time (t) Interest ()
250, 000 0.5% (c) 275
c.  The unknown time(t) can be obtained by

Therefore, years or
months
13
SOLUTION
Principal (P) Rate (r) Time (t) Interest ()
500, 000 12.5% 10 (d)

d.  The unknown interest() can be obtained by

Therefore,

14
SIMPLE INTEREST
So, when any of the factors is unknown, use the
following to find for it:
Unknown Formula
Principal (P)
Principal (P)
rate (r)
time (t)
rate (r)

time (t)
15
EXERCISES
1. When invested at an annual interest rate of
7%, an amount earned P11,200 of simple
interest in two years. How much money was
originally invested?

16
EXERCISES
2. If an entrepreneur applies for a loan
amounting to P500,000 in a bank, the simple
interest of which is P157,500 for 3 years.
What interest rate is being charged?

17
EXERCISES
3. How long will a principal earn an interest
equal to half of it at 5% simple interest?

18
MATURITY (FUTURE) VALUE
Sometimes it is interesting to know the amount that
a lender will give to the borrower on the maturity
date. For instance, you may be interested to know the
total amount of money in a savings account after t
years at an interest rate r. This amount is called the
maturity value of future value (F).
19
MATURITY (FUTURE) VALUE
 
Maturity (Future) Value

Where
maturity (future) value
principal
simple interest
20
MATURITY (FUTURE) VALUE
  if we substitute it to , we get
Since

Therefore,
Where
maturity (future) value
principal
interest
term/time in years
21
ILLUSTRATIVE EXAMPLE
Find the maturity value if 1 million pesos is
deposited in a bank at an annual simple interest
rate of 0.25% after
a. 1 year
b. 5 years

22
SOLUTION
Given
 
P=
Find
a. Maturity or future value F after 1 year
b. Maturity or future value F after 5 years
23
SOLUTION
a.  When t = 1

b. When t = 5

Note: Solve F using


24
SEATWORK 1
Find the unknown principal P, rate r, time t, and interest
I by completing the table.
Principal (P) Rate(r) Time (t) Interest (I)
10,000 8% 15 (a)
(b) 2% 5 10,000
360,000 (c) 2 3,600
500,000 10.5% (d) 175,500
880,000 9.25% 2.5 (e)
25
SEATWORK 2
1. What are the amounts of interest and maturity value
of a loan for P150,000 at 6.5% simple interest for 3
years?
2. At what simple interest rate per annum will P25,000
accumulate to P33,000 in 5 years?
3. How long will P40,000 amount to P51,200 if the
simple interest rate is at 12% per annum?
26
SEATWORK 2
4. In order to have P200,000 in 3 years, how much
should you invest if the simple interest is 5.5%?
5. Angel deposited P20,000 in a bank that pays 0.5%
simple interest. How much will her money after 6
years?
6. At what simple interest rate will an amount of money
double itself in 10 years?
27
SEATWORK#01
1. At what simple interest rate per annum will
P30,000 accumulate to P45,000 in 5 years?
2. How long will P50,000 amount to P72,000 if
the simple interest rate is at 12% per annum?
3. In order to have P200,000 in 3 years, how much
should you invest if the simple interest is 5.5%?
28

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