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8 Simple Interest

This document provides information on simple interest calculations. It defines simple interest as interest charged only on the principal amount of a loan, without interest compounding. The simple interest formula is presented as I = Prt, where I is interest, P is principal, r is interest rate, and t is time. Methods for calculating partial payments, maturity values, and examples involving simple interest rates are shown. Converting between percent and decimal rates is also demonstrated.

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Msloudy Villo
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92 views19 pages

8 Simple Interest

This document provides information on simple interest calculations. It defines simple interest as interest charged only on the principal amount of a loan, without interest compounding. The simple interest formula is presented as I = Prt, where I is interest, P is principal, r is interest rate, and t is time. Methods for calculating partial payments, maturity values, and examples involving simple interest rates are shown. Converting between percent and decimal rates is also demonstrated.

Uploaded by

Msloudy Villo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Simple Interest

General Mathematics
Lesson Objectives
At the end of the lesson, the students must be
able to:
• define the simple interest;
• illustrate simple interest;
• compute interest, maturity value and to be
able to identify partial payments in simple
interest environment; and
• solve problems involving simple interest.
Converting Percent to Decimal
To convert a percent to decimal, drop the percent
sign and move the decimal point two places to the
left.

When the number in the percent is a whole number,


the decimal point is understood to be stated at the
right of the last digit. For example, to convert 12%
to decimal, drop the percent sign and move the
decimal point two places to the left to get 0.12.
Simple Interest
Simple interest is charged only on the loan
amount called the principal. Thus, interest on
the interest previously earned is not included.
Simple interest is calculated by multiplying the
principal by the rate of interest by the number
of payment periods in a year.
Simple Interest Formula
I = Prt
I I I
(a) P  (b)
r t
(c)
rt Pt Pr
where I = interest, P = principal, r = rate of interest, and
t = time or term in years or fraction of a year

To find the maturity value, simply add interest to the


principal.
Maturity Value or (Amount or Balance)
Formula

A=P+I or A = P + Prt or A = P(I + rt)

A = Maturity value P = Principal I = Interest


Sample 1
To buy the school supplies for the coming school
year, you get a summer job at a resort. Suppose
you save ₱4 200.00 of your salary and deposit it
into an account that earns simple interest. After
9 months, the balance is ₱4 263.00. What is the
annual interest rate?
Solution 1 to Sample 1
Use the formula where P= ₱4 200.00,
I
r
Pt
t = 9 months or or year and,
9 3
12 4
I = ₱4 263.00 – ₱4 200.00 = ₱63.00.

r= ____63____=0.02 or 2%
3
4200 
4
The annual interest rate is 2% or
Solution 2 to Sample 1
Use the formula A = P(1 + rt) where A = ₱4
263.00, P = ₱4 200.00, and t = 3 4 year. Solve for
r after substituting values for A, P, and t.

  3 
4 263 = 4 200 1  r 
  4 
4 263 = 4 200 + 3 150r
63 = 3 150r
0.02 = r
The annual interest rate is 2%
Ordinary Interest or Banker's Interest – interest
based on a 360-day year.

Exact Interest – interest based on a 365-day


year
Sample 2
You get a 180-day ₱200 000.00 loan from a bank
at a 10.5% interest. Calculate interest using (a)
360-day and (b) 365-day year.
Solution to Sample 2
a. 360-day year: I = Prt where, P = ₱200 000.00,
180 1
r = 10.5%, and t  365 or 2
1
I = 200 000 × 0.105 × 2 = ₱10 500.00
180
b. 365-day year: I = Prt = 200 000 × 0.105 x 365 =
₱10 356.16

Note: A 360-day year is favorable for the lender


while a 365-day year is favorable for the borrower
Partial Payments
1. Calculate interest on principal from date of
loan to date of first payment.
2. Remainder of the payment = Amount paid –
Interest Portion
3. New Balance = Previous Balance – Principals
remainder (portion) of payments
Partial Payments
4. In cases of more than one partial payment,
calculate interest on new balance from date
of previous payment to date of next
payment. Perform steps 2 and 3.
5. At maturity, calculate interest on last partial
payment. Add this to the new balance to
compute the total final payment due.
Sample 3
A loan of ₱200,000.00 was made from a bank
that charges 9% interest rate and should be
repaid after 90 days. If payment of ₱80,000.00
was made after 20 days and the balance on the
90th day, calculate the amount of interest,
principal paid for each payment, and the total
amount paid.
Solution to Sample 3
• Payment on Day 20: P = ₱200,000.00, r = 9%,
20
and t = 360
20
I = Prt = ₱200,000.00 × 0.09 x = ₱1,000.00
360
• Principal's Remainder = ₱80,000.00 –
₱1,000.00 = ₱79,000.00
• New Balance = ₱200,000.00 – ₱79,000.00 =
₱121,000.0
Solution to Sample 3
• Payment on Day 60: P = ₱121 000, r = 9%,
and t= 40 (60 days – 20 days = 40 days)
360 40
I = Prt = ₱121,000.00 × 0.09 x = ₱1,210.00
360
• Total Final Payment Due = ₱1,210.00 + ₱121
000.00 = ₱122 210.00
• Principal's Remainder = ₱122,210 – ₱1,210 = –
₱121,000.00
• New Balance = ₱121,000.00 – ₱121,000.00 =
₱0.00
Note
With partial payment
I = 986.30 + 1,193.30
I = ₱2,179.60
Without partial payment:
I = Prt
60
= 200,000 × 0.09 x
365
I = ₱2,958.90
Exercise A
• Ramil deposited ₱20,000.00 at 4% simple
interest for 5 years. At the end of 5 years, his
account contains ₱24,000.00. Give the term
for each value in relation to the problem.
1. ₱20,000.00
2. ₱24,000.00
3. 4%
4. 5 year
Exercise B
Complete the table by finding the maturity
value.
Principal (P) Interest Rate (r) Time (t) Maturity Value (A)
₱ 35,600 6% 9 mo.
₱ 140,350 10% 15 mo.

₱ 75,800 8 ½% 2 yr.
₱ 340,200 11% 6 yr.

₱ 1,400,500 9% 10 yr.

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