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Lesson 1 - SIMPLE INTEREST

Here are the answers to the table: Principal (P) Interest Rate (r) Time (t) Maturity Value (A) ₱ 35,600 6% 9 mo. ₱37,202.00 ₱ 140,350 10% 15 mo. ₱157,893.75 ₱ 75,800 8 1⁄2% 2 yr. ₱88,686.00 ₱ 340,200 11% 6 yr. ₱564,732.00 ₱ 1,400,500 9% 10 yr. ₱2,

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61 views

Lesson 1 - SIMPLE INTEREST

Here are the answers to the table: Principal (P) Interest Rate (r) Time (t) Maturity Value (A) ₱ 35,600 6% 9 mo. ₱37,202.00 ₱ 140,350 10% 15 mo. ₱157,893.75 ₱ 75,800 8 1⁄2% 2 yr. ₱88,686.00 ₱ 340,200 11% 6 yr. ₱564,732.00 ₱ 1,400,500 9% 10 yr. ₱2,

Uploaded by

Mark Lester
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Simple Interest

Math of Investment
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.
To pay for her tuition, Angel’s parents
borrowed ₱10,000 from a loaning business
which credits 3% interest per year. At the end of
one year, how much must Angel’s parent’s pay to
the loaning business?
Simple Interest
- an amount paid for the lender for the use of his or
her money

Formula: I = Prt
Where:
P = is the principal
r = annual simple interest rate

t = time in years
Example 1.
In order to buy a new gadget, Maria decided to borrow ₱5,000
at an annual simple interest rate of 5%. After 2 years, how much
interest does she need to pay?
Example 1.1

Find the amount of simple interest for the following:

a. ₱2,500 at 3.5% annual simple interest rate for 2 years


b. ₱5,300 at 2% annual simple interest rate for 3.5 years
c. ₱10,000 at 4% annual simple interest rate for 6 months
Example 1.2

Jason borrowed₱250,000 from a bank at simple


interest rate of 2% per annum. How much interest
must he pay after 5 years?

- the future value (or accumulated value) of an


amount is the value of principal/present (P) plus
all the interest (I) earned at some future time (t) .
- the debt of Jason after 5 years is ₱250,000 plus the interest worth
₱25,000 which gives a sum of ₱275,000….which is known as the:

Future /Maturity /Accumulated Value (A)

1. A = P + I

2. A = P + Prt

3 . A = P (1 +rt)
Future /Maturity /Accumulated Value (A)

Where:
A = Maturity or Future Value
P = Principal Amount
I = Interest r = interest rate
t = time in year
Example 1.3

Jose deposited ₱ 1,000 today in a bank providing 3% simple interest


per year. He wants to have savings worth ₱1,450 in the future. If he
will not withdraw any amount, how long must he wait?

Givens:
P = ₱1000 r = 3%
I = 450
A = ₱1,450
t = ?
𝑰
I=Prt 𝑷=
𝒓𝒕

1. A = P + I
1. P=A-I
2. A = P + Prt
2.
3 . A = P (1 +rt)
Example 1.4

As preparation for John’s college studies, his parents want to save


an amount of ₱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?
Present Value:
The present value of an amount A is the amount needed now to accumulate A in
time t.

Present under simple interest:

Where: P = Present Value (principal amount)


A = future/maturity/accumulated
value
r = interest rate
t = time in year
Example 1.5

Find the present value of the following at the given


annual simple interest rate:

1. ₱1,000 after 2 years at 3% interest


2. ₱2,500 after 5 years at 1.5 interest
3. ₱10,000 after 10 years at 5% interest
Example 1.6

Mrs. Reyes currently has ₱25,000 in an account providing 3%


simple interest per year. She wishes to have ₱50,000 in 3 years
but she noticed that her savings are not enough to accumulate that
amount. How much money must she deposit now to achieve her
goal?
Example 1.7

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?

P = ₱4,200
A = ₱4,263 ₱63 I = 𝑰
𝒓=
____; 𝑷𝒕
t = 9mos. r=?
= 0.75 yrs
Solution 1
Use the formula where P= ₱4 200.00,
I
r
Pt 9 3
t = 9 months or 12
or 4
year and,

I = ₱4 263.00 – ₱4 200.00 = ₱63.00.

r = ____63____=0.02 or 2%
4200 3 
4 The annual interest rate is 2%
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 or 0.75 yr. Solve for r after
substituting values for A, P, and t.

4 263 = 4 200
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. I = Prt where, P = ₱200 000.00, r = 10.5%, and
I = 200 000 × 0.105 × 0.5 = ₱10 500.00

b. 365-day year:
I = Prt ; t = 0.49
= (200 000)(0.105)(0.49) = ₱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
20
• Payment on Day 20: P = ₱200,000.00, r = 9%, and t = 360
20
I = Prt = ₱200,000.00 × 0.09 x 360 = ₱1,000.00
20
• Principal's Remainder = ₱80,000.00 – 360 ₱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
40
• t= 360 (60 days – 20 days = 40 days)
40
I = Prt = ₱121,000.00 × 0.09 x 360 = ₱1,210.00

• 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
= 200,000 × 0.09 x 60
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.
₱37,202.00
₱ 140,350 10% 15 mo.
₱157,893.75
₱ 75,800 8 ½% 2 yr.
₱88,686.00
₱ 340,200 11% 6 yr.
₱564,732.00
₱ 1,400,500 9% 10 yr.
₱2,660,950.00

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