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You are on page 1/ 15

Mathematics of Finance and

Investment
Section 1_Simple
Interest
Instructor: Dr/ Nawal Abozed
Egyptian E-Learning University
How to Calculate Simple Interest

Product of principal. Rate. and time.


Simple Interest = Principal x Interest Rate x Time

I=Pxixn
Note that:
( i ) annual interest, ( n ) years.

(S) Accumulation or total amount.

2
Transform to annual time ( years ) :

Months: t ÷ 12
Weeks: t ÷ 52
Days:
a) Ordinary interest

“ Banker’s Rule ”
b) Exact interest
Simple year Leap year

3
4
Exercises

Calculate the simple interest on $ 200 at 12%


and compute the accumulation?
(a) For three years.

(b) For two months.

(c) For 13 weeks.

I=Pxixn

5
‫‪Solution‬‬

‫‪P = 200‬‬ ‫‪i = 12%‬‬


‫‪12‬‬
‫‪a. t = 3‬‬ ‫‪ x 3 = 72 $‬ـــــــــــ ‪I = 200 x‬‬
‫‪100‬‬
‫‪S= 200 + 72 = 272 $‬‬
‫‪2‬‬ ‫‪12‬‬ ‫‪2‬‬
‫ــــــــــ = ‪b. t‬‬ ‫‪ = 4 $‬ـــــــــــ ‪ x‬ـــــــــــ ‪I = 200 x‬‬
‫‪12‬‬ ‫‪100‬‬ ‫‪12‬‬
‫‪S= 200 + 4 = 204 $‬‬
‫‪13‬‬ ‫‪12‬‬ ‫‪13‬‬
‫ــــــــــ = ‪c. t‬‬ ‫‪ = 6 $‬ـــــــــــ ‪ x‬ـــــــــــ ‪I = 200 x‬‬
‫‪52‬‬ ‫‪100‬‬ ‫‪52‬‬
‫‪S= 200 + 6 = 206 $‬‬
‫‪6‬‬
Find the interest for the following:

Principal Interest Rate Time

(1) $ 326.70 16% 4 months

(2) $ 540.00 7% 1 year

(3) $ 126.60 9% 26 weeks

(4) $ 35.00 12% 18 months

(5) $ 268.80 15% 1 year, 5 months

Solutions:
1) I = $17.42, 2) I= $37.8, 3) I =$5.70,
4) I =$6.30, 5) I= $57.12
7
N.B: To calculate time in days between two dates:
(A) Calculate the remainders of the first month.
(B) The last month is written as it is.
(C) The middle months is written in full days.

Jan. ( 31 ) Feb. ( 28 or 29 ) March ( 31 )


April ( 30 ) May ( 31 ) June ( 30 )
July ( 31 ) Aug. ( 31 ) Sept. ( 30 )
Oct. ( 31 ) Nov. ( 30 ) Dec. ( 31 )

N.B: Simple years ( 365 days, Feb 28 days ) aren’t divisible by 4


Ex : 2001 , 2002 , 2003 , …………
Leap years ( 366 days, Feb 29 days ) are divisible by 4
Ex : 2000 , 2004 , 2008 , …………
8
Exercises

Express the time in years in each of the following:


1) June 6 to September 30.
2) May 21 to July 5.
3) January 4 to February 3.
Then, Find the Exact and Ordinary interest:
Principal Interest Rate
1) 5800 15%
2) 4900 6%
3) 2500 12%

9
Solution

Jan. ( 31 )\ Feb. ( 28 or 29 )\ March ( 31 )\ April ( 30 )\ May ( 31 )\ June


( 30 )\ July ( 31 ) Aug. ( 31 )\ Sept. ( 30 )\ Oct. ( 31 )\ Nov. ( 30 )\ Dec.
( 31 )
1) June 6 to September 30.

1) Time = (30-6)+31+31+30= 116 days.


15 116
I (ordinary) = 5800 x ‫ ـــــــــــ‬x 280.3$= ‫ـــــــــــ‬

100 360

15 116
I (exact) = 5800 x ‫ ـــــــــــ‬x 276.5$= ‫ـــــــــــ‬
100 365 10
Solution

2) May 21 to July 5.

2) Time = (31-21)+30+5= 45 days.


6 45
I (ordinary) = 4900 x ‫ ـــــــــــ‬x 36.75$= ‫ـــــــــــ‬

100 360

6 45
I (exact) = 4900 x ‫ ـــــــــــ‬x 36.24$= ‫ـــــــــــ‬

100 365
Jan. ( 31 )\ Feb. ( 28 or 29 )\ March ( 31 )\ April ( 30 )\ May ( 31 )\ June
( 30 )\ July ( 31 ) Aug. ( 31 )\ Sept. ( 30 )\ Oct. ( 31 )\ Nov. ( 30 )\ Dec.
( 31 )
11
Solution

3) January 4 to February 3.

3) Time = (31-4)+3= 30 days.


12 30
I (ordinary) =2500 x ‫ ـــــــــــ‬x 25$= ‫ـــــــــــ‬

100 360

12 30
I (exact) = 2500 x ‫ ـــــــــــ‬x 24.65$= ‫ـــــــــــ‬

100 365
Jan. ( 31 )\ Feb. ( 28 or 29 )\ March ( 31 )\ April ( 30 )\ May ( 31 )\ June
( 30 )\ July ( 31 ) Aug. ( 31 )\ Sept. ( 30 )\ Oct. ( 31 )\ Nov. ( 30 )\ Dec.
( 31 )
12
Exercises

To buy furniture for a new apartment, Candace Cooney


borrowed $5000 at 8% simple interest for 11 months.
How much interest will she pay?

13
Solution

To buy furniture for a new apartment, Candace Cooney


borrowed $5000 at 8% simple interest for 11 months.
How much interest will she pay?

SOLUTION
Use the formula: I = P x i x n with:
P=5000 i = 0.08 t = 11/12 (in years).
The total interest she will pay is:
I = 5000*(0.08) *(11/12)= $366.67

14
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