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Simple Interest and Future Value

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26 views17 pages

Simple Interest and Future Value

Uploaded by

FILE DESTROYER 696969
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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SIMPLE

INTEREST
Definition of Terms
Lender or Creditor – a person (or institution) who invested
the money or makes the funds available.
Borrower of Debtor – a person (or institution) who owes the
money or avails the funds from the lender.
Origin Date or Loan Date – date on which money is received
by the borrower.
Repayment Date or Maturity Date – date on which the
borrowed money or loan is to be completely repaid.
Definition of Terms
Simple Interest () – Interest that is computed on the
principal and then added to it.
Interest (I) – the amount paid or earned for the use of
money.
Principal (P) – the amount of money borrowed or invested
on the origin date.
Rate (r) – annual rate (usually in percent), charged by the
lender, or rate of increase of the investment.
Time or Term (t) – amount of time (in years) the money is
borrowed or invested.
Definition of Terms
Maturity value or Future Value (F) – amount after t years
that the lender or creditor receives from the borrower on
the maturity date.

Compound Interest () – interest is computed on the


principal and also accumulated past interest.
Formula for Simple
𝑰 𝒔 =𝑷𝒓𝒕
Interest
= 𝑠𝑖𝑚𝑝𝑙𝑒 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡
Where:

𝑃 = 𝑝𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙 𝑎𝑚𝑜𝑢𝑛𝑡 (𝑏𝑜𝑟𝑟𝑜𝑤𝑒𝑑 𝑜𝑟 𝑖𝑛𝑣𝑒𝑠𝑡𝑒𝑑) "


𝑟 = 𝑠𝑖𝑚𝑝𝑙𝑒 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑟𝑎𝑡𝑒 (𝑎𝑛𝑛𝑢𝑎𝑙) ∗Note: Given in % but need to be
𝑡 = 𝑡𝑖𝑚𝑒 𝑜𝑟 𝑡𝑒𝑟𝑚 (𝑖𝑛 𝑦𝑒𝑎𝑟𝑠)
converted to decimal
Formula for Future Value
𝑭 =𝑷 + 𝑰 𝒔 or 𝑭 =𝑷 (𝟏+𝒓𝒕)
Where:

= 𝑠𝑖𝑚𝑝𝑙𝑒 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡
F = maturity or future value

𝑃 = 𝑝𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙 𝑎𝑚𝑜𝑢𝑛𝑡 (𝑏𝑜𝑟𝑟𝑜𝑤𝑒𝑑 𝑜𝑟 𝑖𝑛𝑣𝑒𝑠𝑡𝑒𝑑) "


𝑟 = 𝑠𝑖𝑚𝑝𝑙𝑒 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑟𝑎𝑡𝑒 (𝑎𝑛𝑛𝑢𝑎𝑙) ∗Note: Given in % but need to be
𝑡 = 𝑡𝑖𝑚𝑒 𝑜𝑟 𝑡𝑒𝑟𝑚 (𝑖𝑛 𝑦𝑒𝑎𝑟𝑠)
converted to decimal
A bank offers 0.25% annual simple interest rate
for a particular deposit. How much interest will
be earned 1 million pesos is deposited in this
savings
Given: account for 1 year?
Solution:
r = 0.25% = = Prt
0.0025 = (1 000 000)(0.0025)(1)
P = 1 000 000 = P2500
t = 1 year
How much interest is charged when 50, 000
pesos is borrowed for 9 months at an annual
interest rate
of Given:
10%? Solution:
r = 10% = 0.10 = Prt
P = 50 000 = (50 000)(0.10)(0.75)
t = 9/12 = 0.75 = P3750
Howl is going to borrow 2,000 for 42 months at
7% . What will the amount of interest owed be?

Given: Solution:
r = 7% = 0.07 = Prt
P = 2 000 = (2000)(0.07)(3.5)
t = 42/12 = 3.50 = P490
Paprika paid 108 in interest on a loan that she
had for 6 months. The interest rate was 12%.
How much was the principal?
Solution:
Given:
r = 12% = 0.12
= 108
t = 6/12 = 0.50
= P1 800
Jimboy wants to borrow 1,500 for 15 months and
will have to pay 225 in interest. What is the rate
he is being charged?
Solution:
Given:
P = 1 500
= 225
t = 15/12 = 1.25
Bini Birocha borrowed 10,000 at 8% and paid
1,600 in interest. What was the length of the
loan?
Solution:
Given:
P = 1 500
= 1 600
r = 8% or 0.08
Future Value or Maturity
Value
What is the maturity value of a loan for 25,000
pesos at 12% simple interest for 5 years?
Solution:
Given:
P = 25 000
=5
r = 12% = 0.12
Future Value or Maturity
Value
Find the maturity value if 1 million pesos is
deposited in a bank at an annual simple interest
rate of 0.25% after
1 year? Solution:
Given:
P = 1 000 000
=1
r = 0.25% =
0.0025
Activit
y
1. To save money, Mommy Oni invested 2,500
for 45 months at 3 ½ % simple interest. How
much interest did he earn?
2. Mr. Johnson borrowed 8000 for 4 years to
make home improvements. If he repaid a
total of 10,320, at what interest rate did he
borrow the money?
3. Nancy invested 6000 in a bond at a yearly
rate of 3%. She earned 450 in interest. How
long was the money invested?
Activit
y
4. Diwata can purchase furniture on a 2-year
simple interest loan at 9% interest per year.
What is the maturity value for a 2,500 loan?
5. To buy a car, Bruno Mars borrowed 15,000 for
3 years at an annual simple interest rate of 9%.
How much interest will she pay if she pays the
entire loan off at the end of the third year?
What is the total amount that she will repay?
6. Rosmar is going to borrow 4,000 at 7.5%
interest. What is the maturity value of the loan
after three years?
THANK
YOU

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