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    14 - Simple Interest MODULE 6

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    Mabel Lyn
    1. The document discusses simple interest, which is interest calculated only on the principal amount. It provides formulas and examples for calculating simple interest based on the principal, interest rate, and time. 2. There are different ways to calculate interest when the time period involves dates, such as using the actual number of days between dates or approximating to 30 days per month. 3. The exercises provide examples of calculating simple interest for loans and deposits using the various methods depending on how the time period and interest rate are specified.

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    14 - Simple Interest MODULE 6

    Uploaded by

    Mabel Lyn
    1K views16 pages
    1. The document discusses simple interest, which is interest calculated only on the principal amount. It provides formulas and examples for calculating simple interest based on the principal, interest rate, and time. 2. There are different ways to calculate interest when the time period involves dates, such as using the actual number of days between dates or approximating to 30 days per month. 3. The exercises provide examples of calculating simple interest for loans and deposits using the various methods depending on how the time period and interest rate are specified.

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    14_Simple Interest MODULE 6

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    1. The document discusses simple interest, which is interest calculated only on the principal amount. It provides formulas and examples for calculating simple interest based on the principal, interest rate, and time. 2. There are different ways to calculate interest when the time period involves dates, such as using the actual number of days between dates or approximating to 30 days per month. 3. The exercises provide examples of calculating simple interest for loans and deposits using the various methods depending on how the time period and interest rate are specified.

    Copyright:

    © All Rights Reserved
    Download as PPSX, PDF, TXT or read online from Scribd
    Download as ppsx, pdf, or txt
    1K views16 pages

    14 - Simple Interest MODULE 6

    Uploaded by

    Mabel Lyn
    1. The document discusses simple interest, which is interest calculated only on the principal amount. It provides formulas and examples for calculating simple interest based on the principal, interest rate, and time. 2. There are different ways to calculate interest when the time period involves dates, such as using the actual number of days between dates or approximating to 30 days per month. 3. The exercises provide examples of calculating simple interest for loans and deposits using the various methods depending on how the time period and interest rate are specified.

    Copyright:

    © All Rights Reserved
    Download as PPSX, PDF, TXT or read online from Scribd
    Download as ppsx, pdf, or txt
    of 16

    Module 6

    THE MATHEMATICS
    OF FINANCE
    Content
    Simple and Compound Interest
    Annuities
    Objectives
    Use mathematical concepts and tools in
    other areas such as finance and business;
    Differentiate compound interest from
    simple interest;
    Apply the interest and annuity formulas to
    cases of loans, credits, stocks bonds,
    property purchases, and investment
    problems
    The Mathematics of Finance
    Mathematical concepts that govern
    principles of borrowing and saving
    Allows one to compare different financial
    opportunities and make informed
    decisions
    Section 15

    SIMPLE
    INTEREST
    Basic Definitions
    Interest is the fee paid for borrowed money
    We receive interest when we let others use
    our money (depositing in a savings account
    or making an investment)
    We pay interest when we use other people’s
    money (borrowing from a bank or lending
    institution for small businesses, homes, cars)
    The person who borrows money for any
    purpose is a debtor/maker/borrower, and
    the person or institution that loans the money
    is the lender/creditor.
    Basic Definitions
    The percent used to determine the amount
    of interest is called the interest rate
    The amount of money lent or borrowed is
    called the principal
    The future/maturity value or final
    amount is the amount that the debtor will
    pay back to the lender, including the
    principal and interest
    Simple vs. Compound Interest
    Simple interest is interest that is
    calculated on the principal but not on
    previous interest
    Compound interest is interest calculated
    on the principal including previous
    interest
    Simple Interest
    Computed entirely on the original
    principal
    Associated with loans/investments which
    are short term in nature
    Formulas for Simple Interest
    Exercise A
    1. Find the simple interest earned in an
    account where P4,500 is on deposit for 4
    years at 3 1/4% annual interest.
    2. Find the simple interest for a loan of
    P12,400 due at the end of 8 1/4 years at
    4 1/2% annual interest.
    3. Find the principal necessary to earn
    P814 in simple interest if the money is to
    be left on deposit for 4 years and earns 5
    1/2% annual interest.
    Exercise A
    4. Find the time necessary for a deposit of
    P11,500 to earn P3,450 in simple interest if
    the money is to earn 3 3/4% annual interest.
    5. Calculate the maturity value of a simple
    interest, 8-month loan of P7000 if the
    interest rate is 8.7%.
    6. Find the simple interest rate on a 3-month
    loan of P5000 if the maturity value of the
    loan is P5125.
    Interest when time is given in days
    Ordinary simple interest assumes 360
    days per year
    Exact simple interest assumes 365 days
    per year

    *Use ordinary simple interest unless


    otherwise specified
    Time between two dates
    When time is given between two dates, the
    time in days is determined using:
    Actual time uses the exact number of
    days in each month
    Approximate time assumes 30 days per
    month for all months
    Ways to compute interest when time is
    given between two dates
    Ordinary interest using actual time
    (Banker’s Rule)
    Ordinary interest using approximate time
    Exact interest using actual time
    Exact interest using approximate time

    *Use the Banker’s Rule unless otherwise


    specified
    Exercise B
    1. On February 19, 2020, Trisha borrowed P50,000 from
    a community cooperative at 9% simple interest. The
    loan is payable on September 12, 2020. Compute the
    simple interest using the four methods. How much will
    be the maturity value if the Banker’s Rule is used?
    2. Mike deposited on March 12, 2020 at 10.5% simple
    interest. On September 8, 2020, the fund accumulated
    to P12,630. How much was the amount originally
    invested?
    3. Mr. Tan borrowed P15,000 from the faculty fund at
    13.25% simple interest for 210 days. How much would
    he repay at the end of the term if he is charged exact
    interest?

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