Chapter 4-The Simple Interest 2

Chapter 4:
The Simple Interest

SHMth1: General Mathematics
Accountancy, Business and
Management (ABM)
Mr. Migo M. Mendoza
Chapter 4: The Simple Interest
Lecture 14: Basic Concepts on Simple
Interest
Lecture 15: Computing Simple
Interest Problem
Lecture 16: The Maturity Value and
Present Value
Lecture 17: Exact and Ordinary
Interests
Lecture 18: Time Between Two Dates
Lecture 14: Basic Concepts
on Simple Interest
Management (ABM)
Mr. Migo M. Mendoza
Classroom Task:
Family Activity 2: Views about
Interest Rates
SSMth1: Precalculus
Science and Technology, Engineering
and Mathematics (STEM)
Mr. Migo M. Mendoza
Instructions:
Gather your family members and
discuss the following views about
interest rates. Please prepare a five-
minute presentation about it. The
presentation can be in a form of a
family report, skit etc.
Grading System:
Criteria Percentage
Content 40
Organization of Ideas 20
Communication Skills 15
Presentation and
15
Aesthetic Consideration
Behavior during the
10
Presentation
Views about the Interest Rates…
The lower the interest
rate the more people are
over-optimistic to borrow
money.
The higher the interest
rate the lesser people are
optimistic to borrow
money.
High interest rate
hurts seasonal
businesses.
The government
benefits from interest
rates.
Businesses and foreign
investors benefit from
interest rates.
Something to think about…
Lender vs.
Borrower
The Three (3) Categories of Interest
1. Simple Interest
2. Simple Discount
3. Compound Interest
The Simple Interest
Management (ABM)
Mr. Migo M. Mendoza
The Simple Interest
Simple Interest is calculated
only on the original principal
amount and is paid at the end
of the loan period.
Take Note:
Interest is calculated only
on the original principal
amount and is paid at the end
of the borrowed money.
Three (3) Components of the Simple Interest
The Principal (P)

The Rate of Interest (r)
The Time (t)
Principal (P)
The refers to the sum of money
invested, deposited or borrowed.
We will use P (majuscule letter P)
to denote or represent the
principal.
Rate of Interest (r)
This refers to the percentage of the
principal per year and is generally
expressed in terms of percent. The
rate of interest is usually represent
by r (minuscule letter r).
Take Note:
The rate of interest is the
percentage of the principal that will
be charged for specified period of
time (e.g. daily, weekly, monthly,
yearly, etc.).
Take Note:
Before computing rate in
percent must be expressed
in decimal form.
Time (t)
This refers to the length of time
between the date the loan is made
and the date the loan becomes
payable to the lender. To denote time
we will use t (miniscule letter t).
Take Note:
Time is usually expressed in
years. When t is given in
months, then the number
months is divided by 12.
Lecture 15: Computing
Simple Interest Problems
Management (ABM)
Mr. Migo M. Mendoza
Learning Expectation:
In this section we shall
deal with the
computation of simple
interest.
Formula 1: The Amount of Simple Interest
I  Pr t
Formula 1: The Amount of Simple Interest
This shall be used in computing
the amount of interest when
principal amount (P), rate of
interest (r), and the duration of
the term (t) are given.
Take Note:
In simple interest, the
amount of interest
earned per annum is
constant.
Explanation:
If the interest (I) for the first year
is P100.00, then the value of I for the
succeeding years shall also be
P100.00, assuming of course that the
Principal (P) and the interest rate
are also constant.
Example 68:
What amount of interest will be
charged on the loan of Ms. Bea
Ky of P7,300.00 borrowed for 3
years at a simple interest rate of
12% per annum?
Final Answer:
The principal will
earn an interest of
P2,628.00.
Example 69:
Nimfa Bebe deposited P5,000.00 in a
bank paying 6% simple interest for 5
years. Compute the:
a) amount of interest per annum;
and
b) total amount of interest for the
entire period.
Example 70:
Miss. Honeygirl Pulut-pukyutan
borrowed P5,200.00 in a bank
charging 12% per annum for a
period of 6 years and 6 months.
How much interest will she pay at
the end of the term?
Take Note:
What should we do
when rate or percentage
of interest (r) is
unknown?
Classroom Task :
Derive the formula
for finding the rate
of interest.
Formula 2: The Rate of Interest
I
r
Pt
Formula 2: The Rate of Interest
This formula shall be used when
computing for the rate of interest
when amount of interest,
principal amount, and time are
given.
Example 71:
The simple interest received
over a period of 5 years and 3
months on a loan of
P22,000.00 is P11,300.00.
Compute the rate of interest.
What should we do when
duration of the loan/ time
(t) is unknown?
Classroom Task :
Derive the
formula for finding
the time.
Formula 3: The Duration of the Loan/ Time
I
t
Pr
Formula 3: The Duration of the Loan/ Time
This shall be used in
computing the time given
the principal, rate and the
amount of interest.
Example 72:
Lhady_ZsUpFlaDeeTa borrowed
P5,000.00 from a bank charging
12% simple interest. If she paid the
amount of interest equivalent to
P1,200.00, for how long did she
use the money?
Example 73:
TrOuFHaNG_QOuLLheTsz
paid an amount P13, 620.00
for a loan P25,600.00 at
10.5% interest rate. Find the
duration of the term?
What should we do
when Principal (P) is
unknown?
Classroom Task :
Derive the formula for
finding the principal
amount.
Formula 4: The Principal Amount
I
P
rt
Formula 4: The Principal Amount
computing the Principal when
amount of interest, rate of
interest and time are given.
Example 74:
bHozSS_mHapA6mahAL paid
an interest of P2,800.00 on a
loan for 2 years at 9.5%
interest rate. How much was
the original loan?
Performance Task 13:
Please download, print
and answer the “Let’s
Practice 13.” Kindly work
independently.
Lecture 16: The Maturity
Value and the Present Value of the
Simple Interest
Management (ABM)
Mr. Migo M. Mendoza
The Maturity Value (F)
This refers to the sum of
money at the end of the period
when a certain amount of
money is deposited or
borrowed.
Maturity Value denoted by F
is also called as the
“accumulated value,”
“future value,” and “final
value.”
In other words, maturity
value is equal to the sum of the
amount of principal and the
amount of interest.
Classroom Task :
finding the maturity
value (F).
Formula 6: The Maturity Value (F)
F  P(1  rt )
Formula 6: The Maturity Value (F)
This shall be used in computing
the maturity value given the amount
of principal and the amount of
interest. Also, it can be computed
when original loan, rate of interest
and time are given.
Example 75:
Miss Bea Bunda deposited an amount
of P12,800.00 in a savings bank that
gives 6.5% simple interest for 8 years.
How much would she have in her
account at the end of 8 years assuming
that no withdrawals were made?
Example 76:
Mr. Hagardo Versoza paid an interest
of P5,000.00 on a loan for 3 years at
8% simple interest. Compute the
value of:
a) the original loan; and
b) the amount Mr. Versosa paid
at the end of 3 years.
Based on our previous
example, what is now
the present value?
The Present Value (P)
The present value is the current
worth of future sum of invested,
borrowed, or deposited money
given a specified rate of return.
The Present Value (P)
Since the present value is
actually the principal, we
will denote it using
majuscule letter P.
Classroom Task:
finding the present
value (P).
Formula 6: The Present Value (P)
F
P
(1  rt )
Formula 6: The Present Value (P)
computing the present value
given the maturity value, rate
and time.
Example 77:
Determine the present value
of an investment which
accumulated to P48,600.00
in 6 years at 6% simple
interest.
Example 78:
The maturity value paid on a loan
is P72,000.00. If the loan was for 3
years at 9% simple interest, (a)
how much was the original loan? (b)
Compute the total amount of
interest.
Based on our previous
example, what is the easiest
way to compute the total
amount of interest (I)?
Formula 7: The Total Interest
I  F P
Formula 7: The Total Interest (I)
computing the total amount of
interest given the maturity
value and the present value.
independently.
Lecture 17: The Exact and
the Ordinary Interests
Management (ABM)
Mr. Migo M. Mendoza
A Short Recap…
When the term of investment is
expressed in days, what would
be the approach in computing
for the amount of interest?
The Two Approaches
Two Approaches in Computing for the Amount of
Interest Given the Time in Dates:
1. Exact Interest Method
2. Ordinary Interest Method
The Exact Interest
This is used when interest is
computed on the basis of 365
days a year or 366 days in a
leap year.
The Exact Interest
To denote Exact Interest
we will use the symbol Ie
(majuscule letter I and
subscript minuscule letter e).
Formula 8: The Exact Interest (Ie)
Pr t Pr t
Ie  orI e 
365 366
Formula 8: The Exact Interest
computing for the exact
interest, given the principal
amount, the rate of interest
and time per days.
The Ordinary Interest (Io)
This is used when
interest is computed on the
basis of an assumed 30-
day/month or 360-
day/year.
The Ordinary Interest (Io)
To denote Ordinary Interest
we will use the symbol Io
(majuscule letter I and
subscript minuscule letter o).
Formula 9: The Ordinary Interest (Io)
Pr t
Io 
360
Formula 9: The Ordinary Interest (Io)
computing for the ordinary
interest, given the principal
amount, the rate of interest and
time per days.
Example 79:
Mr. Benny Bilang invested an
amount of P28,100.00 at 7%
simple interest for 100 days.
Compute the value of the:
1) exact interest; and
2) ordinary interest.
Example 80:
Miss Lily Mangipin deposited an
amount of P12,800.00 in a time
deposit account at 8% simple interest
for 150 days. Compute the value of the:
 exact interest; and
 the maturity value
at the end of the term.
independently.
Lecture 18:
Time between Two Dates
Management (ABM)
Mr. Migo M. Mendoza
If two dates are given,
how can we determine
the number of days?
Example 81:
Determine the
number of days from
September 21, 2017 to
March 14, 2018.
Loan Date:
This is the first day the
loan/ deposit/ investment
was made. It is also called
as the “origin date.”
Hence,
In our previous
example the loan date
or origin date is
September 21, 2017.
Maturity Date
This is the last day of the
loan/ deposit/ investment. It
is also called as the “due
date.”
Hence,
In our previous
example the loan date
or origin date is March
14, 2018.
Did you know?
There are two ways in
determining the
number of days given
two dates.
Two Ways in Determining Number of Days Given Two Dates
Two Ways in Determining the Number of
Days Given Two Dates:
(1) Actual Time
(2) Approximate Time
The Actual Time (Ac)
This refers to the exact number of
days between two dates. It is
obtained by counting the actual
number of days in each month
within the period of the transaction
except the loan date.
The Approximate Time (Ap)
This refers to the assumption that each
month has 30 days. The number of
days is obtained therefore by counting
each day of each month within the
period of the transaction except the
loan date.
How can we determine
which are 30-day month
and which are not?
The Knuckle Months Method
The knuckle and the space between
them are consecutively given the names
of the months, each knuckle
corresponds to months with 31 days
and each space corresponds to a short
month.
The Knuckle Months Method
Example 81:
 Determine the number of days
from September 21, 2017 to
March 14, 2018 using actual
and approximate time
methods.
Did you know?
There are certain steps to
follow in order to determine
the number of days when
loan date and maturity date
are given.
Steps in Determining the Number of Days Given Two Dates
Step 1:
Identify the number of days
remaining in the first month
excluding the loan date.
Step 2:
Write the number of days in
each succeeding month.
Step 3:
Identify the number of days in
the last month including the
maturity date.
Step 4:
Add the days from the first
month to the last month.
Example 82:
Determine the actual and
approximate time from
February 1, 2016 to
December 25, 2016.
Did you know?
When dealing with transactions
where the loan and maturity
dates are given, we have four
possible ways of computing the
period t.
Four Methods for Computing the Amount of Interest Given Two Dates
Four Methods for Computing the Amount of

Interest Given Two Dates:
1.Actual Time, Ordinary Interest Method
2.Actual Time, Exact Interest Method
3.Approximate Time, Ordinary Interest Method
4.Approximate Time,
Exact Interest Method
Formula 10: Actual Time, Ordinary Interest Method
Pr Ac
Io 
360
Formula 10: Actual Time, Ordinary Interest Method
interest when amount of
principal, rate of interest and
actual time are given.
Formula 11: Actual Time, Exact Interest Method
Pr Ac
Ie 
365
Formula 10: Actual Time, Exact Interest Method
computing for the exact
interest when amount of
actual time are given.
Formula 12: Approximate Time, Ordinary Interest Method
Pr Ap
Io 
360
Formula 12: Approximate Time, Ordinary Interest Method

interest given the amount of
approximate time.
Formula 13: Approximate Time, Exact Interest Method
Pr Ap
Ie 
365
Example 83:
An amount of P18,000.00 was invested
to McDollibee at 8% simple interest on
May 25, 2016. How much shall be the
amount of interest earned on October 12,
2016 using the four methods of
computing period t?
Banker’s Rule:
 This is the common commercial
practice and is the most
favorable of all methods to the
lender. This rule is an advocate
of “Actual Time, Ordinary
Interest” method.
Why do you think most
of the lenders or banks
love to use banker’s
rule?
Did you know?
Since ordinary interest is greater than
exact interest and actual time is
greater than approximate time.
Actual time with ordinary
interest method yields the highest
amount. Therefore, more money!
More profit! Yehey! 
Example 84:
On December 25, 2011, LIBING Things
Funeral Parlor deposited an amount of
P15,800.00 in a bank that pays 6.5% simple
interest. Compute the maturity value on August
8, 2012, using the:
1) Banker’s Rule; and
2) Approximate time, Exact
Interest method.
independently.

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Chapter 4:

The Simple Interest

The Principal (P)

Four Methods for Computing the Amount of

This shall be used in

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