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    Simple Interest

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    Nicole Castillo Cariño
    This document provides information and examples about simple interest calculations. It begins by defining simple interest as the amount of money paid back by a borrower for using borrowed money, or the money earned by a lender, over a certain period of time at a given interest rate. It provides the basic formula for calculating simple interest as I = Prt, where I is interest, P is principal, r is the interest rate, and t is time. Several examples are worked through to demonstrate solving for different variables in the formula. The document also distinguishes between exact simple interest, using 365 days in a year, and ordinary simple interest using 360 days in a year when calculating interest over a period of less than a year.

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    © All Rights Reserved
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    Simple Interest

    Uploaded by

    Nicole Castillo Cariño
    350 views7 pages
    This document provides information and examples about simple interest calculations. It begins by defining simple interest as the amount of money paid back by a borrower for using borrowed money, or the money earned by a lender, over a certain period of time at a given interest rate. It provides the basic formula for calculating simple interest as I = Prt, where I is interest, P is principal, r is the interest rate, and t is time. Several examples are worked through to demonstrate solving for different variables in the formula. The document also distinguishes between exact simple interest, using 365 days in a year, and ordinary simple interest using 360 days in a year when calculating interest over a period of less than a year.

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    © © All Rights Reserved

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    This document provides information and examples about simple interest calculations. It begins by defining simple interest as the amount of money paid back by a borrower for using borrowed money, or the money earned by a lender, over a certain period of time at a given interest rate. It provides the basic formula for calculating simple interest as I = Prt, where I is interest, P is principal, r is the interest rate, and t is time. Several examples are worked through to demonstrate solving for different variables in the formula. The document also distinguishes between exact simple interest, using 365 days in a year, and ordinary simple interest using 360 days in a year when calculating interest over a period of less than a year.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    350 views7 pages

    Simple Interest

    Uploaded by

    Nicole Castillo Cariño
    This document provides information and examples about simple interest calculations. It begins by defining simple interest as the amount of money paid back by a borrower for using borrowed money, or the money earned by a lender, over a certain period of time at a given interest rate. It provides the basic formula for calculating simple interest as I = Prt, where I is interest, P is principal, r is the interest rate, and t is time. Several examples are worked through to demonstrate solving for different variables in the formula. The document also distinguishes between exact simple interest, using 365 days in a year, and ordinary simple interest using 360 days in a year when calculating interest over a period of less than a year.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 7

    BULACAN STATE UNIVERSITY

    COLLEGE OF SCIENCE

    MMW 101
    MATHEMATICS IN THE MODERN WORLD

    Module 8
    Simple Interest
    68

    Simple Interest

    Objectives of the Module


    At the end of the module, you should be able to:
    1. solve problems involving simple interest, and
    2. differentiate ordinary interest from exact interest.

    Investing, saving or borrowing money all involve interests. A person may


    increase his purchasing power by investing his money in stocks, time deposit, and the
    like as this would give high returns to his money. He may also save his money in a
    bank to earn interest. A businessman in need of additional capital for his business may
    get a loan from a bank or a lending institution. He then needs to return the money that
    he borrowed, and an additional amount called the interest.

    Simple interest is the amount of money paid back by the borrower for using the
    borrowed money for a certain period of time or the money earned by the lender.
    Investments or deposits in bank also earn interests. Calculating the simple interest
    involves the amount (principal), the interest rate, and the time.

    FORMULA:
    I = Prt Formula 1

    Where:
    I – the interest earned
    P – the principal
    r – the rate of interest per year
    t – the time (in years)
    ❖ Note: If t is given in months, then
    𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑚𝑜𝑛𝑡ℎ𝑠
    t= .
    12

    Derived Formulas:
    𝐼
    P= 𝑟𝑡

    𝐼
    r=
    𝑃𝑡
    𝐼
    t=
    𝑃𝑟
    69

    The final amount/maturity value (F) at the end of the term (t years) is the sum
    of the principal and the interest.

    F=P+I or F = P + Prt or F = P (1 + rt) Formula 2

    Examples:
    1. How much interest would Php 250,000.00 earn at a simple interest rate of 2.5% for
    2 years? Find the final amount.
    Given:
    P = Php 250,000.00
    r = 2.5% = 0.025
    t = 2 years
    I=?
    Solution:
    I = Prt
    I = Php 250,000.00 (0.025) (2)
    I = Php12,500.00
    Final amount:
    F=P+I
    F = Php250,000.00 + Php12,500.00
    F = Php262,500.00
    2. At what simple interest rate must Php75,000.00 be invested for 42 months to earn
    Php10,500.00?
    Given:
    P = Php75,000.00
    t = 42 months = 42/12
    I = Php10,500.00
    r =?
    Solution:
    𝐼
    r= 𝑃𝑡
    𝑃ℎ𝑝10,500.00
    r= 𝑃ℎ𝑝75,000.00(42/12)

    𝐫 = 4%
    70

    3. Mr. Torres paid an interest of Php2,250.00 on a loan of Php100,000.00 at an interest


    rate of 3%. For how long must he pay the loan?
    Given:
    P = Php100,000.00
    r = 3% = 0.03
    I = Php2,250.00
    Solution:
    𝐼
    t= 𝑃𝑟
    𝑃ℎ𝑝2,250.00
    t= 𝑃ℎ𝑝100,000.00 (0.03)

    𝐭 = 0.75 year or 9 months

    4. Judith deposited a certain amount of money at a simple interest rate of 0.25%. If


    her money at the bank at the end of 3 years amounted to Php75,562.50, how much
    did she deposit in the bank?
    Given:
    F = Php75,562.50
    t = 3 years
    r = 0.25% = 0.0025
    Solution:
    𝐹
    F = P (1 + rt) or P = 1+𝑟𝑡
    𝐹
    P = 1+𝑟𝑡
    𝑃ℎ𝑝75,562.50
    P= 1+0.0025 (3)

    P = Php75,000.00

    5. Jasmin needs to buy a laptop for her daughter. She loaned Php50,000.00 to be paid
    for two years. She has to pay Php7, 062.50 every quarter. At what simple interest
    rate was the loan made?
    Given:
    P = Php50,000.00
    t = 2 years
    quarterly payment = Php7,062.50
    71

    Solution:
    Let us first determine the total amount to be repaid. If Jasmin will pay
    Php7,062.50 every quarter for 2 years, then 8 payments will be made amounting
    to Php56,500.00 (Php7,062.50 x 8 quarters). Deducting the amount that she
    loaned from the total payments, the simple interest will be obtained.
    Php56,500.00 - Php50,000.00 = Php6,500.00 (simple interest)
    We can now solve for the simple interest rate.
    𝐼
    r= 𝑃𝑡
    𝑃ℎ𝑝6,500.00
    r=
    𝑃ℎ𝑝50,000.00 (2)

    𝐫 = 6.5%

    Exact Simple Interest and Ordinary Simple Interest


    There are two types of simple interest. These are the exact simple interest and
    the ordinary simple interest. In an exact simple interest, the interest is computed using
    365 days in a year while 360 days is used for ordinary simple interest.
    Examples:
    1. Clarisse made a loan of Php175,000.00 at a rate of 7% for 75 days. How much
    exact simple interest must she pay for the loan?
    Given:
    P = Php175,000.00
    r = 7% = 0.07
    t = 75 days or 75/365
    Solution: I = Prt
    I = Php175,000.00 (0.07) (75/365)
    I = Php2,517.12
    2. How much ordinary simple interest must Mr. Ramos pay for a loan of Php50,000.00
    for 90 days if the interest rate is at 9%?
    Given:
    P = Php50,000.00
    r = 9% = 0.09
    t = 90 days or 90/360
    Solution: I = Prt
    I = Php50,000.00 (0.09) (90/360)
    I = Php1,125.00
    72

    3. Mrs. Sanchez borrowed Php60,000.00 from a cooperative. The rate of interest is at


    6.5% and she has to pay it back at the end of 300 days. Which has a lower interest,
    the exact simple interest or the ordinary simple interest?
    Given:
    P = Php60,000.00
    r = 6.5% = 0.065
    t = 300 days
    Solution:
    For exact simple interest: For ordinary simple interest:
    I = Prt I = Prt
    I = Php60,000.00 (0.065) (300/365) I = Php60,000.00 (0.065) (300/360)
    I = Php3,205.48 I = Php3,250.00

    The computed simple interests show that the exact simple interest is lower than the
    ordinary simple interest.
    73

    References:

    Earnheart, Richard and Adina, Edgar (2018). Math in the Modern World. Quezon City:
    C&E Publishing, Inc.

    Sirug, W.S. (2018). Mathematics in the Modern World. Intramuros, Manila:


    Mindshapes Co., Inc.

    Sterling, M.J. (2008) Business Math for Dummies. Hoboken, New Jersey : WILEY
    Publishing, inc.

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