GROUP 1

SIMPLE
INTEREST
11 - NU
 If you borrow money or make a loan, you
return an amount higher than what you
borrowed. If you save money, you lend
your money to banks in exchange of an
To pay for her tuition, Angel's amount which is higher than your saving.
parents borrowed ₱10,000 from The difference between the amount you
a loaning business which credits returned and the amount you borrowed is
3% interests per year. At the called interest. Similarly, you call the
end of the year, how much difference between your savings and your
payment must Angel's parents initial deposit as interest. Thus, you may
view interest "as an amount paid for the
pay to the loaning business?
lender for the use of his or her money."

The most common measure of interest is

called simple interest.
OUR
VOCABULARY
FOR TODAY:
Simple Interest
Principal
Future Value
Present Value
SIMPLE INTEREST
The Simple Interest I is the amount equal
to P × r × t, where P is the principal. r is the
annual simple interest rate and t is the time
in years.
Under simple interest, the The amount borrowed is called the
amount of interest is jointly principal. The rate of interest is the
proportional to the money percentage of principal payable per
borrowed (or deposited) and the period of time. The rate of interest is
time until the money borrowed often expressed as a percentage per
is returned. year (or per annum), e.g. 5% per year.
ILLUSTRATION 1.1
In order to buy a new gadget, Maria decided to borrow ₱5,000 at an
annual simple interest of 5%. After two years, how much interest
does she need to pay?

SOLUTION
GIVEN : P = ₱5,000 FORMULA :
r = 5% or 0.05 I=P×r×t
t=2
INTEREST :
I = ₱5,000 × 0.05 × 2
I = ₱500
After 2 years, Maria needs to pay ₱500 for the simple interest incurred.
Maria will pay the lender ₱5,000 (the principal) plus the additional ₱500
interest-- a total of ₱5,500. This amount is called the future value (or
accumulated value) of the principal after 2 years.
 EXAMPLE 1.1
A ₱2,500 at a 3.5% annual simple A I = ₱2,500 × 0.035 × 2 = ₱175
interest rate for 2 years

B ₱5,300 at a 2% annual simple B I = ₱5,300 × 0.02 × 3.5 = ₱371

interest rate 3.5 years

C ₱10,000 at 4% annual simple C I = 10,000 × 0.04 × 1/2 = ₱200

interest rate for 6 months
 FUTURE VALUE
The Future Value (or accumulated value)
of amount P is the value of P including all
the interest earned at some future time t.
 EXAMPLE 1.2
Jason borrowed ₱250,000 from a bank SOLUTION
at a simple interest rate of 2% per year.
GIVEN : INTEREST:
How much interest must he pay after 5
P = ₱250,000 I= P×r×t
years? How much is his debt after 5
r = 0.02 = ₱250,000 × 0.02 × 5
years?
t=5 = ₱25,000

TOTAL DEBT OF JASON :

₱250,000 + ₱25,000 = ₱275,000
CONCLUSION :
The interest after 5 years is ₱25,000.
The debt of Jason after 5 years is ₱250,000
plus the interest worth ₱25,000 which give a
sum of ₱275,000
 THEOREM 3.1.1
If P is borrowed (or invested) at an annual simple
interest rate r, then its future value at time t,
denoted by A(t), is given by A(t) = P(1 +rt)
 EXAMPLE 1.3
Jose deposited ₱1,000 today in a bank SOLUTION
providing 3% simple interest per year. He Use theorem 3.1.1 for the future value with
wants to have savings worth ₱1,450 in GIVEN :
the future. If he will not withdraw any P = ₱1,000, r = 0.03, and A(t) = ₱1,450.
amount, how long must he wait? TIME (t) :
A(t) = P(1 + rt)
₱1,450 = ₱1,000(1 + 0.03t)
1.45 = 1+0.03t
0.45 = 0.03t
0.45/0.03 = 0.03t/0.03
t = 15
CONCLUSION :
It will take 15 years for Jose's deposit to be worth
₱1,450.
 EXAMPLE 1.4
As preparation for John's college SOLUTION
studies, his parents want to save an You can use theorem 3.1.1 for the future value with
amount of ₱200,000 after 3 years. If GIVEN :

they decide to deposit in a bank offering t = 3, A(t) = ₱200,000, and r = 0.025.

an annual simple interest rate of 2.5%.
PRINCIPAL (P) :
how much do they need to deposit now?
A(t) = P(1 + rt)
₱200,000 = P( 1 + (0.025)(3))
₱200,000 = P( 1.075)
₱200,000 / 1.075 = P
₱186,046.51 = P
CONCLUSION :
John's parents need to deposit P186,046.51.
This amount is called the present value of P200,000
at 2.5% simple rate of interest per year.
 PRESENT VALUE
The present value of an amount needed
now to accumulate A in time t.
 THEOREM 3.1.2
The present value of A at an annual simple
interest rate r is given by P = A / (1+rt)
 EXAMPLE 1.5
A ₱1,000 after 2 years at 3% interest A P = ₱1,000/(1 + 0.03 × 2) =
₱943.40

B ₱2,500 after 5 years at 1.5% B P = ₱2,500/(1 + 0.015 × 5) =

interest ₱2,325.58

C ₱10,000 after 10 years at 5% C P = ₱10,000/(1 + 0.05 × 10) =

interest ₱6,666.67
 EXAMPLE 1.6
Mrs. Reyes currently has ₱25,000 in an SOLUTION
account providing 3% simple interest per Let X be the additional money needed to accumulate
year. She wishes to have ₱50,000 in 3 ₱50,000 in 3 years. Using theorem 3.1.2, you have
years but she noticed that her savings GIVEN :
are not enough to accumulate that A = ₱50,000, r = 0.03, t = 3, P = ₱25,000 + X

amount. How much additional money ₱25,000 + X = ₱50,000/(1+ (0.03)(3)

must she deposit now in order to achieve ₱25,000 + X = ₱45, 871.56
her goal? X = ₱20, 871.56
CONCLUSION :
Therefore, Mrs. Reyes needs an additional deposit of
₱20, 871.56.
 EXAMPLE 1.6
Mrs. Reyes currently has ₱25,000 in ALTERNATE SOLUTION
an account providing 3% simple Alternatively, you may first find the future value of
₱25,000 at 3% interest in 3 years.
interest per year. She wishes to
have ₱50,000 in 3 years but she A = ₱ 25,000( 1 + (0.03)(3))
= ₱27,250
noticed that her savings are not
enough to accumulate that amount. This means that after 3 years, Mrs. Reyes' deposit will be ₱27,250.
Since she wishes to have ₱50,000, she needs to accumulate an
How much additional money must additional amount equal to ₱50,000 - ₱27,250 = ₱22,750. The
she deposit now in order to achieve question now is how much is needed today to accumulate ₱22,750
her goal? in 3 years. Thus, the problem is to find the present value of
₱22,750 at 3% interest in 3 years. Use the theorem 3.1.2 with
A = ₱22,750, r = 0.03, and t = 3.
P = ₱22,750/( 1 + (0.03)(3)) = ₱20,871.56
Hence, you get the same answer.
 FORMULAS
I=Pxrxt
FV : A(t) = P(1+rt) or P + I
PV : A / (1+rt)

if FV & present value is not present ;

P = I / rt
THANK YOU!
ARUMPAC CIMAFRANCA CAPITAN DEJON
FLORENTINO MAHDALI MONSUBRE