Simple Interest

MATH OF FINANCE
• Simple Interest
• Compound Interest
• Stocks and Bonds
Lesson 1
Simple Interest
Learn about It!
Interest
1 amount that a person gets or pays on top of the original investment or loan
Example:
A person borrows ₱10 000 with a 2% simple interest, payable

after a year. The interest is 2% of ₱10 000, which is ₱200.
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Lender or creditor
2 refers to the party lending money or extending credit
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Borrower or debtor
3 refers to the party using the money or credit
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Principal
4 refers to the amount of money extended for credit or the amount of money
deposited in a bank for safekeeping
Example:

after a year. The principal is ₱10 000.
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Interest Rate
5 refers to the charged amount for using the money over a certain period;
commonly expressed in percent, but is converted to decimal
Example:

after a year. The interest rate is 2%.
Learn about It!
Time of interest
6 refers to the period covered from the time that the money (principal) is borrowed
until its due date
Example:

after a year. The time of interest is one year.
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Maturity Date
7 due date of the payment of the principal
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Simple Interest
8 refers to an interest computed on the original principal during the whole period
or time of borrowing
Learn about It!
9 Formula for Simple Interest

The formula for the simple interest is
where is the interest amount, is the principal, is the simple interest rate, and is
the time written in years
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Example:
If a person borrows ₱100 from another person with a 5%

simple interest, then in one year the interest on top of the
borrowed money will be ₱5.
In this problem, the principal amount is ₱100, the interest

rate is 5%, the time is 1 year and the amount of interest is
₱5.
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Maturity Value
10 refers to the sum of the principal and interest; sometimes called as the future
value of the principal amount
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Formula for Maturity Value

11 The formula for the maturity value is
Since , we have
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Example:
In the example from the previous slide, the maturity value will
be the sum of ₱100 and ₱5 which is ₱105. This is the amount
that the borrower needs to pay the lender.
Try It!
Example 1: Tony borrowed ₱100 000 in a bank to finance his

new business venture. How much interest will Tony pay if the
bank charged him a 4% simple interest rate for the loan
payable in two years?
Try It!
Example 1: Tony borrowed ₱100 000 in a bank to finance his new business venture. How
much interest will Tony pay if the bank charged him a 4% simple interest rate for the loan
Solution:
1. Identify the given from the problem.
Principal
Interest rate
Time
Try It!
Solution:
2. Substitute the values to the formula .
Try It!
Solution:
2. Substitute the values to the formula .
Therefore, Tony will pay ₱8 000 interest after two years.

Try It!
Example 2: Steve placed his money worth ₱150 000 in an

investment instrument that earns 6% simple interest rate per
year. How much will his money be after 4 years?
Try It!
Example 2: Steve placed his money worth ₱150 000 in an investment instrument that earns
6% simple interest rate per year. How much will his money be after 4 years?
Solution:
1. Identify the given from the problem.
Principal
Interest rate
Time
Try It!
Solution:
2. Compute for the interest .
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Solution:
3. Compute for the maturity value .
Try It!
Solution:
3. Compute for the maturity value .
Therefore, Steve will have ₱186 000 after four years.

Try It!
Alternative Solution:
1. Substitute the values to the formula
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3 Formula for Principal, Rate of Interest, and Time

If the principal, rate of interest, or the time is unknown in a given problem, we can
use the following triangle as a guide for the formula
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a. If the principal value (also known as the present

value) is unknown, the formula will be
b. If the rate of interest is unknown, the formula

will be
c. If the time (also known as the term of interest) is

unknown, the formula will be
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Maturity Value or Future Value

4 refers to the sum of the principal and interest; sometimes called the future value
of the principal amount
Learn about It!
Formula for Maturity Value

5 The formula for the maturity value is
Since , we have
Try It!
Example 1: If you invested ₱50 000 in a bank that earns 2%

simple interest, how much will you earn in 2 years and 6
months?
Try It!
Example 1: If you invested ₱50 000 in a bank that earns 2% simple interest, how much will
you earn in 2 years and 6 months?
Solution:
3. Substitute the given values to the formula and solve.
Thus, you will earn ₱2 500 in 2 years and 6 months.

Try It!
Example 2: How much did Rowell borrow if, after 4 years and
9 months, he paid a 5% simple interest of ₱4 788?
Try It!
Example 2: How much did Rowell borrow if, after 4 years and 9 months, he paid a 5%
simple interest of ₱4 788?
Solution:
3. Substitute the given values.
Try It!
Example 2: How much did Rowell borrow if, after 4 years and 9 months, he paid a 5%
simple interest of ₱4 788?
Solution:
3. Substitute the given values.
Thus, the borrowed amount is ₱20 160.

Let’s Practice!
1. Vivian borrowed an amount of ₱45 000 from a lending

institution to finance her small business. If the loan is to be
paid in 30 months at a simple interest rate of 7.25%, how
much will Vivian pay?
2. Dennis promised to pay an interest amounting to ₱487.50
on a loan that earns an interest rate of 3.25% payable in 6
months. How much was the loaned amount?
Let’s Practice!
1. Vivian borrowed an amount of ₱45 000 from a lending
institution to finance her small business. If the loan is
to be paid in 30 months at a simple interest rate of
7.25%, how much will Vivian pay?
Let’s Practice!
1. Dennis promised to pay an interest amounting to

₱487.50 on a loan that earns an interest rate of 3.25%
payable in 6 months. How much was the loaned
amount?
Key Points
Interest
1 amount that a person gets or pays on top of the original investment or loan
2 Lender or creditor
refers to the party lending money or extending credit
Borrower or debtor
3 refers to the party using the money or credit
4 Principal
refers to the amount of money extended for credit or the amount of money
deposited in a bank for safekeeping
Key Points
Interest rate
5 refers to the charged amount for using the money over a certain period;
commonly expressed in percent, but is converted to decimal
6 Time of interest
refers to the period covered from the time that the money (principal) is borrowed
until its due date
Maturity Date
7 due date of the payment of the principal
Key Points
8 Simple Interest
refers to an interest computed on the original principal during the whole period
or time of borrowing
9 Formula for Simple Interest

The formula for the simple interest is
where is the interest amount, is the principal, is the simple interest rate, and is
the time written in years.
Key Points
Maturity Value
10 refers to the sum of the principal and interest; sometimes called as the future
value of the principal amount
11 Formula for Maturity Value

The formula for the maturity value is
Since , we have
Synthesis
● How do you solve problems involving simple interest?
● In what ways can we save and grow our money?
● How can we solve word problems involving simple interest

where the time and rate of interest are unknown?
Synthesis
Mrs. Payne has $20,000 to invest. She wants to earn

$10,000 in interest. She is considering a savings and loans
bank that is offering her 5.6% interest per year. For how
long will she have to leave her money in the bank in order
to reach her goal of $10,000?
Synthesis
Jessica invests $3,000 in a credit union at an interest rate

of 3.9%. She leaves the money there for 5 years. What is
her balance after that time?
Synthesis
A nurse put $22,000 in the bank 15 years ago. She

has earned $21,450 in interest—nearly as much as
her initial investment. What was the interest rate that
the bank was paying her?

Simple Interest

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MATH OF FINANCE

A person borrows ₱10 000 with a 2% simple interest, payable

A person borrows ₱10 000 with a 2% simple interest, payable

A person borrows ₱10 000 with a 2% simple interest, payable

A person borrows ₱10 000 with a 2% simple interest, payable

9 Formula for Simple Interest

If a person borrows ₱100 from another person with a 5%

In this problem, the principal amount is ₱100, the interest

Formula for Maturity Value

Example 1: Tony borrowed ₱100 000 in a bank to finance his

Therefore, Tony will pay ₱8 000 interest after two years.

Example 2: Steve placed his money worth ₱150 000 in an

Therefore, Steve will have ₱186 000 after four years.

3 Formula for Principal, Rate of Interest, and Time

a. If the principal value (also known as the present

b. If the rate of interest is unknown, the formula

c. If the time (also known as the term of interest) is

Maturity Value or Future Value

Formula for Maturity Value

Example 1: If you invested ₱50 000 in a bank that earns 2%

Thus, you will earn ₱2 500 in 2 years and 6 months.

Thus, the borrowed amount is ₱20 160.

1. Vivian borrowed an amount of ₱45 000 from a lending

1. Dennis promised to pay an interest amounting to

9 Formula for Simple Interest

11 Formula for Maturity Value

● How do you solve problems involving simple interest?

● In what ways can we save and grow our money?

● How can we solve word problems involving simple interest

Mrs. Payne has $20,000 to invest. She wants to earn

Jessica invests $3,000 in a credit union at an interest rate

A nurse put $22,000 in the bank 15 years ago. She

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