GENERAL INSTUCTION: THE FOLLOWING ARE YOUR LECTURE FOR SIMPLE INTEREST, SOLUTIONS ARE

PROVIDED FOR YOUR SELF STUDY. AT THE END OF THIS LECTURE, PLEASE SOLVE THE ATTACHED
ASSIGNMENTS WHICH IS TO BE SUBMITTED ONMARCH 9, 2019.

SIMPLE INTEREST

INTEREST

It may be defined as the share or percentage of money or goods being invested or deposited
which serves as incentive to clients.

Examples: Pawned jewelries which are earning interest, royalty from sales of certain goods, withholding
tax, and interest on money deposited in a bank, etc.,

Kinds of Interest

1. Simple Interest – refers to share or percentage that does not earn another interest. It is computed by
finding the product of the original capital and the rate of interest and the length of time expressed in
terms of years, in symbol

I = P x r x t = Prt

Where P – original principal, r – rate of interest and t – time in terms of years

2. Compound Interest – refers to the sum of all interest due at the end of the period be it monthly,
quarterly, biannually or annually with the principal amount always combined in the computation with
the interest. Thus, interest earns another interest.

Examples: SIMPLE INTEREST

1. Find the interest given the following:

a. Php 10,000 at 4% for 2 years

Solution:

𝑰 = 𝑷 𝒓 𝒕 = (𝟏𝟎, 𝟎𝟎𝟎)(𝟎. 𝟎𝟒)(𝟐) = ₱𝟖𝟎𝟎. 𝟎𝟎

b. Php 275,000 at 12% in 5 years

Solution:

𝑰 = 𝑷 𝒓 𝒕 = (𝟐𝟕𝟓, 𝟎𝟎𝟎)(𝟎. 𝟏𝟐)(𝟓) = ₱𝟏𝟔𝟓, 𝟎𝟎𝟎. 𝟎𝟎

SIMPLE INTEREST FOR PERIODS OF TIME EXPRESSED IN DAYS OR MONTHS

Interest is usually computed on the basis of 360-day/year which is equivalent to 12 months

with each month having 30 days. The interest for 30 days is computed as 30/360 or 1/12 of the interest
for one year, for 60 days is 60/360 or 1/6 of the interest for one year, etc.

Examples:

1. Find the interest given the following conditions:

a. Php 750 at 10% for 60 days

Solution:
1
𝐼 = 𝑃 𝑟 𝑡 = (750)(0.1) ( ) = ₱ 12.50
6

b. Php 6,500 at 15% interest for 2 years and 3 months

Solution: Solve first for t:

3
𝑡 =2+ 12
= 2 + 0.25 = 2.25 𝑦𝑟𝑠
 𝐼 = 𝑃 𝑟 𝑡 = (6,500)(0.15)(2.25) = ₱ 2,193.00

2. Which will give more interest? An investment of Php 2,500 at 8.5% for 120 days or Php 2,500 at 9%
for 60 days?

Solution: Solving for the interest in each of the given

Given : P = ₱ 2,500 P = ₱ 2,500

r = 8.5% r = 9%

t = 120 days t = 60 days

120 60
𝐼 = 𝑃 𝑟 𝑡 = (2,500)(0.085) (360) = ₱ 70.83 𝐼 = 𝑃 𝑟 𝑡 = (2,500)(0.09) (360) = ₱ 37.50

FINDING THE TOTAL AMOUNT

The total amount due after t years can be computed as follows:

S=P+I

Where: S – total amount, P – principal and I – total interest earned for the given number of years.

Examples:

1. Find the total amount earned after investing Php 15,000 at 8% interest for 3 years.

Solution:

𝐼 = 𝑃 𝑟 𝑡 = (15,000)(0.08)(3) = ₱ 3,600.00
𝑆 = 𝑃 + 𝐼 = 15,000 + 3,600 = ₱ 𝟏𝟖, 𝟔𝟎𝟎. 𝟎𝟎

2. At what rate must Php 4,500 be invested in order to accumulate to Php 4,900 in 6 months?

Solution: We first solve for the interest as follows, then solve for the rate;

From 𝑆 = 𝑃 + 𝐼 𝐼 = 𝑆 − 𝑃 = 4,900 − 4,500 = ₱ 400

𝐼 400 400
Then From 𝐼 = 𝑃 𝑟 𝑡 𝑟 = 𝑃𝑡 = 6 = 2,250 = 17.78%
4,500( )
12

3. For what length of time must Php 11,200 be invested at 9% to have a sum of Php 12, 300?

Solution: We first solve for I as follows then solve for t;

From 𝑆 = 𝑃 + 𝐼 𝐼 = 𝑆 − 𝑃 = 12,300 − 11,200 = ₱1,100

𝐼 1,100 1,100
From 𝐼 = 𝑃 𝑟 𝑡 𝑡 = 𝑃𝑟 = 11,200(0.09) = 1,008 = 1.09 𝑦𝑒𝑎𝑟𝑠

Note that 0.09 year may be converted into months : 0.09 x 12 month = 1.08 month

Therefore, 1.09 years is equal to 1 year and 1 month

4. I have Php 150,000 and invested half of it at 5% interest and the other half at 7% , find the
accumulated value in 5 years and 4 months?

Solution: Solving for the accumulated value for each investment separately;
4
For investment ₱ 75,000 at 5% in 5 years and 4 months or 5 + 12 = 5.33 𝑦𝑒𝑎𝑟𝑠

𝐼 = 𝑃 𝑟 𝑡 = (75,000)(0.05)(5.33) = ₱ 19, 987.5

 𝑆 = 𝑃 + 𝐼 = 75,000 + 19,987.50 = ₱ 94,987.50
4
For investment ₱ 75,000 at 7% in 5 years and 4 months or 5 + = 5.33 𝑦𝑒𝑎𝑟𝑠
12

𝐼 = 𝑃 𝑟 𝑡 = (75,000)(0.07)(5.33) = ₱ 27,982.50
𝑆 = 𝑃 + 𝐼 = 75,000 + 27,982.50 = ₱102,982.50
Therefore, the Accumulated Value after 5 years and 4 months;

= 94,982.50 + 102,982.50 = ₱ 197,965.00

EXACT AND ORDINARY INTEREST; EXACT AND APPROXIMATE TIME

The exact interest is based on using t as a fraction whose numerator is the number of days in the term
of the transaction and whose denominator is the exact number of days in a year. If 360 days is used it
is called ordinary interest.

Exact time is the actual number of days in the term of the transaction. Approximate time arbitrarily
uses 30 days for each month.

Summarizing in the table that follows:

Exact Interest Ordinary Interest Exact Time Approximate Time

𝑁𝑜. 𝑜𝑓 𝑑𝑎𝑦𝑠 𝑁𝑜. 𝑜𝑓 𝑑𝑎𝑦𝑠 Actual no. of days Uses 30 days for each
𝑒𝑥𝑎𝑐𝑡 𝑛𝑜. 𝑜𝑓 𝑑𝑎𝑦𝑠/𝑦𝑒𝑎𝑟 360 month

For convention, the exact number of days between two dates shall be used while a whole number of
month shall be considered between two months of the same date. For instance, from Jun 8 to October
12 is 126 (22+31+31+30+12) while from June 8 to Oct 8 is 4 months (July, Aug, Sept and Oct)

Examples:

1. Find the different types of simple interest earned by Php 45,000.00 at 5% from May 17 to December
13, 2014.

Solution:

a. Using exact time and ordinary interest:

Actual No. of Days : May 17 – Dec 13; (14 +30+31+31+30+31+30+13) = 210 days
210
𝐼 = 𝑃 𝑟 𝑡 = (45,000)(0.05) (360) = ₱ 1,312.50

b. Using exact time and exact interest

210
𝐼 = 𝑃 𝑟 𝑡 = (45,000)(0.05) ( ) = ₱ 1,294.52
365
c. Using approximate time and ordinary interest.

Approximate time from May 17 – Dec 13; (13 +30+30+30+30+30+30+13)=206

206
𝐼 = 𝑃 𝑟 𝑡 = (45,000)(0.05) ( ) = ₱ 1,287.50
360
d. Using approximate time and exact interest
206
𝐼 = 𝑃 𝑟 𝑡 = (45,000)(0.05) ( ) = ₱ 1,269.86
365
2. Find the exact number of days between the given dates

a. May 24, 2015 to Nov, 5, 2015 b. Dec. 10, 2014 to Feb. 18, 2015

Solution: For Your Reference, consider the table below

Jan 31
Feb 28
March 31
Apr 30
May 31
Jun 30
July 31
Aug 31
Sep 30
Oct 31
Nov 30
Dec 31
Total 365

a. May 24, 2015 – Nov. 5, 2015: 7+ 30+31+31+30+31+5 = 165 days

b. Dec. 10, 2014 to Feb. 18, 2015: 21+ 31+18 = 70 days

SIMPLE INTEREST ON INSTALLMENT PAYMENTS

THE MERCHANT RULE – The interest on money that is paid by installment is computed from the balance
of the principal before each payment.

Example 1: The amount Php 10, 000 at 6% payable in one was paid as follows: Php 3,000 was paid after
2 months, Php 4,000 after 5 months and Php 2,000 after 9 months, how much must be paid at the end
of the year?

Solution
2
𝐼1= 10,000 x .06 x 12 = 100 ; 10,000 – 3,000 = 7,000
3
𝐼2 = 7,000 𝑥 .06 𝑥 12
= 105; 7,000 – 4,000 = 3,000
4
𝐼3 = 3,000 𝑥 .06 𝑥 12
= 60 ; 3,000 – 2,000 = 1,000
3
𝐼2 = 1,000 𝑥 .06 𝑥 = 15 ;
12

Total Interest = ₱ 280

Total Amount to be paid at the end of the year = 1,000 + 280 = ₱ 1,280

Example 2: A 2 HP air conditioner whose cash value is Php 37,000 can be bought by installment on the
following terms; down payment of Php 10,000 and monthly payment of Php 1650 for 18 months. Find
the rate of simple interest.

Solution: Consider the unpaid cash value of the air conditioner as a loan. Then find the average loan as
the loan decreases every time a payment is made.

Original loan = 37,000 – 10,000 = ₱27,000

 27,000
Monthly Repayments = = 1500
18

Interest on loan = Installment value –cash value

I = 10,000 + (1650 x 18 ) – 37,000 = 39,700 – 37,000 = 2,700

The average loan can be computed by adding the first and last loan and dividing by 2, as follows:
27,000+1,500
Average loan = 2
= 14,250
𝐼 2,700 2,700
Finally, the rate of interest, 𝑟 = 𝑃𝑡 = 18 = 14,250𝑥1.5 = 0.1263 = 𝟏𝟐. 𝟔𝟑%
14,250𝑥
12

Long method of computing the average loan

1 27000
256500
2 25500 𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑙𝑜𝑎𝑛 = = 14,250
18
3 24000
4 22500
5 21000
6 19500
7 18000
8 16500
9 15000
10 13500
11 12000
12 10500
13 9000
14 7500
15 6000
16 4500
17 3000
18 1500
total 256500
 MATH IN BUSINESS

NAME__________________________________________ Score______________ Date ____________

Course, yr & Section____________________ Student no. _______________ Prof. Emelita A. Isaac

ASSIGNMENT NO. 2

Solve the following problems. Write legibly. Submit on March 9, 2019.

1. A woman borrowed Php 15,000 at 12 % simple interest payable in six months with the option to give
partial payments at will. She paid Php 4000, Php 3,000 and Php 5,500 at the end of the first month, 3 nd
month and 5th month, how much more must he pay at the end of 6th month.

2. A Samsung cellphone whose cash value is Php 6,500 was bought from a local dealer. A down payment
of Php 2,000 was paid and 3 monthly installments of Php 1, 500. Find the rate of installment plan.

3. An OFW borrowed Php 30,000 and promise to pay in equal installments for 10 months. If the rate of
simple interest is 12%, how much is the monthly interest?
4. Find the present value of Php 12,500 due in 540 days at 7% discount,

5. Using exact time, find the ordinary interest on

a. Php 11,200 at 7% from June 1 to Sept 5, 2014

b. Php 25,000 from April 20, 2015 to Aug 27, 2015.

6. Using exact interest and using approximate time at 8%.

a. Php 5,500 from Feb 5 to April 10, 2015

b. Php 375,000 from August 15 to November 15, 2014.

7. At what rate of interest must be borrowed in order to double the amount of Php 75,000 in 5 years.
8. How much was borrowed if the interest earned is Php 2,500 at 6% after 45 days.

9. Find the compound amount and compound interest on the principal, Php 20,000 borrowed at 6%
compounded annually for 3 years.

10. Find the compound amount which would be obtained from an interest of Php 2,000 at 6%
compounded quarterly for 5 years.