Business Mathematics

Simple Interests
Nida C. Flores
Teacher III

May 18, 2021

 Simple Interests

Overview
When we borrow certain amount of money for a period of time,
we agree to pay it back along with a fee, known as the interest.
Likewise, when we invest money, like depositing in a bank, is like
lending money to the bank, in return the bank pays interests.

In business , capital is very important. However , not all

business owners always have enough capital to sustain their
business. More often than not , they have to borrow money for use
in business . It is in this context that interest plays an important
role. Borrowers need to pay interest on the money that they
borrow.
Lesson Objectives
At the end of the lesson, the students must be able to:

 compute interest specifically as applied to mortgage, amortization

and on services/utilities and on deposits and loans.
 Simple Interests

SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
Recall
Complete the table using the formula illustrated on the left side of the table.

Percentage Base Rate

(a) 750 20%
200 (b) 40%
80 400 (c)
(d) 250 60%
150 (e) 75%
 Simple Interests

Simple Interest

Simple interest is a type of interest applied to the amount of money borrowed or

invested for short- term loans and investments that usually runs a year or less,
without taking into account any other factors, such as past interest (paid or charged)
or any other related financial considerations. The simple interest rate is a ratio and is
commonly expressed as a percentage. The amount of interest charged or earned
depends on the three factors
 Simple Interests

Simple Interest can be computed using the formula,

The rate and time should always agree. It is usually given in years. But if the time or
period for which the money is borrowed/lent/invested is not stated, it is presumed
that the interest is per annum or annual basis. If in some cases the rate and time
applied is expressed in months or days, we need to convert in years.
 Simple Interests

Future or Maturity Value

Future value is the amount you would need to pay at the end of the loan period after
simple interest is applied. Another name for future value is maturity value.

Future value or maturity value can be computed in two (2) ways,

𝑭 =𝑷 + 𝑰𝒔
Using the Simple Interest formula,, we can derive the equation as,

𝑭 = 𝑷 + 𝑷𝒓𝒕 ,
𝑭 = 𝑷 [ 𝟏 + 𝒓𝒕 ]
 Simple Interests

Sample Problem. Rica borrowed from St. Francis Cooperative amounting to P20, 000.00 at a
simple interest rate of 6% for 6 months. Find the interest and maturity value.

Solution
Given: P = P 20,000.00
r= 0.06(this means 6%)
t = (for a term of 6 months in one year)

Find:
a. Interest

= 600

Rica has to pay St. Francis Cooperative an interest of P 600 for 6 months for every
P 20,000 she borrowed.
 Simple Interests
a. Maturity Value

For instance, if we are only asked for the maturity value in the given problem, use the
formula,
¿
Substituting,
𝐹 =20,000
[ 1 +( 0.06 ) ( 6
12 )]
𝐹 =20,6000
Knowing the maturity value, we can compute the interest by deriving the formula

Substituting,
 Simple Interests

Sample Problem. Nora invested P 1,800 for 9 months at 1% per month. How much will she
get upon maturity?. How much interest did she earn?

Solution
Given: P = P 1,800.00
r= 1 % per month
t =9 months

Find:
a. Future Value

= P 1,962

b. Interest I = F- P
= P1,962- P 1,800
= P 162
 Simple Interests

Sample Problem. Connie lent P 600.00 to Yoly at 1% per month for 2 years.

Solution
Given: P = P 600.00
r= 1 % per month
t = 2 years
Find:
a. Interest

= P 144

b. Future Value F = P+I

= P600 + P 144
= P 744
 Simple Interests

Actual Time and Approximate Time

If problems do not state the term in days , months , or years, then give the loan
date and the maturity date. We can use either actual time or approximate time .
Approximate time, like ordinary interest, assumes that each of the 12 months
in a year has 30 days(360 days in a year). On the other hand , actual time counts the
exact number of days , hence , a year is taken as composed of 365 days.

Examples.
Find the actual time and the approximate time between April 22 and August 25.
a. Actual Time b. Approximate Time
April has 30 days Months Days
-22 8 (August) 25 (August 25)
Days in April 8 - 4 (April) - 22 (April 22)
May 31 4 mo. 3 days
June 30 x 30 days/mo.
July 31 120 days
Aug 25 + 3 days
125 days 123 days
As stated , actual time is longer than approximate time
 Simple Interests

Sample Problem. Find the actual time and approximate time between the dates indicated:
a. Oct.18, 2015 to March 2, 2019
Actual Time Approximate time
2015: Oct 31 days Year Months Days
-18 2018 2 +12 = 14
13 2019 3 2 + 30= 32
Nov. 30 - 2015 10 10 18 18
Dec. 31 3 years 4 mo. 14 days
2016 365 3
2017 365 3 x 360 days 3 x 30 days 14 days
2018 365 1080 days + 90 days + 14 days
2019 Jan 31 = 1,1184 days
Feb 28
March 2
1,230 days
 Simple Interests

Sample Problem. Find the actual time and approximate time between the dates indicated:
a. August 21 to December 9
b. November 22, 2020 to March 2 2021
 Simple Interests

Ordinary Interest and Exact Interest

When time is expressed in days, interest could either be ordinary interest or
exact interest.
For ordinary interest, one year is taken as 360 days (approximate days in a year);
hence,

For exact interest, one year is taken as 365 days(exact days in a year); hence,
 Simple Interests

Sample Problem. Compute for (a) ordinary interest and (b) exact interest on P1,000.00 at 8%
for 90 days
Solution
Given: P = P 1000.00
r= 8 %
t = 90 days
Find:
a. Ordinary Interest

= P 20
b. Exact Interest
=1
= P 80 x 0.2466
= P P 19.73
Take note that ordinary interest is higher than exact interest. If the problem does not state, we
always solve for ordinary interest as that is the interest most commonly used.
 Simple Interests

Sample Problem. The Villarica Pawnshop charges 24% simple interest on the loan value of
all items pawned to them. If rose pawned her necklace for P 1,200, how much will she pay
the pawnshop after 90 days assuming Villarica Pawnshop charges the following?
a. Exact Interest
b. Ordinary Interest
 Simple Interests
Assessment:
A. Find the unknown principal (P), rate (r), time (t), and interest (I) by completing the table.

Principal (P) Rate (r) Time (t) Interest (I)

2,000 5% 3 (1)
(2) 12 5 20,000
88,000 (3) 4 8,000
500,000 9.5% (4) 285,000
1,000,000 0.5% 12 (5)

B. Complete the table by finding the unknown. Use a separate sheet for your answers.

Present Value (P) Rate (r) Time (t) Interest (I) Maturity Value (F)
8,000 8% 6 years (6) (7)
5,000 (8) 1 month (9) 6,000
(10) 12% 5 years and 3 400,000
months
 Simple Interests

A. Find the actual time and approximate time between the dates included:

1. September 21, 2007 to February 25, 2010

2. November 8, 2007 to October 18, 2010

B. Complete the table by finding the unknown. Use a separate sheet for your answers.

Present Value (P) Rate (r) D Ordinary Interest Exact Interest

1,250 5% 30
2,150 6% 90
3,480 1% per month 60
 Simple Interests
Assessment:
I. Match the terms in column A with the correct definitions in Column B. You may choose
more than one answer from Column B.
Column A Column B
(1) Principal A. time money is borrowed
(1) Term A. amount paid or earned for the use of money
(1) Interest A. percentage of increase of investment
(1) Maturity value A. amount of money borrowed or invested
(1) Interest Rate A. amount added by the lender, to be received on repayment
date
A. amount received on repayment date
II. Complete the table by finding the unknown.
Principal (P) Rate (r) Time (t) Interest (I) Maturity Value
(F)
60,000 4% 15 (1) (2)
(3) 12% 5 15,000 (4)
50,000 (5) 2 (6) 59,500
(7) 10.5% (8) 157,500 457,500
1,000,000 0.25% 6.5 (9) (10)
 Simple Interests

III. Solve the following problems.

1. Angel invested a certain amount at 8% simple interest per year. After 6 years the
interest she received amounted to P48,000. How much did she invest?
2. Justin borrowed P5,000 at 5% annual simple interest rate. If he decided to pay after
1 year and 3 months, how much should he pay by then?
3. How long will an amount of money double at a simple interest rate of 2% per
annum?
4. At what simple interest rate will an amount of money double itself in 10 years?
5. If a person borrowed P88,800 at an annual simple interest rate of 10 for 18
months, how much interest should he pay.
 Simple Interests

III. Solve the following problems.

1. Angel invested a certain amount at 8% simple interest per year. After 6 years the
interest she received amounted to P48,000. How much did she invest?
2. Justin borrowed P5,000 at 5% annual simple interest rate. If he decided to pay after
1 year and 3 months, how much should he pay by then?
3. How long will an amount of money double at a simple interest rate of 2% per
annum?
4. At what simple interest rate will an amount of money double itself in 10 years?
5. If a person borrowed P88,800 at an annual simple interest rate of 10 for 18
months, how much interest should he pay.
 Logarithms

Thanks for
Listening