MATH1a-Finals-Lesson-2

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MATHEMATICS OF

FINANCE
SIMPLE INTEREST
Interest is the cost for the use of
money.

Principal is called to the amount


deposited in a bank or borrowed from a
bank.
Interest rate is the percent used to
determine the amount of interest.

Time is the duration of deposit or loan.


The interest paid on the original principal
is called simple interest

The unit of time is usually expressed as


annual interest rates. .

This means that we will assume interest


rate to be annual unless specified.
When the duration of a loan is less
than a year, the time shall have a
value of a fraction of a year.

For example,

the interest rate of a loan payable in 2


years is 2.5%, the value shall be 2

while a loan that is due in nine


months with an interest rate of 1.7%
shall have a value of 9/12.
A daily/monthly interest rate shall have a
daily/monthly unit of time.

For instance, a two-year loan of Php 2,500


bears an interest rate of 0.05% monthly.

In this example the time shall have a value


of 24 since there are 24 months in two
years.
Simple Interest Formula

 I = Prt, where
 I is the amount of interest,
 P is the principal amount,
 r is the rate of interest that must be
expressed in decimal, and
 t is the time.
Simple Interest

 Example:
 You have deposited Php 5,000 in a
Savings Bank on May 25, 2022 with an
interest rate of 3% and have withdrawn
it on May 25, 2023. Calculate the simple
interest.
Simple Interest

 Example:
 I = Prt

 I = (Php 5.000) (0.03)(1)

 I = Php 150
Simple Interest

 Example:
 A loan of Php 3,000 bears an interest
rate of 2% per month. If the loan shall
be paid in 4 months, how much is the
interest?
Simple Interest
 Example:
 Solution: In this example, Php 3,000 is the principal
amount (P), 2% is the interest rate (r), and the time (1) is 4
since the interest rate is monthly.
Calculate the interest.
 I = Prt
 I = (Php 3,000) (0.02)(4)
 I = Php 240
Simple Interest

 Example:
 Your savings deposit of Php 7,000 earns
a simple interest of 5%. How much is the
interest for 9 months?
Simple Interest
 Example:
 Solution: Here, Php 7,000 is the principal (P), 5% is the
interest rate (r), and the time (t) is 9/12. It is 9/12 since the
interest rate is annual, and the duration of the savings is 9
months. Calculate the interest.
 I = Prt

 I = (Php 7,000) (0.05)(9/12)

 I = Php 262.50
Simple Interest

 Note:
 The time shall be measured in the same
period as the interest rate. Now if the
interest rate is annual and the time is in
days, we need to express the time as a
fractional part of a year. We can use either
the exact method or the ordinary
method.
Simple Interest

 Note:
 In exact method,
t = (number of days/ 365)
 while in ordinary method
t = (number of days / 360)
 In most businesses, ordinary method is
used unless otherwise stated.
Simple Interest

 Example:
 Calculate the simple interest due on a
72-day loan of Php 3,000 if the annual
interest rate is 4%.
Simple Interest

 Example:
 Solution: We will substitute the following values in
the simple interest formula:
 P=Php 3,000, r = 4%, and t = 72/360.

 Hence, the interest is:


 I = Php 3,000) (0.04) (72/360)
 I = Php 24.
 In case the unknown is the principal (P),
or the rate of interest (r), or the time (t),
the formula is still I = Prt.
 Just substitute the given values in the
formula, then manipulate the equation
to solve for the unknown.
Formulas

 Simple Interest
 Principal Amount
 Interest rate
 Time / Duration
Seatwork/Activity
Compute the simple interest earned. Round off to the nearest
peso.

P r t I

50,000 10% 1 year


Php
150,000 9.75% 6 months
Php
16,000 12% 45 days
Php
THANK YOU! GOD BLESS!

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