Module 1 SIMPLE INTEREST

Prepared by:
JAN MARIE P. LUBUGUIN, MAT

MATH INSTRUCTOR
SLSU - Infanta
MAT13 – Mathematics of Investment 2nd Semester, AY 2020-2021
MODULE 1
If someone borrowed money from a bank or to an individual, that someone is

expected to pay a certain amount for the use of money. The payment for the use of
money is called interest.
There are three factors that will determine the amount of interest that is
charged for loan. They are: 1) Principal; 2) Interest rate; and 3) Time of term.
Learning Objectives
At the end of this module, you should be able to:
1. Define simple interest;
2. Identify appropriate formula in solving simple interest;
3. Solve problems involving simple interest;
4. Compute for ordinary and exact interest; and
5. Find exact time and approximate time between two dates.
Discussion
Simple Interest
Interest plays an important role in our daily lives. The most common type is
the simple interest. Actually the interest we earn and pay is normally calculated
through different methods.
The official discovery of interest was found in 16th century by Jacob
Bernoulli. He introduced a constant ‘e’ for the interest. He gave a formula
limit n approaches infinity (1 + 1/n) ^ n = e, where n represents the number of times
the interest is compounded in a year.
There are two types of interest: simple interest and compound interest. In this
module we will discuss simple interest, which is interest earned only on the original
principal invested.
JPLubuguin 2
Simple Interest Formula

Interest is the sum of money paid for the use of another’s money. It is expense
to the one who borrows the money and income to the one who lends the money. The
amount borrowed or invested is called principal (p). The sum of the principal and the
interest is called the amount.
In calculating simple interest, we use the formula:
If time is given in months or days, convert this to year using these formulas:
numberofmonths
1. t =
12
numberofdays
2. t =
360
numberofdays
3. t =
365
Note: Unless specified, 360 days is used in all simple interest computations.
Examples:
4months 1
1. t = 4 months; t=  year
12months 3
year
4days 1
2. t = 60 days; t=  year
360days 6
year
The final amount or maturity value at end of t years can be solved using:
F=P+I
JPLubuguin 3
Derived Formulas from I = Prt and F = P + I

I
1. P =
rt
I
2. r = x100%
pt
I
3. t =
pr
4. F = P + I, where I = Prt
F
5. P =
(1  rt )
6. I = F – P
Example 1:
Find the interest on Php 2,500 at 6% simple interest for 5 years.
Given:
P = Php 2,500
r = 6% or .06
t = 5 years
Required: I
Solution:
I = Prt
I = Php 2,500(0.06)(5)
I = Php 750.00
Example 2:
What is the simple interest rate on Php 30,000 for 6 ½ years if money earns
Php 6,500?
Given:
p = Php 30,000
t = 6 ½ years or 6.5 years
I = Php 6,500
Required: r
JPLubuguin 4
Solution:
I
r= x 100
pt
Php6,500
r= x100
Php30,000(6.5)
r = 3.33%
Example 3:
If Php 4,500 is the interest at 10% after 3 months, how much was borrowed?
Given:
I = Php 4,500
r = 10% or 0.10
1 3 1
t = 3 months x  or or 0.25
12 12 4
Required: p
Solution:
I
p=
rt
Php4,500
p=  Php180,000
0.10(0.25)
Example 4:
How long will it take for Php 5,000 to become Php 6,500 at 6% simple interest?
Given:
P = Php 5,000
F = Php 6,500
R = 6% or 0.06
Required: t
Solution:
I
t=
pr
JPLubuguin 5
FP
t=
pr
Php6,500  Php5,000 Php1,500

t=   5 years
Php5,000(0.06) Php300
Example 5:
Accumulate Php 5,000 at 9% for 7 years.
Given:
P = Php 5,000
R = 9% or 0.09
T = 7 years
Required: F
Solution 1:
I = Prt
I = Php 5,000(0.09)(7)
I = Php 3,150
F=P+I
F = Php 5,000 + Php3,150
F = Php 8,150
Solution 2:
F = P(1 + rt)
F = Php 5,000[1 + 0.09(7)]
F = Php 8,150
JPLubuguin 6
Repayment
Whenever money is borrowed, the total amount to be paid back equals the
principal borrowed plus the interest charged.
Total repayments = principal + interest
Normally, the money paid back in regular installment is either monthly or
weekly. To compute the regular payment amount, we divide the total amount to be
repaid by the number of months (weeks) of the loan period, therefore:
principal  int erest
Monthly payment amount =
loanperiod, t , inmonths

Weekly payment amount =
loanperiod, t , inweeks
Note: There are 12 months or 52 weeks in a year.

Example:
Carla purchases an iPod by obtaining a simple interest loan.
The iPod cost Php 40,000 and the interest rate on the loan is 7%. If the loan
is to be paid back in weekly installments over 2 years, calculate
a. The amount of interest paid over 2 years;
b. The total amount to be paid back; and
c. The weekly payment amount
Given:
P = Php 40,000
R = 7% or 0.07
Repayment time: t = years
Required: I, F, weekly payment amount
Solution:
a. Amount of interest paid
I = Prt
I = Php 40,000(0.07)(2)
I = Php 5,600
JPLubuguin 7
b. Total repayment
Total repayment = principal + interest

= Php 40,000 + Php 5,600
= Php 45,600
c. Weekly payment amount

Weekly payment amount =
loanperiod, t , inweeks
Php45,600
=
2(52)
= Php 438.46
Ordinary and Exact Interest

If the time is in terms of days and the interest rate is in percent per year, two
types of interest may be used, ordinary and exact interest.
Ordinary interest assumes 360 days in a year
Exact interest assumes 365 days in a year
Io = denotes ordinary interest
Ie = denotes exact interest
Formulas:
d d
Io = pr ( ) and Ie = pr ( )
360 365
Example 1:
Find the ordinary and exact interest on Php 12,000 at 5% for 120 days.
Given:
P = Php 12,000 r = 5% or 0.05 d = 120 days
Required: Io and Ie
JPLubuguin 8
Solution:
d
Ordinary Interest Io = pr ( )
360
120
Io = Php 12,000(0.05) ( )
360
Io = Php 200
d
Exact Interest Ie = pr ( )
365
120
Ie = Php 12,000(0.05) ( )
365
Ie = Php 197.26
Example 2
Find the ordinary interest and the amount of Php 15,500 at 7.5% for 90 days.
Given:
P = Php 15,500
R = 7.5% or 0.075
D = 90/360
Required: Io and F
Solution:
d
Ordinary Interest Io = pr ( )
360
190
Io = Php 15,500(0.075) ( )
360
Io = Php 290.63
Amount F = P + Io
F = Php 15,500 + Php 290.63
F = Php 15,790.63
JPLubuguin 9
Finding the Exact Time and Approximate Time between Two Dates
In computing for the simple interest, when the time given is between two dates,
you can compute the exact or actual time and approximate time.
In exact time, we consider that in one calendar year we have 365 days, 366
year for leap year while in approximate time, we consider 360 days in one year (30
days every month).
Example 1:
Find the approximate number of days from March 15, 2010 to July 2011.
Given:
March 15, 2010 – July 22, 2011
Required: Approximate number of days
Solution:
We use the format (YYYY MM DD)
Where:
YYYY = year; MM = months; DD = days
For March 15, 2010 For July 22, 2011
YYYY = 2010 YYYY = 2011
MM = 03 MM = 07
DD = 15 DD = 22
We subtract March 15, 2010 from July 22, 2011
YYYY MM DD
2011 07 22
-2010 -03 15
1 4 7
1 year 4 months 7 days
1 x 360 days 4 x 30 days 7 days
360 + 120 + 7 = 487 days
Example 2:
Find the exact or actual number of days from June 24, 2001 to March 15, 2002.
Given:
June 24, 2001 March 15, 2002
JPLubuguin 10
Required: Exact number of days

Solution 1:
June 24 = (30-24) = 6 days
July = 31 days
August = 31 days
September = 30 days
October = 31 days
November = 30 days
December (2001) = 31 days
January (2002) = 31 days
February = 28 days
March = 15 days
264 days
Solution 2: Using Table A

June 24, 2001 = (365 – 175) = 190 days
March 15, 2002 = 74 days
264 days
JPLubuguin 11
Table A
The Number of Each Day of the Year
JPLubuguin 12
When the time is given between two dates another way of computing interest
is by means of 4 methods:
Banker’s Rule
Actualdays
1) Io = Pr ( )
360
Approximatedays
2) Io = Pr ( )
360
Actualdays
3) Ie = Pr ( )
365
Approximatedays
4) Ie = Pr ( )
365
Example:
Find the interest on Php 10,000 at 6% simple interest from July 15,2001 to
October 20, 2002. (Use the Banker’s Rule)
Given:
P = Php 10,000
R = 0.06
July 15, 2001; Oct 20, 2002
Required: 4 methods of computing interest
Solution:
Approximate no. of days
YYYY MM DD
2002 10 20
-2001 07 15
1 year 3 months 5 days
(1 x 360 days) + (3 x 30 days) + 5 days = 455 days
Actual no. of days

July 15, 2001 (365 – 196) = 169 days
October 20, 2002 = 293 days
462 days
Actualdays 462
1) Io = Pr ( ) = Php 10,000 (0.06) ( ) = Php 770
360 360
JPLubuguin 13
Approximatedays 455
2) Io = Pr ( ) = Php 10,000 (0.06) ( ) = Php 758.33
360 360
Actualdays 462
3) Ie = Pr ( ) = Php 10,000 (0.06) ( ) = Php 759.45
365 365
Approximatedays 455
4) Ie = Pr ( ) = Php 10,000 (0.06) ( ) = Php 747.95
365 365
Summary
Interest (I) is the money paid for the use of borrowed money.
Principal (P) is the amount of money borrowed or invested.
Interest rate (r) is the rate, or percent stated on annual (or yearly basis).
Maturity value or accumulated amount of final value (F) is the increased amount
resulting from the increase process. It is the sum of principal (P) plus interest (I)
Time is the term of loan; the length of time over which principal is used.
Evaluation
Answer the following. Write your answer on a sheet of yellow paper.
1. Find the simple interest on Php 4,500 at 6.5% for
a. 1 year
b. 4 months
c. 60 days
2. Jason borrows Php 15,000 from PAG-IBIG at 6% for 12 months payable

monthly for the same period. How much will he pay every month?
3. What will be the accumulated amount of Php 12,530 if the simple interest rate
is
a. 8%
b. 10 3/4%
4. Thelma borrowed Php 20,000. After 6 months she repaid her loan with an
interest amounting to Php 2,300. What was the interest rate?
5. How long will it take for Php 21,000 at 9% simple interest to earn:
a. Php 5,600
b. Php 7,000
JPLubuguin 14
6. Find the ordinary and exact interest on Php 10,000 at 7% simple interest for:
a. 30 days
b. 60 days
7. Find the ordinary interest and final amount of Php 15,000 for 90 days at
a. 5 ¼%
b. 12%
8. Find the approximate number of days from

a. July 25, 2008 to May 25, 2010
b. March 15, 2016 to September 12, 2018
9. Find the interest using Banker’s rule on Php 2,500 at 8.5% simple interest from:
a. July 30, 2010 to August 5, 2011
b. May 5, 2017 to October 14, 2017
10. Find the ordinary interest, using actual number of days, on Php 12,500 at 8
½% from:
a. August 3, 2019 to March 24, 2020
b. November 15, 2018 to March 6, 2019
Videos to Watch
https://www.storyofmathematics.com/simple-interest-formula
https://www.investopedia.com/ask/answers/042315/what-difference-between-
compounding-interest-and-simple-interest.asp
References
Arao, Rosalia, R., Copo, Antonio Roland I., Laddaran, Angeline T., Gabuyo, Yonardo,
A. and Villanueva, Antonio Jr. P. 2015. Mathematics of Investment. Manila: Rex
Book Store, Inc.
The Committee Department of Business Mathematics and Statistics, College of
Business Administration, University of the East. 2010. Mathematics of Investment.
Quezon City: Rex Book Store, Inc.
https://www.mathsisfun.com/money/interest.html
JPLubuguin 15

Module 1 SIMPLE INTEREST

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Module 1 SIMPLE INTEREST

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Prepared by:

JAN MARIE P. LUBUGUIN, MAT

If someone borrowed money from a bank or to an individual, that someone is

Simple Interest Formula

Derived Formulas from I = Prt and F = P + I

Php6,500  Php5,000 Php1,500

principal  int erest

Note: There are 12 months or 52 weeks in a year.

Total repayment = principal + interest

c. Weekly payment amount

principal  int erest

Ordinary and Exact Interest

Required: Exact number of days

Solution 2: Using Table A

Actual no. of days

2. Jason borrows Php 15,000 from PAG-IBIG at 6% for 12 months payable

8. Find the approximate number of days from

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