INTEREST: Simple Interest

Simple Recall!
Interest
– amount paid or earned for the use of money
- amount added to the principal amount borrowed.

Principal amount
– amount of money borrowed or invested on the origin date.
- the borrowed or invested amount.

Interest rate
-the annual rate, usually in percent (%), charged by the lender, or rate of
increase of the investment.
- the length of time the principal is invested or borrowed.

Maturity (Future) Value

- It is the amount after t years that the lender receives from the borrower on
the maturity date.

Maturity (Future) Date

- date on which the money borrowed or loan is to be completely paid.
Simple Interest
-interest that is computed on the principal and then added
to it.
-is an interest that is computed only on the principal
amount over a certain period of time.

I=P•R•T

Where:
P = principal amount
R = interest rate
T = length of time ( in years)
All About Time
• Keep in mind that the term t is expressed in years in the
formulas. If the given term is in months or days, you need to
do some conversions.
Derived Formulas

• There are other formulas that you

have to be familiar with. These
formulas were all derived from
I = Prt and F= P(1 +rt)

𝐼 𝐼 𝐼 𝐹
I = Prt P= t= r= P=
𝑟𝑡 𝑃𝑟 𝑃𝑡 1+𝑟𝑡
Complete the table below by finding
the unknown.
𝐼 𝐼 𝐼 𝐹
I = Prt P= t= r= P=
𝑟𝑡 𝑃𝑟 𝑃𝑡 1+𝑟𝑡
Complete the table below by finding
the unknown.
𝐼 𝐼 𝐼 𝐹
I = Prt P= t= r= P=
𝑟𝑡 𝑃𝑟 𝑃𝑡 1+𝑟𝑡
Simple Interest / Maturity value Formulas:

𝐼 𝐼 𝐼 𝐹
I = Prt P= t= r= P=
𝑟𝑡 𝑃𝑟 𝑃𝑡 1+𝑟𝑡

Maturity date of due date

- end of term
- date on which the money borrowed or loan is to be
completely paid.

Maturity (Future) value (M)

- the sum of the principal and the interest
- It is the amount after t years that the lender receives from
the borrower on the maturity date
F= P + I F= P + Prt F= P(1 + rt)
Example for Maturity Value
 Simple Interest
1. Engelbert invests ₱ 250,000 in his friends company. His
investment will earn a simple interest rate of 5% per year.
How much interest will he earn after 5 years? How much is
the amount to be repaid on the due date?

Solution:
P = ₱ 250,000 ; r = 5% 0r 0.05; t= 5 years
I=P•R•T
= ₱ 250,000 (0.05) (5)
I = ₱ 62, 500
F=P+I F = P (1 +rt)
= ₱ 250, 000 + ₱ 62, 500 = ₱ 250, 000 (1+ (0.05)(5))
= ₱ 250, 000 (1 + 0.25)
F = ₱ 312, 500 F = ₱ 312, 500
 Simple Interest
3
2. Louie borrowed an amount of ₱ 200,000 at 3 % from L.O.V.E
4
Lending Corporation. The loan is payable after 1 year and 3
months. Find the simple interest and the amount to be repaid on
the due date.

Solution:
3 3
P = ₱ 200, 000 ; r = 3 % 0r 3.75 0r 0.0375; t= 1
4 12
I=P•R•T
3
= ₱ 200,000 (0.0375) (1 ) = ₱ 200,000 (0.0375) (1.25)
12
I = ₱ 9, 375

F=P+I F = P (1 +rt)
= ₱ 200, 000 + ₱ 9,375 = ₱ 200, 000 (1+ (0.0375)(1.25))
= ₱ 200, 000 (1 + 0.046875)
F = ₱ 209,375 F = ₱ 209,375
 Simple Interest
3. After 2 years and 5 months, Francesca earned a simple interest
of ₱ 7,600 from her ₱ 170,000 investment in a company. What
was the annual interest rate given to her?

Solution:
5
P = ₱ 170,000 ; I= ₱ 7, 600; t= 2 or 2.416666667
12

𝐼 ₱ 7, 600 ₱ 7, 600
r= x 100= = (₱ 170,000 )(2.416666667)
(100)
(₱ 170,000)(2 )
5
𝑃𝑡 12
r = 0.0184989858 (100)
r = 1.84989858
r = 1.85
 Simple Interest
1
4. Zedrick Jade earned ₱ 5,000 for 8 months at 54% simple
interest. How much did he invest?

Solution:
1 8
I = ₱ 5,000; r = 5 % 0r 5.25 05 0.0525 (divide by 100); t=
4 12

𝐼 ₱ 5,000 ₱ 5,000
P= = =
𝑟𝑡 (0.0525)( 8 ) (0.0525)(12
8
)
12
P = ₱ 142, 857. 1429
P = ₱ 142, 857. 14