Business

Mathematics
 Simple
Interest
Simple Interest
Interest
- this is the difference between the amount returned and the amount
borrowed.
- difference between the savings and the initial deposit
Simple Interest
- is an interest w/c is computed entirely at once from the moment the
money is borrowed or invested util it will be paid.
- the simple interest I is the amount equal to:
𝐈=𝐏 ×𝐫×𝒕
where;
P - is the principal
r – is the annual simple interest rate
t – is the time in years
Simple Interest
- algebraically, we can derive the formulas to find the principal, rate and time.

𝐈 𝐈 𝐈
𝐏= 𝐫= 𝐭=
𝐫𝐭 𝐏𝐭 𝐏𝐫
Principal/ Original Amount
- amount borrowed or invested
Rate
- is the percentage of principal payable per period of time.
- this is often expressed as a percentage per year (or per annum).
Example:

1.Find the amount of simple interest for each of the following:

a. P2,500 at 3.5% annual simple interest rate for 2 years

Solution:
𝐈=𝐏 ×𝐫×𝐭
I = 2 500 × 0.035 × 2
𝐈 = 𝐏 𝟏𝟕𝟓
b. P5,300 at 2% annual simple interest rate for 3.5 years
Solution:
𝐈=𝐏 ×𝐫×𝐭
I = 5 300 × 0.02 × 3.5
𝐈 = 𝐏 𝟑𝟕𝟏
Example:

1.Find the amount of simple interest for each of the following:

c. P10,000 at 4% annual simple interest rate for 6 months

Solution:
𝐈=𝐏 ×𝐫×𝐭
1
I = 10 000 × 0.04 × 2
𝐈 = 𝐏 𝟐𝟎𝟎
Example:
1
2. Jade earned P 5 000 for 3 years and 8 months at 5 4 % simple interest. How much
did he invested?
Solution:
Given:
I = P 5 000
r = 5.25% or 0.0525
8
t=3
12
𝐈
𝐏=
𝐫𝐭
5000
P= 8
0.0525(312)
𝐏 = 𝐏 𝟐𝟓 𝟗𝟕𝟒. 𝟎𝟑
Example:

3. Nathan deposited P 150 000 at USA Bank. His money earned a simple interest of P 2 134
for 2 years and 2 years and 5 months. Find the interest rate of the bank gave him?
Solution:
Given:
I = P 2 134
P = 150 000
5
t = 2 12
𝐈
r=
𝐏𝐭
2 134
r= 5
150 000(212)
𝐫 = 𝟎. 𝟎𝟎𝟓𝟖𝟖𝟕 𝐨𝐫 𝟎. 𝟓𝟖𝟖𝟕%
Example:

4. How many years are need to earn P 26 250 if P 75 000 is invested at 7%?
Solution:
Given:
I = P 26 250
P = 75 000
r = 𝟕%
𝐈
t=
𝐏𝒓
26 250 26 250
𝐭= =
75 000(0.07) 5 250
𝐭 = 𝟓 𝐲𝐞𝐚𝐫𝐬
Therefore, 5 years are needed to earn P 26 250 if P 75 000 is invested
at 7%.
Future Value
- The future value ( or accumulated value) of an amount P is the value of
P including all the interest earned at some future time t.

Theorem:
Theorem: Future Value under Simple Interest
If P is borrowed (or invested) at an annual simple interest rate r at time
t, then its future value, denoted by A, is given by:
𝐀 = 𝐏(𝟏 + 𝐫𝐭)
Example:

1.Andy borrowed P 250,000 from a bank at a simple interest rate of 2% per year.
How much interest must he pay after 5 years? How much is his debt after 5 years?
Solution:
Given:
P = 250,000
r = 0.02
t =5
Solve for the simple interest;
I = 250 000 × 0.02 × 5
I = P 25 000
Thus, the interest after 5 years is P25,000.

Therefore, Jason's debt after 5 years is 250,000 plus the interest worth 25,000,
which gives a sum of P275,000.
2.Henry deposited P1,000 today in a bank providing 3% simple interest per year. He
wants to have savings worth P1,450 in the future. If he will not withdraw any amount,
how long must he wait?
Solution:
Given:
P = P 1,000
r = 0.03
A(t) = P 1,450
A t = P 1 + rt
1 450 = 1000 1 + 0.03t
1 450 = 1000 + 30t
1 450 − 1000 = 30t
450 30t
=
30 30
𝐭 = 𝟏𝟓
Therefore, it will take 15 years for Henry's deposit to be P1,450.
Present Value
The present value of an amount A is the amount needed now to
accumulate A in time t.

Theorem:
Theorem: Present Value under Simple Interest
The present value of A at an annual simple interest rate r at a given time
t is given by;
𝐀
𝐏= 𝟏+𝐫𝐭
Example:
1. As preparation for Mae's college studies, her parents want to save an amount equivalent to
500,000 after 3 years. If the bank offers an annual simple interest rate of 3.5%, how much do they
need to deposit today?
Solution:
Given:
t=3
A(t) = P 500 000
r = 0.035
Solve for the present value;
𝐀
𝐏 = 𝟏+𝐫𝐭
𝟓𝟎𝟎 𝟎𝟎𝟎
𝐏 = 𝟏+𝟎.𝟎𝟑𝟓(𝟑)
𝟓𝟎𝟎𝟎𝟎𝟎
𝐏 = 𝟏+𝟎.𝟏𝟎𝟓
𝟓𝟎𝟎𝟎𝟎𝟎
𝐏 = 𝟏.𝟏𝟎𝟓
𝐏 = 𝟒𝟓𝟐 𝟒𝟖𝟖. 𝟔𝟗
Therefore, Mae’s parents need to deposit P 452 488.49 today.
2.Find the present value of the following at the given annual simple interest rate:

a. P 1000 after 2 years at 3% interest

Solution:
𝐀 𝟏𝟎𝟎𝟎
𝐏 = 𝟏+𝐫𝐭 = 𝟏+𝟎.𝟎𝟑(𝟐) = 𝐏 𝟗𝟒𝟑. 𝟒𝟎

b. P 2 500 after 5 years at 1.5% interest

Solution:
𝐀 𝟐 𝟓𝟎𝟎
𝐏= = = 𝐏 𝟐 𝟑𝟐𝟓. 𝟓𝟖
𝟏+𝐫𝐭 𝟏+𝟎.𝟎𝟏𝟓(𝟓)

c. P 10 000 after 10 years at 5% interest

Solution:
𝐀 𝟏𝟎 𝟎𝟎𝟎
𝐏 = 𝟏+𝐫𝐭 = 𝟏+𝟎.𝟎𝟓(𝟏𝟎) = 𝐏 𝟔 𝟔𝟔𝟔. 𝟔𝟕
3. Mrs. Cruz current has P 25 000 in an account providing 3% simple interest per year. She wishes to have P 50 000
in 3 years but she noticed that her savings is not enough to accumulate that amount. How much additional money
must she deposit today in order to achieve her goal?
Solution:
• Let x be the additional money needed to accumulate P 50 000 in 3 years.
Given:
A = P 50 000
r = 0.03
P = P 25 000 + x
t=3
Solve for x:
𝐀
𝐏 = 𝟏+𝐫𝐭
50000
25 000 + 𝑥 =
1 + 0.03(3)
50000
25 000 + 𝑥 =
1.09

25 000 + 𝑥 = 45 871.56
𝑥 = 45 871.56 − 25 000
𝑥 = 20 871.56
Therefore, Mrs. Reyes needs an additional deposit of P 20 871.56 today to achieve P 50 000 in 3 years.
Exercise 1:
1.Find the amount of simple interest of the following:
a. P 1 000 at 3% annual simple interest rate for 2 years
b. P 2 000 at 2.5% annual simple interest rate for 10 months
c. P 5 000 at 1% annual simple interest rate for 1.5 months
2.Complete the following table show your solution.

A P r t
1. P 5 000 5% 2 years
2. P 8 000 P 6 000 6 months
3. P 9 000 P 6 500 3.5%
4. P 10 000 2% 4 years
5. P 25 000 4% 15 moths
Compound
Interest