2. INTEREST
Interest is the fixed amount paid on
borrowed money. The sum lent is called the
Principal.
Interest is of two kinds: (i) Simple interest
(ii) Compound interest
Simple interest: When interest is calculated
on the original principal for any length of
time, it is called simple interest.
3. ANNUAL SIMPLE INTEREST
Is = Prt
where
Is = simple interest
P = principal or the
amount
invested or
borrowed
r = simple interest
rate
t = term or time in
years
Example 1:
A bank offers 0.25% annual simple interest
rate for a particular deposit. How much
interest will be earned if 1 million pesos is
deposited in this savings account for 1
year?
Given: P = P 1,000,000.00 r = 0.25% =
0.0025 t = 1 year
Find: Is
Solution: Is = Prt
Is = (P 1,000,000.00)(0.0025)(1)
Is = P 2,500.00
4. Example 2:
How much interest is charged when P 50,000.00 is borrowed for 9
months at an annual interest rate of 10%?
Given: P = P 50,000.00 r = 10% = 0.10 t = 9 months = 9/12 =
Find: Is
Solution: Is = Prt
Is = (P 50,000.00)(0.10)(0.75)
Is = P 3,750.00
5. Maturity (Future) Value
F = P + Is equation 1 -------- substituting Is = Prt
where F = P + Is
F = maturity (future) value F = P +
Is = simple interest F = P(1 + rt)
equation 2
P = principal or the amount
invested or borrowed
r = simple interest rate
t = term or time in years
6. Example 3:
Find the maturity value if 1 million pesos is deposited in a bank at
annual simple rate of 0.25% after 5 years?
Given: P = P 1,000,000.00 r = 0.25% = 0.0025
Find: maturity or future value (F) after 5 years
Solutions:
using equation 1: using equation 2 :
F = P + Is F = P (1 + rt)
F = (P 1,0000,000.00 + (P 1,000,000.00)(0.0025)(5) F = (P
1,000,000.00)(1 + (.0025)(5)
F = P 1,000,000.00 + P 12,500.00 F = (P
1,000,000.00)(1.0125)
F = P 1,012,500.00 F = P 1,012,500.00
7. Activity 1
Principal (P) Rate (r) Time (t) Interest (Is)
P 2,000.00 5% 3 years (1)
(2) 12% 5 years P 20,000.00
P 88,000.00 (3) 10 months P 8,000.00
P 500,000.00 9.5% (4) P 285,000.00
P
1,000,000.00
0.5% 8 months (5)
Complete the table below.
Use short bond paper (encoded or
handwritten)
Support your answers with
solutions.
8. Activity 2
Complete the table below.
Use short bond paper (encoded or
handwritten)
Support your answers with
solutions.
Present
Value (P)
Rate (r) Time (t) Interest
(Is)
Maturity
Value (F)
P 8% 6 years (1) (2)
P (3) 1 month (4) P
(5) 12% 5 years
3 months
P
400,00.00
