9.1 Compute simple interest Interest = Principal x Rate x Time t Pox Re T ‘Calculate the interest paid on a loan of $5,680 for tone year at a 10.256 simple interest rate $5,680 « 0.1021 5579.36 Find the interest paid on a loan of $3,790 for 8 months at a 9.8% simple interes rate $3,790 x 0.098 x f 5247.61 7 9.1 Compute ordinary and exact interest. For ordinary interest, divide number of days by 360 days. For exact interest, divide number of days by 365 days. Calculate the interest paid on a loan of $4,300 for 90 days at a simple interest rate of 12.496, = $4,300 « 0.124% $3, r= $133.30 ‘ovdinary interest [= $4,300 «0.124 « $3, resi31a7 ‘exact interest Compute maturity value of a loan. If principal and interest ace known, then Maturity Value = Principal + Interest Mt area Compute the maturity value of a loan of $4,300 with $131.47 interest M~ $4,300 + $131.47 Ms $4431.47 Compute due date, Determine number of days in specified period of time for each month, “The loan date is Apil 15. The loan is due in 120 days, Apel 15 days remaining May 31 days June 30days July _31.day TO7 days total | Subtract days counted from days due to determine | due dite. e 120 days ~ 107 days = 13 days, oF August 13.CONCEPTS EXAMPLES 9.1 Caleulate principal, rate, and time from simple interest formula. Principal: p= What isthe principal needed to earn $100 interest Jn 120 days at 936. $100 _ $100 0.09» BE ~ 0.03 ~ 8933398 What isthe interest rate on a loan of $4,000 for 90 days that earns $50 in interest? $50, $50 = 850, = $50 0.052.595 ¥4,000 x ~ $1,000 What is amount of time for a loan of $7,000 at 6.5% that earns $151.67 interest? pa —SISL7__ | $151.67 77000 » 0.088 "$455 (0.333 x 360 day = 0.333 years ‘Annote for $2,000 at 93% due in 6 months, has been discounted 1496 thirty days before maturity date. Calculate interest. Pox RxT= 1 $2,000 x 0.09 #5 = $90.00 Calculate maturity value. Poe ta M $2,000 + $90 = $2,090 Calculate bank discount Mix DxT= 8 $2,090 x 0.14 38, = $24.38, Calculate proceeds. Mon B= P $2,090 - $24.38 = $2,065.62 Ia bank discounts a note when the note has a number (of days lft before maturity, find the term of the ds- Count period after calculating the maturity value and then calculate the bank discount and the proceeds. 9.3 Calculate compound interest. {f $3,000 is invested for 2 years at 1296 compounded ‘quarterly, compute the compound amount and compound interest 1296 + 4 = 3% per quarter, 4 petiods per year; 2 years x 4 = 8 periods From Table 9-3, the value = 1.26677008 ‘Compound value = $3,000 x 1.26577008 3,800.31 ‘Compound interest = $3,800.31 ~ $3,000 = $800.31CONCEPTS | EXAMPLES 9.3. Caleulate present value. How much money must be invested today to end Lup with $8,000 in 3 years compounded semiannually at 1096? 10% + 2 = 596 per half year 2 periods per year; 3 years x 2 = 6 periods From Table 9-4, the value = 0.74621540 ‘Amount needed today = $8,000 x 0.74621540 = $5,969.72