Simple Interest & Simple

Discount
Presented by:
Ms. Mikee Sim
Outline
Simple Interest
Exact and Ordinary Interest
Actual and Approximate Time
Simple Discount
Promissory Notes
Discounting Promissory Notes
 Definition of Terms
Lender / Creditor the person or institution that
makes the funds available to those who need it.
Borrower the person or institution that avails of
the funds from the lender.
Interest a certain sum of money that the lender
charges the borrower for the use of the funds.

TYPES OF INTEREST:
Simple Interest
Compound Interest
Simple Principal is the sum of
Interest money borrowed or
invested.
Three Factors:
Principal Interest Rate is the
Interest Rate rate charged by the
Time or Term of the lender or rate of increase
loan / investment
of the investment.
Formula:
Expressed in decimals
I=Prt Time or Term of the loan
I = Interest
P = Principal the number of years
r = rate the sum of money was
t = term of the loan in borrowed or invested.
years
 How much interest is charged
Simple
when P10,000 is borrowed for 2
Interest years at an interest rate of 3%?
Three Factors:
Principal
Given: P = P10,000
Interest Rate
Time or Term of the r = 0.03 I=?
loan / investment t=2
Solution:
Formula:
I = (10,000)(0.03)(2)
I=Prt I = P600
I = Interest
Answer:
P = Principal
r = rate
The interest charged for
t = term of the loan in
borrowing P10,000 for 2 years is
years P600.
Maturity Lucy borrowed P40,000 from a
lending firm that charges 6% per
Value or year. How much will she pay the
Future
- The sum of the
lending firm after 5 years?
principal and the
Amount
interest Given: P = P40,000
r = 0.06 F=?
Formula: t=5
F=P+I Solution:
F = 40,000 [ 1 + (0.06)(5) ]
F=P+Prt F = 40,000 (1.3)
F = P52,000
Answer:
F=P(1+ Lucy will have to pay P52,000 after
rt) 5 years.
 Determine the simple interest earned
Simple if P3,500 is invested at 15% interest
Interest rate in 245 days, (a) using exact
interest;
Two categories:
(b) using ordinary interest.
Exact Interest
Ordinary Interest
Given: P = P3,500
r = 0.15 I=?
number of days
te = t = 245
Solution (a):
365 Ie = P r t e
Ie = 3,500 (0.15) 245
number of days Ie = P352.40
365
to = Answer:
The simple interest earned is
360
P352.40 using exact interest.
 Determine the simple interest earned
Simple if P3,500 is invested at 15% interest
Interest rate in 245 days, (a) using exact
interest;
Two categories:
(b) using ordinary interest.
Exact Interest
Ordinary Interest
Given: P = P3,500
r = 0.15 I=?
number of days
te = t = 245
Solution (b):
365 Io = P r t 0
Io = 3,500 (0.15) 245
number of days
Io = P357.29 360
to = Answer:
The simple interest earned is
360
P357.29 using ordinary interest.
 How much will the maturity value of
Maturity P5,000 be in 48 days if interest rate is
at 20%, (a) using exact interest and
Value or (b) using ordinary interest.
Future
Two categories: Given: P = P5,000
r = 0.20 F=?
Amount
Exact Interest
Ordinary Interest t = 48
Solution (a):
number of days F = P ( 1 + r te )
te =
F = 5,000
365
48
F = P5,131.51 1 (0.2) 365
number of days
Answer:
to = P5,000 will accumulate to P5,131.51
360 using exact interest.
 How much will the maturity value of
Maturity P5,000 be in 48 days if interest rate is
at 20%, (a) using exact interest and
Value or (b) using ordinary interest.
Future
Two categories: Given: P = P5,000
r = 0.20 F=?
Amount
Exact Interest
t = 48
Ordinary Interest
Solution (b):
number of days F = P ( 1 + r to )
te =
F = 5,000
365
48
F = P5,133.33 1 (0.2) 360
number of days Answer:
to = P5,000 will accumulate to P5,133.33
using ordinary interest.
360
Actual Time Find the actual time and
approximate time between April
and 15 and December 21 of the
Approximate
Origin date same year.
Time
Maturity date Given: Origin date: April 15
Maturity date: Dec. 21
Actual time is obtained
by counting the actual Actual time = ?
number of days between
the two given dates.
Solution (a):
Mont Apr May Jun Jul Aug
h
Approximate time is No. 30 31 30 31 31
obtained by counting of 15 =
the actual number of days 15
days between the two
Mont Sep Oct Nov Dec Total
given dates but on the
h
assumption that each
month has 30 days. No. 30 31 30 21 250
Answer:
of
days are 250 actual
There days from
April 15 to December 21.
Actual Time Find the actual time and
approximate time between April
and 15 and December 21 of the same
Approximate
Origin date year.
Given: Origin date: April 15
Time
Maturity date
Maturity date: Dec. 21
Actual time is obtained
by counting the actual Approximate time = ?
number of days between Solution (b):
the two given dates. Mont Apr May Jun Jul Aug
h
Approximate time is No. 30 30 30 30 30
obtained by counting of 15 =
the actual number of days 15
days between the two
Mont Sep Oct Nov Dec Total
given dates but on the
h
assumption that each
month has 30 days. Answer:
No. 30 30 30 21 246
of
There
daysare approximately 246 days
from April 15 to December 21.
Actual Time Mr. Buenaobra borrowed P10,000
on June 25, 2012. If the maturity
and value is to be paid on November
Approximate
Origin date 18 of the same year at 15%
interest, how much should he pay
Time
Maturity date
given each set of conditions
Actual time is obtained below?
by counting the actual
number of days between
the two given dates. a.Exact interest for the
approximate time;
Approximate time is b.Ordinary interest for the
obtained by counting approximate time;
the actual number of
days between the two c.Exact interest for the actual
given dates but on the time; F=P(1+rt)
assumption that each
month has 30 days. d.Ordinary interest for the actual
time?
Actual Time Mr. Buenaobra borrowed P10,000
on June 25, 2012. If the maturity
and value is to be paid on November
Approximate
Origin date 18 of the same year at 15%
interest, how much should he pay
Time
Maturity date
given each set of conditions
Actual time is obtained below?
by counting the actual
Given: Origin date: June 25, 2012
number of days between
the two given dates. Maturity date: Nov. 18, 2012
P = P10,000
Approximate time is Mont r Jun
= 0.15Ju Au F Se
= ? Oc No Tota
obtained by counting h l g p t v l
Approximate time
the actual number of
days between the two No. 30 3 30 30 30 18 143
given dates but on the of 25 = 0
assumption that each days 5
month has 30 days. Mont Jun Ju Au Se Oc No Tota
h
Actual time l g p t v l
No. 30 3 31 30 31 18 146
of 25 = 1
days 5
 Mr. Buenaobra borrowed P10,000 on
Actual Time June 25, 2012. If the maturity value is
and to be paid on November 18 of the
same year at 15% interest, how much
Approximate
Origin date should he pay given each set of
Time
Maturity date conditions below?
Given: Origin date: June 25, 2012
Approx. time: 143 Maturity date: Nov. 18, 2012
days P = P10,000
Actual time :146 days r = 0.15 F=?
Solution (a):Exact interest for the approx.
time?
F=P(1+rt)
F = P ( 1 + 1rt(e0).15) 143

365
F = 10,000

F = P10,587.67
 Mr. Buenaobra borrowed P10,000 on
Actual Time June 25, 2012. If the maturity value is
and to be paid on November 18 of the
same year at 15% interest, how much
Approximate
Origin date should he pay given each set of
Time
Maturity date conditions below?
Given: Origin date: June 25, 2012
Approx. time: 143 Maturity date: Nov. 18, 2012
days P = P10,000
Actual time :146 days r = 0.15 F=?
Solution (b): Ordinary interest for the
approx. time?
F=P(1+rt)
r t ) 143
F=P(1+
1 (0o .15)
360
F = 10,000

F = P10,595.83
 Mr. Buenaobra borrowed P10,000 on
Actual Time June 25, 2012. If the maturity value is
and to be paid on November 18 of the
same year at 15% interest, how much
Approximate
Origin date should he pay given each set of
Time
Maturity date conditions below?
Given: Origin date: June 25, 2012
Approx. time: 143 Maturity date: Nov. 18, 2012
days P = P10,000
Actual time :146 days r = 0.15 F=?
Solution (c): Exact interest for the actual
time?
F=P(1+rt)
r t ) 146
F=P(1+
1 (0e .15)
365
F = 10,000

F = P10,600
 Mr. Buenaobra borrowed P10,000 on
Actual Time June 25, 2012. If the maturity value is
and to be paid on November 18 of the
same year at 15% interest, how much
Approximate
Origin date should he pay given each set of
Time
Maturity date conditions below?
Given: Origin date: June 25, 2012
Approx. time: 143 Maturity date: Nov. 18, 2012
days P = P10,000
Actual time :146 days r = 0.15 F=?
Solution (d): Ordinary interest for the
actual time?
F=P(1+rt)
r te )
F=P(1+ 146
1 ( 0 .15)
360
F = 10,000

F = P10,608.33
 Self-Check Exercises
1. What is the maturity value if P10,000 is invested for 3 years at a rate
of 12% per annum?
2. At what interest rate will a sum of money triple itself in 10 years time?
3. How long will it take for P7,000 to have a maturity value of P12,000 if it
is invested at 15% interest?
4. How much is the exact interest earned if P4,500 is lent at 12% iterest
for 125 days?
5. What is the maturity value of P12,500 if it is invested at 15% simple
interest for 250 days using ordinary interest?
6. An amount of P16,250 is invested at 13% simple interest for 275 days.
a.) What are the exact and ordinary interests?
b.) Compare the results from a. How much more interest would you
earn if you chose the higher value?
7. What is the exact number of days between April 14, 2012 and January
11, 2013?
8. What is the approximate number of days from September 21, 2011 to
April 14, 2012?
Simple
Discount Formula:
Is the simple interest
collected or deducted in
Id = F d t
advance from the amount
of loan.

Proceeds of the loan, Pr

- The amount that is left
after the interest is Formula:
deducted.

Three factors:
Pr = F - I d
Maturity value of the
loan, F Pr = F F d t
Discount rate, d
Time/term of the loan,
t
Pr = F ( 1 - d t )
 How much interest will be deducted
Simple from a loan worth P20,000 after 3
Discount years with a discount rate of 6%?
How much will the proceeds of the
Id = F d t loan be?
Given: F = P20,000
d = 0.06 Id = ?
Pr = F - Id t = 3 years Pr = ?
Solution:
Id = F d t Pr = F I d
Id = 20,000 (0.06)(3) Pr = 20,000
Pr = F ( 1 - 3,600
dt) Id = P3,600 Pr = P16,400
Answer:
The interest on the origin date is
P3,600 and the borrower will
receive P16,400 on the origin date.
 Samson wants to borrow P12,000
payable in two years at 12% discount
Simple rate. How much will Samson receive
Discount on the origin date? How much will he
pay on the maturity date
Id = F d t Given: F = P12,000
d = 0.12 Pr = ?
t = 2 years
Solution:
Pr = F - Id Pr = F ( 1 d t )
Pr = 12,000 [ 1 ( 0.12 ) ( 2 ) ]
Pr = P9,120
Pr = F ( 1 - Answer:
Samson will receive P9,120 on the
dt) origin date. However, he would pay
P12,000 on the maturity date since
the interest has already been
deducted in advance.
Promissory
Notes Simple Interest Note
Is a written promise
term May 8, 2012
drawn by a person or
an institution (drawer) 30 days after date, I promise to pay
to another person or WC Lending Corporation the sum of four
institution (drawee) to thousand three hundred pesos (P4,300) plus a
pay a certain amount 12% interest per annum.
of money at a face value
specified time and interest rate drawee Mary-Anne Raymundo
interest rate.
maturity date drawer
Two types of June 7,
promissory notes: 2012
Simple Interest Note
Bank Discount Note
Promissory
Notes Bank Discount Note
Is a written promise
term of discount October 31, 2012
drawn by a person or
an institution (drawer) Sixty (60) days after the above date, the
to another person or undersigned promises to pay XYZ Bank for the
institution (drawee) to use of ten thousand two hundred pesos
pay a certain amount (P10,200) at 10% discount rate. drawee
of money at a
specified time and discount rate Ronnie del Rosario
face value
interest rate.
maturity date drawer
Two types of
promissory notes: December 30,
Simple Interest Note 2012
Bank Discount Note
 February 20, 2015

I, the undersigned, promise to pay in forty-

five days (45 days) after the date above the
amount of forty-eight thousand pesos (P48,000),
plus 9% simple interest to Mr. Ronald A. Cheng
as full payment for the motorcycle.

Rendell L. Ignacio

February 27, 2015

Ninety days (90 days) after the date above,

the undersigned promises to pay Page
Garments Corporation the amount of twenty-
nine thousand pesos (P29,000), at 11% discount
rate as payment for the cash advance.

Marcell D. Ravelo
Discounting Jose issued a simple interest
note worth P15,000 to William
Notes
the procedure of selling on October 12, 2012. It matures
the notes to individuals
or other institutions
after 2 months with an interest
before its maturity date. rate of 15%. If William decides
to sell it to Gina on November
STEPS IN DISCOUNTING A 15, 2012, what will the
SIMPLE INTEREST NOTE:
1. Find the maturity value
proceeds of the note be if Gina
of the simple interest charges 16% interest?
note.
2. Determine the
discount period or Given: P = P15,000 t
discount term. This is the
time from the date the
= 2/12 years
note is discounted to the r = 0.15 d = 0.16
maturity date.
3. Find the proceeds Pr = ?
using the discount rate
and the discount period.
Discounting Given: P = P15,000 t = 2 /
12 years
Notes
the procedure of selling
r = 0.15 d = 0.16
the notes to individuals
or other institutions Pr = ?
before its maturity date.
Solution:
STEPS IN DISCOUNTING A Step 1
SIMPLE INTEREST NOTE:
1. Find the maturity value F = P ( 1 + r t)
2
1 (0.15) 12
of the simple interest
note.

2. Determine the F = 15,000
discount period or
discount term. This is the
time from the date the F = P15,375
note is discounted to the
maturity date.
3. Find the proceeds
using the discount rate
and the discount period.
Discounting Given: P = P15,000 t = 2 /
12 years
Notes
the procedure of selling
r = 0.15 d = 0.16
the notes to individuals
or other institutions Pr = ?
before its maturity date.
Solution:
STEPS IN DISCOUNTING A Step 2
SIMPLE INTEREST NOTE:
1. Find the maturity value Discount Date: November 15
of the simple interest Maturity Date: December 12
note.
2. Determine the
discount period or
discount term. This is the
November (30-15)
time from the date the 15
note is discounted to the
maturity date. December 12
3. Find the proceeds 27 days
using the discount rate
and the discount period.
 Given: P = P15,000 t = 2 / 12
Discounting years
Notes
the procedure of selling r = 0.15 d = 0.16
the notes to individuals
or other institutions Pr = ?
before its maturity date. Solution:
STEPS IN DISCOUNTING A
Step 3
Id = F d t
0.16 27
SIMPLE INTEREST NOTE:
1. Find the maturity value
of the simple interest
Id = 15,375 360
note. Id = P184.50
2. Determine the
discount period or
discount term. This is the Pr = F Id
time from the date the
note is discounted to the Pr = 15,375 184.50
maturity date.
Pr = P15,190.50
3. Find the proceeds
using the discount rate Answer: William will receive
and the discount period. P15,190.50 for selling the simple
interest note issued to Gina.
 Trake Inc. received a P150,000 bank
Discounting discount note for 6 months at 5%
Notes simple discount. After 2 months,
the procedure of Trake Inc. decided to sell the note to
selling the notes to the bank. How much proceeds did
individuals or other
Trake Inc. get from the sale of this
institutions before its
maturity date. note?
Given: F = P150,000
STEPS IN d = 0.05
DISCOUNTING A
Pr = ?
BANK NOTE:
Solution:
1. Determine the
discount period. This Id = F d t Pr = F I d
is the time from the Id = 150,000 Pr = 150,000
date the note is 2,500 0.05 4
discounted to the Id = P2,500
12
P r = P147,500
maturity date.
Answer:
2. Find the proceeds
using the discount Trake Inc. will receive P147,500 from the
rate and the discount sale of the bank discount note.
 Self-Check Exercises
1. How much discount interest will there be if P12,500 is due at the
end of 3 years with a 12% discount rate?
2. What are the proceeds of a P125,000 loan at the end of 4 years if
the simple discount rate is 9%?
3. How much is the amount due at the end of 5 years if the
proceeds are P12,000 and the discount rate is 7.5%?
4. What is the face value of a 120-day simple interest note if the
maturity value is P7,250 and the simple interest rate is 15%?
5. What is the discount rate charged on a P20,000, 8-month
discount note, with proceeds at P19,500?
6. Mike holds a P32,400 simple interest note at 12.5%, which is
payable at the end of a year, from Carlo. If Mike decides to sell
the note 5 months after the origin date, how much will he receive
if the discount rate is 13.5%?
7. What are the proceeds of a P5,500 bank discount note that is
payable at the end of 6 months, but discounted after 5 months,
at a 15% discount interest rate?