SIMPLE

INTEREST
Skills CHECK
A. Try to input the following into your calculator:
1.) 96%
2.)1.25%
3.) 5 1Τ2 %
4.) 25 3Τ4 %
5.) 0.17%
Skills CHECK
B. Express the following in years:
1.) 6 months
2.) 75 months
3.) 457 days
4.) 75 days
Definition of Terms
1. Debtor or maker
- the person who borrows money for any purpose

2. Lender
- the person or institution which loans the money

3. Interest
- the payment for the use of borrowed money

4. Principal
- the capital or sum of money invested
Definition of Terms
5. Rate of interest
- the fractional part of the principal that is paid on the loan

6. Time or term
- the number of units of the time for which the money is
borrowed and for which interest is calculated
Definition of Terms
7. Final amount or maturity value
- the sum of the principal and interest which is accumulated at a
certain time

8. Present value
- the amount received by the borrower
Illustration
Mr. Mesa wants to borrow money amounting to 30 000 pesos from
Utangan Firm, an organization that lends money in order to provide
business capitals to those who needs it. Utangan Firm approved Mr.
Mesa’s loan request and they both agreed that Mr. Mesa should pay an
additional 3 000 pesos (10% of 30 000) pesos at the end of 1 year in
return of using the firm’s money. Hence, a year after Mr. Mesa
borrowed money, he must pay a total of 33 000 pesos to Utangan
Firm .
Concept Understanding
If you borrow money or make a loan, you return an amount higher
than what you borrowed.

If you save money, you lend your money to banks in exchange of an

amount which is higher than your savings.
Simple Interest
 interest in which only the original principal bears interest for
the entire term of the loan

simple
interest 𝐼 = 𝑃𝑟𝑡
rate
time
principal (in years)
Simple Interest 𝐼 = 𝑃𝑟𝑡
𝐼
𝑃 𝑟 𝑡
𝐼 𝐼 𝐼
𝑃= 𝑟=
𝑃𝑡
× 100 𝑡=
𝑟𝑡 𝑃𝑟
Example:
Jason borrowed 250 000 pesos 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?
Example:
If a principal of P 2,500 earns interest of P185 in 3 years and
3 months, what interest rate is in effect?
Exercise
How long will it take for P8,000 to earn P2, 400, if it is
invested at 6½% simple interest?
Exercise
Jose deposited 1 000 pesos today in a bank providing 3% simple
interest per year. He wants to have savings worth 1 450 in the
future. If he will not withdraw any amount, how long must he
wait?
Exercise
As preparation of John’s college studies, his parents want to save
an amount of 200 000 pesos after 3 years. If they decide to deposit
in a bank offering an annual simple interest rate of 2.5%, how
much do they need to deposit now?
SeatWork
1. Find the interest and final amount on P120, 000 at 4 1Τ4% simple interest
for 15 years.
2. If the simple interest rate is 7.5% and the amount of the principal is
P2,500, determine the future amount at the end of 20 months.
3. A certain investment earns P2,000 in 18 months at a rate of 8% simple
interest. How much is the principal investment?
4. If a principal of P2,500,000 earns interest of P 580, 125 in 3 years and 3
months, what simple interest rate is in effect?
5. How long will it take to accumulate P5,000 to P7,000 if simple interest
rate is 8%?
Ordinary vs. Exact Interest
Ordinary Interest, 𝑰𝒐
- assumes there are 360 days in a year

Exact Interest, 𝑰𝒆
- assumes there are 365 days in a year
Ordinary vs. Exact Interest
Notes:
• Ordinary interest is greater than exact interest.

• When interest (𝐼𝑜 or 𝐼𝑒 ) is not specified in any problem, it is

assumed as ordinary interest (𝐼𝑜 ).
Example
Find the ordinary interest on P6, 600 for 105 days at
8 5Τ8 % simple interest.
Example

Find the exact interest on P7, 700 for 150 days at 10 1Τ4 %
simple interest.
Exercise
Brian borrowed P30 000 from a financing company charging
4
11 % simple interest for 180 days. How much did Brian
5

pay back the company at the end of the term?

Exercise
Tisha is having difficulty in deciding as to which investment
firm she will choose: Executive Ventures, which offers
𝟏𝟏 𝟏Τ𝟒 % simple exact interest; or Elite Financing
Corporation offering 𝟏𝟎 𝟕Τ𝟖 % simple ordinary interest. If
she is to invest P200, 000 for 120 days which investment
firm will you recommend?
SeatWork
1. Find the amount due if P12, 200 was invested at 12 3/8% for
125 days using:
a.) Ordinary Interest
b.) Exact Interest

2. One hundred twenty five days after borrowing money, Krizia

pays an interest of P2, 850. How much did she borrow if the
7
simple interest rate is 8 %?
8

3. Asiong wants to have P80, 000 after 210 days. How much
1
should he invest now at 12 % simple exact interest?
5
Actual vs. Approximate TIME

Actual Time, 𝑨𝒄𝒕

- exact or actual number of days in any given month

Approximate Time, 𝑨𝒑𝒑

- assumes all months within a year contain 30 days
Example
Find the actual and approximate time from March 23 to
October 16, 2010.
Month Actual Approximate
March 8 7
𝐴𝑐𝑡 = 207 April 30 30
𝐴𝑝𝑝 = 203 May 31 30
June 30 30
July 31 30
August 31 30
September 30 30
October 16 16
Exercise
Find the actual and approximate time from January 15,
2012 to September 28, 2012.
Month Actual Approximate
January 16 15
𝐴𝑐𝑡 = 257 February 29 30
𝐴𝑝𝑝 = 253 March 31 30
April 30 30
May 31 30
June 30 30
July 31 30
August 31 30
September 28 28
Exercise
Find the actual and approximate time from May 15,2011 to
January 20, 2012.
Month Actual Approximate
May 16 15
𝐴𝑐𝑡 = 250 June 30 30
𝐴𝑝𝑝 = 245 July 31 30
August 31 30
September 30 30
October 31 30
November 30 30
December 31 30
January 20 20
Exercise
Find the actual and approximate time from October 18,
2013 to May 10, 2014.

𝐴𝑐𝑡 = 204
𝐴𝑝𝑝 = 202
Interest Between Dates
When interest is to be computed from a certain date to another
date inclusively, there are four methods of computations:
• Ordinary Interest for Actual Time (𝐼𝑜 − 𝐴𝑐𝑡)
• Ordinary Interest for Approximate Time (𝐼𝑜 − 𝐴𝑝𝑝)
• Exact Interest for Actual Time (𝐼𝑒 − 𝐴𝑐𝑡)
• Exact Interest for Approximate Time 𝐼𝑒 − 𝐴𝑝𝑝

Banker’s Rule - used by banks in computing the interest on savings deposits

Example

Find the interest using the four methods on P25, 000 at 5%

from August 2, 2012 to November 27, 2012.
Exercise

Using the four methods, find the interest on P9, 500 from
1
October 29, 2011 to March 18, 2012 at 10 % simple
4
interest.
Exercise

Glen borrowed P25, 000 from Godfrey on September 13,

2013 with a promise that he pays the principal plus
1
interest at 7 % using the banker’s rule. If he makes the
5
payment on March 3, 2014 , what amount is due?
Exercise

Find the ordinary interest and amount on P30, 000 at

2
3 % simple interest from November 5, 1991 to May 20,
5
1992 using approximate time.
Exercise
1
Find the interest and amount on P1.5 M at6 % simple
4
interest from March 15, 2013 to December 30, 2013
using Banker’s Rule.