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SIMPLE INTEREST
Simple interest is essentially the interest charged to a
borrower or earned by a lender for a full term of the
loan.
If the bank charges “Simple Interest” then Alex just pays another 10% for
the extra year.
That is how simple interest works … pay the same amount of interest every
year…
Simple Interest Formula
𝐼 = 𝑃𝑟𝑡
where
• 𝐼 = interest
• 𝑃 = amount borrowed ‘Principal’
• 𝑟 = interest rate
• 𝑡 = time
Example 1:
Alex borrows ₱1,000 for 5 Years, at 10% simple interest. How much is
the total amount that Alex will pay to the bank after 5 Years?
Example 2:
Suppose you want to borrow money from your friend to buy a
concert ticket for your favorite band. Since you prefer a front row
seat, the cost of the concert ticket you need to buy is ₱10,000. Your
friend agreed to lend you ₱10,000 payable in 12-months and with
interest rate of 5% per annum. How much will be the interest that
you have to pay your friend? How much in total amount you need to
pay at the end of 12-month period?
Example 3:
Suppose you have savings. Your friend approached you and asked if you
can lend him ₱10,000 for his tuition fee payment. He said he is willing
to pay 5% interest per annum payable in 6 months. You agreed with the
terms. How much interest should your friend pay you after 6 months?
How much is the total amount you should receive after 6 months?
Example 4:
Telco A has a tie-up promotion with Bank B in its latest smartphone
offering bundled with their postpaid plan. The smartphone costs
₱30,000. Credit card holders of Bank B can avail of the promo of
reduced installment interest rate from 5% to 3% per month if they avail
of the 24-month installment plan. If you will avail of the promo, how
much will be your equal monthly installment payment payable to Bank
B using the simple interest method? How much interest will you save in
availing the promo?
Example 5:
You decided to purchase a ₱50,000 LED TV through your credit card.
After a month, you discovered from your statement of account that
you were charged with ₱1,000 interest. How much was the monthly
interest rate applied to your credit card purchase?
EXAMPLE 6: Complete the table below by finding the
unknown
EXAMPLE 8:
If an entrepreneur applies for a loan amounting to ₱500,000 in a
bank, the simple interest of which is ₱157,500 for 3 years, what
interest rate is being charged?
EXAMPLE 9:
How long will a principal earn an interest equal to half of it at 5%
simple interest?
Maturity (Future) Value
EXAMPLE 1:
Find the maturity value if 1 million pesos is deposited in bank at an
annual simple interest rate of 0.25% after (a) 1 year and (b) 5 years?
EXAMPLE 2: Complete the table by finding the unknown.
Principal (P) Rate (r) Time (t) Interest (I) Maturity Value
(F)
60,000 4% 15 (1) (2)
(3) 12% 5 15,000 (4)
50,000 (5) 2 (6) 59,500
(7) 10.5% (8) 157,500 457,000
1,000,000 0.25% 6.5 (9) (10)