Math 1f

Lecture:
SIMPLE INTEREST

When people need to secure funds for some purposes, one of the ways they
usually resort to is borrowing. On the other hand, the person or institution, which lends
the money would also wish to get something in return for the use of money.
Debtor/Maker – the person who borrows money for any purpose
Lender – the person or institution which loans the money
Interest – the payment for the use of borrowed money is called interest
Principal – the capital or sum of money invested, the original amount borrowed.
Rate of Interest – The fractional part of the principal that is paid on the loan and is
usually expressed as percent.
Time or term of the loan – is the number of units (days, months, years) of the time for
which the money borrowed and for which interest is calculated.
Final Amount/ Maturity Value – the sum of the principal and the interest which is
accumulated at a certain time
Present Value/Proceeds - The amount received by the borrower
Types of Interest
Simple Interest – interest in which only the original principal bears interest for the entire
term of the loan. Here, the principal and present value is equal.
Compound Interest – interest added to the principal at the end of a certain period of
time after which the interest is computed on the new principal and this process is
repeated until the end of the term of the loan is reached.
Simple Interest
Defined as the product of principal, rate and time
I=Pxrxt
Where:
I = simple interest
P = principal
r = rate of interest
 t = time (may be expressed in years, months or days)
Other formulas can be derived from the formula:

𝐼 𝐼 𝐼
P = 𝑟𝑡 r = 𝑃𝑡 t = 𝑃𝑟

Final amount formula:

F=P+I ;I=F-P
F = P + Prt
F = P (1 + rt)
*** When the time is expressed in number of years, our formula will be:
I = P x r x number of years
***When the time is expressed in number of month (s)
𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑚𝑜𝑛𝑡ℎ(𝑠)
I=Pxrx 12

***When the time is expressed in number of days, there are two (2) ways of computing
interest:
a. Ordinary Interest = (IO)
𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑑𝑎𝑦𝑠
IO = P x r x 360
b. Exact Interest = (Ie)
𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑑𝑎𝑦𝑠
Ie = P x r x 365

Illustrative Examples:
Activity No. 1
1. Find the interest and amount on P8000 at 6 ½ % simple interest for 5 years
Given:
P = P8,000.00
r = 6 ½ % or .065
t = 5 years
Solution:

I = Prt
= P8,000.00 x .065 x 5
= P2,600.00
 F=P+I
= P8,000.00+ 2,600.00
= P10,600.00

Or

F = P [1 + (rt)]
= P8,000.00 [1 + (.065 x 5)]
= P8,000.00 (1.325)
= P 10,600.00

2. Find the interest and amount of P9,000.00 at 7 ¼ % simple interest for 9 months
Given:
P = P9,000.00
r = .0725
t = 9/12 or .75
I = Prt
= P9,000 x .0725 x .75
= P489.38
F=P+I
= P9,000.00 + P489.38
= P9,489.38
Or
F = P [1 + (rt)]
= P9,000.00 [ 1 + (.0725 x .75)]
= P9,000.00 (1.054375)
= P 9, 489.38
3. If a principal of P25,000.00 earns interest of P1,850.00 in 3 years and 3 months,
what interest rate is in effect?
Given:
P = P25,000.00
I = P1,850.00
t = 3 3/12 or 3.25

𝐼
r=
𝑃𝑡
𝑃 1,850.00
r= x 100
𝑃 25,000 𝑥 3.25
𝑃 1,850.00
= x 100
𝑃 81,250
= .0228 x 100
= 2.28%

4. How long will It take for P 8,000.00 to earn P2,400, if it is invested at 6 ½ %

simple interest?
Given:
P = P8,000.00
I = 2,400.00
r = .065

𝐼
t=
𝑃𝑟
𝑃 2,400.00
t=
𝑃 8,000 𝑥 .065
𝑃 2,400.00
=
𝑃 520.00

= 4.62 yrs
Quiz 1
1. Pilo borrowed P45,000.00 for 2 years and 8 months and paid P3,750.00 interest.
What was the simple interest rate?
Given:
P = P45,000.00
8
t = 2 12 or 2.66666667

I = P3,750.00
r=?
𝐼
r= x 100
𝑃𝑡
𝑃 3,750.00
= x 100
𝑃 45,000 ( 2.66666667)
𝑃 3,750.00
= x 100
𝑃 120,000.00
= .0313 x 100
= 3.13%

5
2. Pam loans P18,500.00 at 9 % simple interest, how long will it take her to get
6
P6,800 interest?
Given:
P = P18,500.00
5
r = 9 6 or .09833333

I = P6,800.00
𝐼
t =
𝑃𝑟
𝑃6,800.00
t=
𝑃18,500 (.098333333)
𝑃6,800.00
=
𝑃1,819.17

= 3.74 yrs
 3
3. Find the final amount due if P12,200.00 was invested @ 128 for 125 days using:
a. Ordinary interest
b. Exact interest
c. How much would be the gain for a and b
Given:
P = P12,200.00
r = .12375
t = 125/360

a. F = P [1+(rt)]
F = P12,200.00 [1 +(.12375 x 125/360)]
= P12,200.00 (1.04296875)
= P12, 724.22
b. F = P [1+(rt)]
F = P12,200.00 [1 +(.12375 x 125/365)]
= P12,200.00 (1.042380137)
= P12, 717.04
c. gains for
a:
I=F–P
I = P12,724.22 – P12,200.00
I = P524.22
gains for
b:
I=F–P
I = P12,717.04 – P12,200.00
I = P517.04

4
4. Find the final amount due if P14,400.00 was invested @ 155 for 250 days using:
d. Ordinary interest
e. Exact interest
f. How much would be the gain for a and b
Given:
P = P14,400.00
r = .158
t = 250/360
 a. F = P [1+(rt)]
F = P14,400.00 [1 +(.158 x 250/360)]
= P14,400.00 (1.109722222)
= P15,979.68
b. F = P [1+(rt)]
F = P14,400.00 [1 +(.158 x 250/365)]
= P14,400.00 (1.108219178))
= P15,958.36
c. gains for
a:
I=F–P
I = P15,979.68 – P14,400.00
I = P1,579.68
gains for
b:
I=F–P
I = P15,958.36 – P14,400.00
I = P1,558.36

5. What final amount and interest should be paid on the maturity date to settle a
120 day loan if the present value is P40,000 at 9 ½ % simple interest?
Given:
P = P40,000.00
r = .095
t = 120/360

F = P [1+(rt)]
F = P40,000.00 [1 +(.095 x 120/360)]
= P40,000.00(1.0317)
= P41,266.67

I=F–P
I = P41,266.67 - P40,000.00
I = P1,266.67
 6. An investment of P60,000 will amount to how much after 310 days if the rate is
1
13 3 % simple interest? How much was the interest gained?

Given:
P = P60,000.00
r = .133333333
t = 310/360

F = P [1+(rt)]
F = P60,000.00 [1 +(.13333333 x 310/360)]
= P60,000.00(1.114814812)
= P66,888.89 or P66,887.17

I=F–P
I = P66,888.89 – P60,000.00
= P6,888.89 or P6,887.17

Time Between two dates

When time is expressed between two dates, it is necessary to determine the

actual and approximate time:
Actual Time is the exact or actual number of days in any given month.
Approximate Time where all the months within in a year contain 30 days.

Illustrative Example:
Find the actual and approximate time from March 23, 2005 to October 16, 2005:
Actual Time:
March (31-23) = 8 days
April = 30 days
May = 31 days
June = 30 days
July = 31 days
 August = 31 days
September = 30 days
October = 16 days
Total = 207 days
Approximate:
March (30-23) = 7days
April = 30 days
May = 30 days
June = 30 days
July = 30 days
August = 30 days
September = 30 days
October = 16 days
Total = 203 days

Or
Year Month Day
2005 10 9 16 + 30 = 46
2005 3 23 ________
6 x 30 23
180 + 23 = 203 days

When interest is to be computed from a certain date to another date inclusively,

there are four methods of computations, namely:
a. Ordinary Interest for actual time
b. Ordinary Interest for approximate time
c. Exact Interest for actual time
d. Exact Interest for approximate time
Illustrative Example:
1. Find the interest using the four methods on P8,000 at 11 ½ % from August 2,
2006 to November 27, 2006.
Given:
P = P8,000.00
r = .115
t = August 2, 2006 – November 27, 2006
Actual time:
August (31 -2) = 29 days
September = 30 days
October = 31 days
November = 27 days
117 days
Approximate time:
Year Month Day
2006 11 27
2006 8 2 ________
3 x 30 25
90 + 25 = 115 days
a. Io - Actual
Io = P8,000.00 x .115 x 117/360
= P299.00
b. Io - Approximate
Io = P8,000.00 x .115 x 115/360
= P293.89
c. Ie - Actual
Ie = P8,000.00 x .115 x 117/365
= P294.90
 d. Io - Approximate
Io = P8,000.00 x .115 x 117/365
= P289.86

Activity No. 2
1. Using the four methods, find the interest on P9,500 from October 29, 2007 to
March 18, 2008 at 10 ¼ % simple interest.
Given:
P = P9,500.00
r = .1025
t = October 29, 2007 – March 18, 2008
Actual time:
October (31-29) = 2 days
November = 30 days
December = 31 days
January = 31 days
February = 29 days
March = 18 days
141 days
Approximate time:
Year Month Day
20087 3 2 + 12 = 14 18 + 30 = 48 days
2007 10 29_______
4 x 30 19 days
12019 = 139 days
a. Io - Actual
Io = P9,500.00 x .1025 x 141/360
= P381.39
 b. Io - Approximate
Io = P9,500.00 x .1025 x 139/360
= P375.98
c. Ie - Actual
Ie = P9,500.00 x .1025 x 141/365
= P376.16

d. Ie - Approximate
Ie = P9,500.00 x .1025 x 139/365
= P370.83

Amount and Present Value at Simple Interest

Accumulation is the process of determining the amount F of a given principal P
due at a specified time t. To accumulate a principal P for t years means to solve for the
final amount by applying the formula
F = P (1 +rt)
Discounting is the process of determining the present value P of any amount
due in the future. To discount the amount F for t years, means to solve for P applying
the formula
𝐹
P=
(1+𝑟𝑡)

Illustrative Examples:
1. A businessman borrows P9,900 for 2 years at 9 ¼ % simple interest. What
amount must he repay?
Given:
P = P9,900.00
r = .0925
t = 2 years
 F = P (1 +rt)
= P9,900.00 [1 + (.0925 x 2)]
= P11,731.50
2. Discount P5,500 for 11 months at 14 ¼ % simple interest.
Given:
F = P5,500.00
r = .1425
t = 11/12 months
𝐹
P=
(1+𝑟𝑡)
𝑃5,500.00
= 11
[1+(.1425 𝑥 )]
12

= P4,864.57
Quiz No. 2

1
1. Find the interest on P10,500 at 118% from September 4, 2004 to February 14,
2005 using the four methods.
Given:
P = P10,500.00
r = .11125
t = September 4, 2004 – February 14, 2005
Actual time:
September (30-4) = 26 days
October = 31
November = 30 days
December = 31 days
January = 31 days
February = 14 days
163 days
Approximate time:
Year Month Day
2005 4 2 + 12 = 14 14
2004 9 4______
5 x 30 = 150 10 days
150 + 10 = 160 days

a. Io - Actual
Io = P10,500.00 x .11125 x 163/360
= P528.90

b. Io - Approximate
Io = P10,500.00 x .11125 x 160/360
= P519.17
c. Ie - Actual
Ie = P10,500.00 x .11125 x 163/365
= P521.66

d. Ie - Approximate
Ie = P10,500.00 x .11125 x 160/365
= P512.06

2. Accumulate P20,500 for 110 days at 11 ½ % simple interest.

Given:
P = P20,500.00
r = .115
t = 110/360
F = P (1 +rt)
= P20,500.00 [1 + (.11125 x 110/360)]
= P21,220.35

5
3. Discount P18,800 for 2 years and 9 months at 98% simple interest

Given:
F = P18,800.00
r = .09625
9
t = 212 or 2.75

𝐹
P=
(1+𝑟𝑡)
𝑃18,800
=
[1+(.09625 𝑥 2.75)]
𝑃18,800
=
(1.2646875)

= P14,865.33

2
4. Find the interest rate on P11,100 at 115% simple interest from December 19,
2008 to March 4, 2009 using the four methods.
Given:
P = P11,100.00
r = .114
t = December 19, 2008 – March 4, 2009
Actual time:
December (31-19) = 12 days
January = 31 days
February = 28 days
March = 4 days
75 days
Approximate time:
Year Month Day
2009 8 3 2+ 12 = 14 4 + 30 = 34
2008 12 19_____
2 x 30 = 60 15 days
60 15 = 75 days

a. Io - Actual
Io = P11,100.00 x .114 x 75/360
= P263.63

b. Io - Approximate
Io = P11,100.00 x .114 x 75/360
= P263.63
c. Ie - Actual
Ie = P11,100 x .114 x 75/365
= P260.01

d. Ie - Approximate
Ie = P10,500.00 x .114 x 75/365
= P260.01

2
5. Accumulate P22,700 for 115 days at 12 5% simple interest

Given:
P = P22,700.00
r = .124
t = 115/360
 F = P (1 +rt)
= P22,700.00 [1 + (.124 x 115/360)]
= P23,599.17

4
6. Discount P17,700 for 3 years and 3 months at 105% simple interest

Given:
F = P17,700.00
r = .108
3
t = 312 or 3.25

𝐹
P=
(1+𝑟𝑡)
𝑃17,700.00
=
[1+(.108 𝑥 3.25)]
𝑃17,700.00
=
(1.351)

= P13,101.41
Simple Discount
A discount is a deduction from the final amount F. A simple discount is often
called bank discount or interest in advance. The amount of money that the borrower
receives is called proceeds.
Bank discount or interest in advance can be computed by means of the formula:
Id = Fdt
Where:
Id = simple discount
F = final amount
d = discount rate
t = time or term of discount

Other formulas that can be derived from above:

𝐼 𝐼 𝐼
d= t= F=
𝐹𝑡 𝐹𝑑 𝑑𝑡
Present value formula : P = F – Id or P = F (1-dt)
𝑃
Final amount formula : F =
(1−𝑑𝑡)
Illustrative Example:
1
1. Mr. Patdu borrowed P15,800 for 9 months from Ms. Jawo who charged 11 8 %
simple discount. How much money did Mr. Patdu receive?
Given:
F = P15,800.00
d = .11125
t = 9/12 or .75
Id = Fdt
= P15,800.00 x .11125 x .75
= P 1,318.31
P = F - Id
= P15,800 – P 1,318.31
= P 14,481.69
2. How much loan should Mr. Kamlon ask for, if he needs P12,500 cash which will
4
be repaid in two years and three months with 105% simple discount?

Given:
P = P12,500.00
r = .108
3
t = 212 or 2.25

𝑃
F=
(1−𝑑𝑡)
12,500
=
[1−(.108 𝑥 2.25)]

= P16,512.55
 SIMPLE ANNUITIES

ANNUITY – is a sequence of equal periodic payments made at equal time

intervals for purpose of paying a loan or creating a fund. Interest payments on bonds,
premiums on insurance , payments on installment purchases, and payments of rent are
examples of annuity.

PAYMENT INTERVAL – is the period of time between successive payments.

TERM OF AN ANNUITY - is the time from the beginning of the first payment
interval to the end of the last.

Classification of Annuities

Annuity Certain – an annuity whose term is fixed, that is, the term starts and
ends on definite dates. Monthly payment on installment purchases is an annuity certain
since the payment starts on a definite date and continue regularly until the last payment.
Contingent Annuity - an annuity whose term depends on some uncertain
events. Many life insurance policies are examples of contingent annuity
Perpetuity - an annuity whose payments continue forever

Simple Annuity – an annuity whose payment interval is the same as the

interest period.

Types of Simple Annuity

Ordinary Annuity - an annuity whose periodic payments are paid at the end of
each payment interval. The first payment is made at the end of the first period
Annuity due - an annuity whose payments are due at the beginning of each
payment period. The first payment is due immediately at the beginning of the first
period.
Deferred annuity - an annuity whose first payment is deferred or postponed,
and is to start at some future date.
Present Value of an Ordinary Annuity
Formula: A = R a n i Use Table V

Where : A = Present value

R = periodic payment
n = number of conversion period
i = rate per conversion period

 The value of a n i can be found on the Table V

Use Scientific Calculator

1−(1+𝑖)−𝑛
A=[ ]
𝑖

Illustrative Examples:

1. Find the present value of an annuity of P2,500.00 for 22 years and 9 months
at 12% compounded quarterly
Given: R = P 2,500.00
j = 12% or .12
m=4
t = 22 years and 9 months
= 22.75
n = 4 x 22.75
= 91
i = .12/4 = .03 (3%)
Find
A: =Ran i
= P2,500.00 (a 91 3%)
= P2,500.00 (31.07029820) from table V
= P 77,675.75
 Using Scientific Calculator:

1−(1+.03)−91
A = P2,500.00 [ ]
.03

= P2,500.00 (31.0702982)
= P 77,675.75

2. An alumnus of a certain University wants to provide a P250,000.00 research

fellowship at the end of each year for the next 5 years. If the university can
invest money at 8% effective, how much should the man give now to set up a
fund for the scholarship?

Given: R = P250,000.00
j = 8% or .08
m =1
t = 5 years
n=1x5=5
i = .08 / 1 = .08
Find
A: =Ran i
= P250,000.00 (a 5 8%)
= P250,000.00 (3.99271) from table V
= P 998, 177.50

Using Scientific Calculator:

1−(1+.08)−5
A = P250,000 [ ]
.08

= P2,500.00 (3.99271)
= P 998,177.50
 Amount of an Ordinary Annuity

Formula: S = R s n i Use Table V

Where : S = Amount of the annuity

R = periodic payment
n = number of conversion period
i = rate per conversion period

 The value of s n i can be found on the Table VI

Use Scientific Calculator

(1+𝑖)𝑛 −1
S=[ ]
𝑖

Illustrative Examples:

1. Find the amount of an annuity of P1,200 at the end of each 6 months for 4
years at 16% converted semi-annually.
Given: R = P 1,200
j = 16% or .16
m=2
t=4
n = 2x4
=8
i = .16/2 = .08 (8%)
Find S =Rsn i
= P1,200.00 (s 8 8%)
= P1200.00 (10.6366276) from Table VI
= P12, 763.95
 Using Scientific Calculator:

(1+.08)8 −1
S = P1,200.00 [ ]
.08

= P1,200.00 (10.6366276)
= P 12,763.95

2. A father deposits P1,000.00 every 3 months for 5 years in a bank that pays
12% compounded quarterly. Assuming that no withdrawals are made, how
much would be in his account at the end of 5 years?
Given: R = P 1,000.00
j = 12% or .12
m=4
t=5
n = 4x5
= 20
i = .12/4 = .03 (3%)

Find S =Rsn i
= P1,000.00 (s20 3%)
= P1,000.00 (26.8703745) from Table VI
= P26,870.37

Using Scientific Calculator:

(1+.03)20 −1
S = P1,000.00 [ ]
.03

= P1,000.00 (26.8703745)
= P 26,870.37
Periodic Payment of an Ordinary Annuity
Formula: When present value is given
𝐴 𝐴
R = 𝑎 𝑛 ┐𝑖 R= 1−(1+𝑖)−𝑛
[ ]
𝑖

When amount is given

𝑆 𝑆
R = 𝑠 𝑛 ┐𝑖 R= (1+𝑖)𝑛 −1
[ ]
𝑖

Illustrative Examples:
1. If money is worth 12% compounded monthly, how much must a man save
monthly to accumulate P200,000 in 2 years?

Given: S = P200,000.00
j = 12% or .12
m = 12
t = 2 years
n = 2 x 12 = 24
i = .12/12 = .01 (1%)
𝑆
Find R = 𝑠 𝑛 ┐𝑖
𝑃200,000.00
= 𝑠 24 ┐ 1%
𝑃200,000.00
= from Table VI
26.973465

= P7,414.69

Using Scientific Calculator:

𝑃200,000.00
R = (1+.01)24 −1
[ ]
.01

𝑃200,000.00
= 26.973465

= P7,414,69
2. To help finance the purchase of a house and lot a couple borrows
350,000.00. The loan is to be repaid in equal monthly installment over a
period of 8 years. If the interest rate is converted monthly. How much is the
monthly payment at 15% interest, m = 12?

Given: A = P350,000.00
j = 15% or .15
m = 12
t = 8 years
n = 12 x 8 = 96
i = .15/12 = .0125 (1.25%)
𝐴
Find R = 𝑎 𝑛 ┐𝑖
𝑃350,000.00
= 𝑎 96 ┐ 1.25%
𝑃350,000.00
= from Table V
55.72457

= P6,280.89

Using Scientific Calculator:

𝑃350,000.00
R = 1− (1+.0125)−96
[ ]
.0125

𝑃350,000.00
= 55.72457

= P6,280.89