Lesson 3 simple interest
- 2. INTEREST Interest is the fixed amount paid on borrowed money. The sum lent is called the Principal. Interest is of two kinds: (i) Simple interest (ii) Compound interest Simple interest: When interest is calculated on the original principal for any length of time, it is called simple interest.
- 3. ANNUAL SIMPLE INTEREST Is = Prt where Is = simple interest P = principal or the amount invested or borrowed r = simple interest rate t = term or time in years Example 1: A bank offers 0.25% annual simple interest rate for a particular deposit. How much interest will be earned if 1 million pesos is deposited in this savings account for 1 year? Given: P = P 1,000,000.00 r = 0.25% = 0.0025 t = 1 year Find: Is Solution: Is = Prt Is = (P 1,000,000.00)(0.0025)(1) Is = P 2,500.00
- 4. Example 2: How much interest is charged when P 50,000.00 is borrowed for 9 months at an annual interest rate of 10%? Given: P = P 50,000.00 r = 10% = 0.10 t = 9 months = 9/12 = Find: Is Solution: Is = Prt Is = (P 50,000.00)(0.10)(0.75) Is = P 3,750.00
- 5. Maturity (Future) Value F = P + Is equation 1 -------- substituting Is = Prt where F = P + Is F = maturity (future) value F = P + Is = simple interest F = P(1 + rt) equation 2 P = principal or the amount invested or borrowed r = simple interest rate t = term or time in years
- 6. Example 3: Find the maturity value if 1 million pesos is deposited in a bank at annual simple rate of 0.25% after 5 years? Given: P = P 1,000,000.00 r = 0.25% = 0.0025 Find: maturity or future value (F) after 5 years Solutions: using equation 1: using equation 2 : F = P + Is F = P (1 + rt) F = (P 1,0000,000.00 + (P 1,000,000.00)(0.0025)(5) F = (P 1,000,000.00)(1 + (.0025)(5) F = P 1,000,000.00 + P 12,500.00 F = (P 1,000,000.00)(1.0125) F = P 1,012,500.00 F = P 1,012,500.00
- 7. Activity 1 Principal (P) Rate (r) Time (t) Interest (Is) P 2,000.00 5% 3 years (1) (2) 12% 5 years P 20,000.00 P 88,000.00 (3) 10 months P 8,000.00 P 500,000.00 9.5% (4) P 285,000.00 P 1,000,000.00 0.5% 8 months (5) Complete the table below. Use short bond paper (encoded or handwritten) Support your answers with solutions.
- 8. Activity 2 Complete the table below. Use short bond paper (encoded or handwritten) Support your answers with solutions. Present Value (P) Rate (r) Time (t) Interest (Is) Maturity Value (F) P 8% 6 years (1) (2) P (3) 1 month (4) P (5) 12% 5 years 3 months P 400,000.0
- 9. Assignment 1 VALUING Fatima borrowed money from your mother amounting to P 1,000.00 with an interest of 10%. Fatima is the best friend of your mother. What is your stand about this?
- 10. KEEP SAFE GOOD LUCK GOD BLESS Sir A