Simple interest
- 2. • In business, capital is very important.However, not all business owners always have enoughcapital to sustain their business. More oftenthannot, they have to borrow money for use in thebusiness. It is in thiscontextthatinterestplays an importantrole. Borrowers need to pay intereston the money thatthey borrow.
- 3. If you borrow P 1,000.00 at an interest rate of 1% per monthfor 1 month,you will have to pay theamountthatis equal to the principal multipliedby the rate by theterm. ◘ Determinethe; a.Principal– b.Rate– c.Term– P1000 1% 1month
- 4. • Principal is the amount borrowed. • Rate (interest rate) is the cost of using the money expressed as a percent of the principal for a given period of time, which is usually per year. It is generally regarded as the cost of borrowing or lending out money or the cost of credit. • Time is the term of period of the loan. If youborrowP1,000.00ataninterest rateof1% permonthfor1 month,you will haveto paythe amountthatis equal tothe principalmultiplied bythe rateby the term. a.Principal–P1000 b.Rate–1% c.Term–1month
- 5. • The amount of money charged for the use of borrowed money is interest expense from the point of view of the borrower. Borrower/ Debtor Lender/ Creditor Point of view - Debtor
- 6. • The amount of money earned on invested money or money lent is Interest Income Borrower/ Debtor Lender/ Creditor Point of view - Creditor
- 7. BasicFormula I =Prt where I –Interest (amount paid for the useof money) P –principal (amount borrowed/lent/invested) r– rate(percent of interest being charged) t – time (number of periods for which the money will be borrowed/ lent/ invested)
- 8. Example Tessa borrowed P2,000.00 at 12% interest for 2 years. Find the interest. Given: P = P2,000 r=12% T= 2 years I = Prt I = (P2,000) (12%) (2) I = P480
- 9. Example • Eunice lent P3,000 at 14% for 6 mos.