Scribd
Upload
162 views

Math of Investment Module1

The document provides an overview of simple interest calculations. It defines simple interest and presents the simple interest formula: Interest = Principal x Rate x Time. It provides examples of using the formula to calculate interest earned or owed given the principal amount, interest rate, and time. It also shows how to derive formulas to calculate the principal, rate, or time given values for the other two components. Several practice problems are provided for students to apply what they've learned.

Uploaded by

Maria Teresa Ondoy
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
162 views

Math of Investment Module1

The document provides an overview of simple interest calculations. It defines simple interest and presents the simple interest formula: Interest = Principal x Rate x Time. It provides examples of using the formula to calculate interest earned or owed given the principal amount, interest rate, and time. It also shows how to derive formulas to calculate the principal, rate, or time given values for the other two components. Several practice problems are provided for students to apply what they've learned.

Uploaded by

Maria Teresa Ondoy
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 4

EMA EMITS COLLEGE PHILIPPINES

(Formerly: Eastern Mindoro Institute of Technology & Sciences)


Del Pilar St.; Pinamalayan, Oriental Mindoro
Telefax No. (043) 284-3974

_____________________________________________________________________________________

MATHEMATICS OF INVESTMENT
MODULE
1 SIMPLE INTEREST
Telefax No. (043) 284-3974

Intended Learning Outcomes:


At the end of this Module, you should be able to:
 Define simple interest;
 Derive the formula for simple interest, rate and time; and
 Solve problems involving simple interest.

What is Simple Interest?


Simple Interest (S.I) is the method of calculating the interest amount for some
principal amount of money. Have you ever borrowed money from your siblings when
your pocket money got exhausted? Or lent him maybe? What happens when you
borrow money? You use that money for the purpose you had borrowed it in the first
place. After that, you return the money whenever you get the next month’s pocket
money from your parents. This is how borrowing and lending work at home. But in the
real world, money is not free to borrow. You often have to borrow money from banks in
the form of a loan. During payback, apart from the loan amount, you pay some more
money that depends on the loan amount as well as the time for which you borrow. This
is called simple interest. This term finds extensive usage in banking.

The Simple Interest Formula is given by

Simple Interest = Principal × Interest Rate × Time

I = Prt

where

The Principal (P) is the amount of money deposited or borrowed.

The Interest Rate (r) is a percent of the principal earned or paid.

The Time (t) is the length of time the money is deposited or borrowed.

Example:

Sarah deposits $4,000 at a bank at an interest rate of 4.5% per year. How much interest
will she earn at the end of 3 years?
Solution:

Simple Interest = 4,000 × 4.5% × 3 = 540

She earns $540 at the end of 3 years.

Example:

Wanda borrowed $3,000 from a bank at an interest rate of 12% per year for a 2-year
period. How much interest does she have to pay the bank at the end of 2 years?

Solution :

Simple Interest = 3,000 × 12% × 2 = 720

She has to pay the bank $720 at the end of 2 years.

Example:

Raymond bought a car for $40, 000. He took a $20,000 loan from a bank at an interest
rate of 15% per year for a 3-year period. What is the total amount (interest and loan)
that he would have to pay the bank at the end of 3 years?

Solution :

Simple Interest = 20,000 × 13% × 3 = 7,800

At the end of 3 years, he would have to pay

$20,000 + $7,800 = $27,800

How to use the formula for simple interest to find the principal, the rate or the time?
Examples:

1. An investment earned $11.25 interest after 9 months. The rate was 5%. What was the
principal?

SOLUTIONS:

If the time is in months, divide it by 12

Given: I=$11.25 t = 9 months (9/12 years) r=5% or .05 P= ?

Formula is I=Prt

To derive the formula for P, manipulate the original formula. Therefore

I=Prt devide both sides of the equation by (rt), therefore, I/rt = Prt/rt

cancel (rt) on the right side of equation, therefore the formula for P(principal amount) is P=I/rt
or Principal amount is equal to interest divided by rate multiplied to time.

to solve the problem, apply the given to the formula

P=$11/(.75x.05) (.75 is the decimal conversion of 9/12) P= $293.33

2. $2000 was invested for 3 years. It earned $204 in interest. What was the rate?

SOLUTIONS:

Given: P=$2000 I=$204 t=3 r= ?

derive the formula for r (rate)

I= Prt, divide both sides of the equation by (Pt) to eliminate it on the right side,
therefore,

I/Pt=Prt/Pt,

cancel Pt on the right side, therefore the formula for r(rate) is;

r= I/Pt , rate is equal to interest divided by principal amount multiplied to time

to solve the problem, apply the given to the formula

r=$204/($2000x3)

r=0.034

to convert in percentage, multiply to 100, so the rate is 3.4%

3. A loan of $1200 had $36 in interest. The rate was 6%. What was the length of the loan?

SOLUTIONS:

Given: P=$1200 I=$36 r=6% or 0.06 t= ?

To derive the formula for time(t), manipulate the original formula I=Prt

then, divide both sides of the equation by (Pr)

therefore, I/Pr=Prt/Pr

cancel Pr on the right side of equation, so the formula for time is

I/Pr=t or t= I/Pr

to solve the problem, apply the given to the formula for time

t=$36/($1200x0.06)

t=36/72

t= .5 years or 6 months
PROBLEM SOLVING . APPLY WHAT YOU’VE LEARNED FROM
Criteria
Activity THIS MODULE

Solve the following problems carefully:

Five (5) points for correct answer with correct solutions, Four (4) points for correct
answer but incomplete solutions, Three(3) points for correct answer but no solution, two
(2) points for wrong answer but relevant solution,(1) point for wrong answer and
irrelevant solutions, no (0) points for wrong/no answer and no solutions.

1. Ian is investing $4,000 for 2 years. The interest rate is 5.5%. How much interest will
Ian earn after 2 years?

2. Doug made a 3 year investment. The interest rate was 4.5%. After 3 years, he earned
$675 in interest. How much was his original investment?

3. Kim got a loan of $4700 to buy a used car. The interest rate is 7.5%. She paid
$1057.50 in interest. How many years did it take her to pay off her loan?

4. If you invest $3,500 in savings account that pays 4% simple interest, how much
interest will you earn after 3 years? What ill the new balance be?

5. You borrow $6000 from a loan shark. If you will owe $7200 in 18 months, what would
be the simple interest rate?

II. Complete the table below. Five points for every answer.

PRINCIPAL AMOUNT INTEREST RATE IN PERCENT TIME IN YEARS


(%)
$9,230 6 8
$900 5 7
$4,567 $1,540 7
$5,890 $ 650 2 YEARS AND 6
MONTS

You might also like