Simple Interest

BY SIR Manolo
 SIMPLE INTEREST
Simple interest is a quick and easy method of
calculating the interest charge on a loan.

Simple interest is determined by multiplying the

principal by the interest rate by time (years, months,
days).
 TERMS
Interest - is a fee paid for borrowing money or other
assets.

Principal Amount - the amount of money borrowed or

invested

Rate - the percent of the principal paid as interest per

time period.

Time - the number of days, months or years that the

money is borrowed or invested.
 TERMS
Maturity Value/Future Value – is the sum of the
interest and the principal amount.

Annual – by year
Semi-annual – every 6 months
Quarter/quarterly – every 3 months
Monthly – every month
Weekly – 7 days
Daily – everyday
 SIMPLE INTEREST
I – interest
P – principal amount/loan
r – rate
t – term of loan (time) I
P R T
 SIMPLE INTEREST

𝐼 = 𝑃𝑟𝑡
𝐼
𝑃=
𝑟𝑡 I
𝐼
𝑟=
𝑃𝑡
𝐼
P R T
𝑡=
𝑃𝑟
Ex: Kathy invested Php 100,000 in a bank with a 2%
ASYMPTOTES
annual simple interest. How much will be the interest
of the investment in 1 year? In 5 years? What is the
maturity value of the investment in 10 years?
Given:
𝑃 = 100,000
𝑟 = 2% ~ 0.02 (always get the decimal form of the rate by dividing
it by 100)
𝑡=1
Solution:
𝐼 = 𝑃𝑟𝑡
𝐼 = 100,000 (0.02)(1)

𝐼 = 2,000
Ex: Kathy invested Php 100,000 in a bank with a 2%
ASYMPTOTES
annual simple interest. How much will be the interest
of the investment in 1 year? In 5 years? What is the
maturity value of the investment in 10 years?
Given:
𝑃 = 100,000
𝑟 = 2% ~ 0.02 (always get the decimal form of the rate by dividing
it by 100)
𝑡=5
Solution:
𝐼 = 𝑃𝑟𝑡
𝐼 = 100,000 (0.02)(5)

𝐼 = 10,000
Ex: Kathy invested Php 100,000 in a bank with a 2%
ASYMPTOTES
annual simple interest. How much will be the interest
of the investment in 1 year? In 5 years? What is the
maturity value of the investment in 10 years?
Given:
𝑃 = 100,000
𝑟 = 2% ~ 0.02
𝑡 = 10
Solution:
𝐼 = 𝑃𝑟𝑡 𝑀𝑉 = 𝑃 + 𝐼
𝐼 = 100,000 (0.02)(10) 𝑀𝑉 = 100,000 + 20,000
𝐼 = 20,000 𝑀𝑉 = 120,000
Ex: Tom wants to have an interest income of Php
ASYMPTOTES
300,000 annually. How much must he invest if the
bank offers him an 8% annual interest?
Given:
𝐼 = 300,000
𝑟 = 8% ~ 0.08
𝑡=1
Solution:
𝐼
𝑃=
𝑟𝑡
300,000
𝑃=
(0.08)(1)
𝑃 = 3,750,000
Ex: To start an eatery business, Mara borrowed Php
ASYMPTOTES
50,000. If the loan was for 2 years and the amount of
interest is 10,000, what is the rate of the loan?
Given:
𝑃 = 50,000
𝐼 = 10,000
𝑡=2
Solution:
𝐼
𝑟=
𝑃𝑡
10,000
𝑟=
(50,000)(2)
𝑟 = 0.1 𝑜𝑟 10%
Ex: Ross got his new phone through Home Credit.
The price of theASYMPTOTES
phone is Php 65,000 and he was
charge with a total of Php 19,500 interest. If the rate
of the loan is 15% annually, how long will Ross pay
for his credits?
Given: Solution:
𝑃 = 65,000 𝐼
𝑡=
𝐼 = 19,500 𝑃𝑟
19,500
𝑟 = 15% or 0.15 𝑡=
65,000 (.15)
𝑡 = 2 𝑦𝑒𝑎𝑟𝑠
Any question?
Compound Interest

BY SIR Manolo
 COMPOUND INTEREST
Compound Interest - essentially means “interest on
interest.” The interest payments change each period
instead of staying fixed.
 COMPOUND INTEREST
FV – future value or compound amount
P – principal amount/loan 𝑟 𝑚𝑡
𝐹𝑉 = 𝑃 1 +
r – rate 𝑚
t – term of loan (time)
𝑟 −(𝑚𝑡)
𝑃 = 𝐹𝑉 1 +
𝑚
m - # of interest period in a year
(# of payments) 𝐼 = 𝐹𝑉 − 𝑃
I – interest
 COMPOUND INTEREST
m means …

Annually m=1
Semi-
m=2
annually
Quarterly m = 4
Monthly m = 12
Ex: Hanna deposited Php 500,000 into an account
ASYMPTOTES
paying 6% interest annually, how much money will
be in the account after 5 years?

Given:
𝑃 = 500,000
𝑟 = 6% ~ 0.06
𝑡=5
Solution:
𝐼 = 𝑃𝑟𝑡 𝑀𝑉 = 𝑃 + 𝐼
𝐼 = 500,000 (0.06)(5) 𝑀𝑉 = 500,000 + 150,000

𝐼 = 150,000 𝑀𝑉 = 650,000
Ex: Hanna deposited Php 500,000 into an account
ASYMPTOTES
paying 6% interest compounded annually, how much
money will be in the account after 5 years?
Given: 𝑚𝑡
𝑟
𝑃 = 500,000 𝐹𝑉 = 𝑃 1 +
𝑚
𝑟 = 6% ~ 0.06
(1)(5)
0.06
𝑡=5 𝐹𝑉 = 500000 1 +
1
𝑚=1
5
Solution: 𝐹𝑉 = 500000 1.06

𝐹𝑉 = 669,112.79
COMPARISON
ASYMPTOTES
Simple Interest VS Compound Interest
𝑀𝑉 = 650,000 𝐹𝑉 = 669,112.79
TIME PRINCIPAL INTEREST TIME PRINCIPAL INTEREST

1st 30,000 1st 500,000 30,000

2nd 30,000 2nd 530,000 31,800
3rd 500,000 30,000 3rd 561,800 33,708
4th 30,000 4th 595,508 35,730.48
5th 30,000 5th 631,238.48 37,874.31

𝑀𝑉 = 500,000 + 150,000 𝐹𝑉 = 631,238.48 + 37,874.31

Ex: Hanna deposited Php 500,000 into an account
ASYMPTOTES
paying 6% interest compounded quarterly, how much
money will be in the account after 5 years?
Given: 𝑚𝑡
𝑟
𝑃 = 500,000 𝐹𝑉 = 𝑃 1 +
𝑚
𝑟 = 6% ~ 0.06
(4)(5)
𝑡=5 0.06
𝐹𝑉 = 500000 1 +
4
𝑚=4
𝐹𝑉 = 500000 1.015 20

𝐹𝑉 = 673,427.50
Ex: How much money would Jesse needs to invest in the
bank that offers her a 9% interest compounded monthly to
ASYMPTOTES
have Php 1,308,645.37 in the account after 3 years?

Given: 𝑟 −𝑚𝑡
𝐹 = 1,308,645.37 𝑃 = 𝐹𝑉 1 +
𝑚
𝑟 = 9% ~ 0.09 −(12)(3)
0.09
𝑡=3 𝑃 = 1308645.37 1 +
12
𝑚 = 12
Solution: 𝑃 = 1308645.37 1.0075 −36

𝑃 = 1,000,000
Ex: Jade invested Php 750,000 into an account that pays
8.5% interest, compounded semi-annually. How much will be
ASYMPTOTES
the interest in 15 years?
𝑟 𝑚𝑡
Given:
𝐹𝑉 = 𝑃 1 +
𝑚 (2)(15)
𝑃 = 750,000 0.085
𝐹𝑉 = 750000 1 +
𝑟 = 8.5% ~ 0.085 2
𝑡 = 15 30
𝐹𝑉 = 750000 1.0425
𝑚=2
𝐹𝑉 = 2,614,226.26
Solution:
𝐼 = 𝐹𝑉 − 𝑃
𝐼 = 2,614,226.26 − 750,000

𝐼 = 1,864,226.26
Are you ready?
THANK YOU