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Simple Interest (Future Value)

The document discusses simple interest and how to calculate future value and present value using two methods. It provides examples of calculating future value when principal is deposited in a bank at interest over 1 and 5 years. It also gives an example of calculating the total repayment amount on a loan over 3 years. Finally, it demonstrates calculating present value of a debt due in 10 months at 8% interest.

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190 views

Simple Interest (Future Value)

The document discusses simple interest and how to calculate future value and present value using two methods. It provides examples of calculating future value when principal is deposited in a bank at interest over 1 and 5 years. It also gives an example of calculating the total repayment amount on a loan over 3 years. Finally, it demonstrates calculating present value of a debt due in 10 months at 8% interest.

Uploaded by

アンジェロドン
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 21

Simple Interest

(Future Value)
Quick Review

▰ Maturity value or future value (F)


- amount after t years; that the
lender receives from the borrower
on the maturity date
2
methods

There are two ways to


solve for the Future value

3
methods

𝑭 = 𝑷 + 𝑰𝒔
𝑭 = 𝑷(𝟏 + 𝒓𝒕)
4
Example 1

▰ Find the maturity value if 1


million pesos is deposited in a
bank at an annual simple
interest rate of 0.25% after (a) 1
year and(b) 5 years? 5
Solution using Method 1

a. When 𝒕 = 𝟏, the simple interest is:


▰ 𝑰𝒔 = 𝑷𝒓𝒕 = 𝟏, 𝟎𝟎𝟎, 𝟎𝟎𝟎 𝟎. 𝟎𝟎𝟐𝟓 𝟏
= 𝟐, 𝟓𝟎𝟎
The maturity or future value is given by
▰ 𝑭 = 𝑷 + 𝑰𝒔 = 𝟏, 𝟎𝟎𝟎, 𝟎𝟎𝟎 + 𝟐, 𝟓𝟎𝟎
= 𝟏, 𝟎𝟎𝟐, 𝟓𝟎𝟎 6
Solution using Method 1

b. When 𝒕 = 𝟓,
▰ 𝑰𝒔 = 𝑷𝒓𝒕
▰ = 𝟏, 𝟎𝟎𝟎, 𝟎𝟎𝟎 𝟎. 𝟎𝟎𝟐𝟓 𝟓 = 𝟏𝟐, 𝟓𝟎𝟎
▰ 𝑭 = 𝑷 + 𝑰𝒔
▰ = 𝟏, 𝟎𝟎𝟎, 𝟎𝟎𝟎 + 𝟏𝟐, 𝟓𝟎𝟎
▰ = 𝟏, 𝟎𝟏𝟐, 𝟓𝟎𝟎 7
Solution using Method 2
a. When 𝒕 = 𝟏
𝑭 = 𝑷 𝟏 + 𝒓𝒕
= 𝟏, 𝟎𝟎𝟎, 𝟎𝟎𝟎 𝟏 + 𝟎. 𝟎𝟎𝟐𝟓 𝟏
= 𝟏, 𝟎𝟎𝟐, 𝟓𝟎𝟎
b. When 𝒕 = 𝟓,
𝑭 = 𝑷 𝟏 + 𝒓𝒕
= 𝟏, 𝟎𝟎𝟎, 𝟎𝟎𝟎 𝟏 + 𝟎. 𝟎𝟎𝟐𝟓 𝟓
8
= 𝟏, 𝟎𝟏𝟐, 𝟓𝟎𝟎
Example 2

▰ To buy a cellphone, Juana


borrowed ₱15,000 for 3 years at an
annual simple interest rate of 9%.
What is the total amount that she
will repay? 9
Solution using Method 1

▰ 𝑰𝒔 = 𝑷𝒓𝒕 = 𝟏𝟓, 𝟎𝟎𝟎 𝟎. 𝟎𝟗 𝟑


= 𝟒, 𝟓𝟎𝟎
▰ 𝑭 = 𝑷 + 𝑰𝒔 = 𝟏𝟓, 𝟎𝟎𝟎 + 𝟒, 𝟓𝟎𝟎
= 𝟏𝟗, 𝟓𝟎𝟎
Juana will repay a total of ₱19,050 on
her loan. 10
Solution using Method 2
𝑭 = 𝑷 𝟏 + 𝒓𝒕
= 𝟏𝟓, 𝟎𝟎𝟎 𝟏 + 𝟎. 𝟎𝟗 𝟑
= 𝟏𝟓, 𝟎𝟎𝟎 𝟏 + 𝟎. 𝟐𝟕
= 𝟏𝟓, 𝟎𝟎𝟎 𝟏. 𝟐𝟕
= 𝟏𝟗, 𝟎𝟓𝟎
Juana will repay a total of ₱19,050 on
her loan. 11
Now try this!
12
Seatwork

▰ Complete the table by finding the unknown.


Interest Maturity
Principal (P) Rate (r) Time (t)
(Is) Value (F)
60,000 4% 15 1.) _____ 2.) _____
3.) _____ 12% 5 15,000 4.) _____
1,000,000 0.5% 12 5.) _____ 6.) _____
13
Simple Interest
(Present Value)
note

The present value of an investment (or


debt) due on some future date is the
value now when invested today would
have become the same value as the
investment (or debt) due on some future
date. 15
Methods

𝑭
𝑷=
(𝟏 + 𝒓𝒕)
−𝟏
𝑷 = 𝑭(𝟏 + 𝒓𝒕) 16
Example 3

▰ Find the present value at


8% simple interest of a
debt ₱3000 due in ten
months. 17
Solution using Method 1

𝟑𝟎𝟎𝟎 𝟑𝟎𝟎𝟎
𝑷= 𝑷=
𝟏𝟎 𝟏. 𝟎𝟔𝟔𝟔𝟔𝟔𝟔𝟔𝟔𝟔𝟕
𝟏 + (𝟎. 𝟎𝟖)
𝟏𝟐

𝑷=
𝟑𝟎𝟎𝟎 𝑷 = ₱𝟐𝟖𝟏𝟐. 𝟓𝟎
𝟏 + 𝟎. 𝟎𝟔𝟔𝟔𝟔𝟔𝟔𝟔𝟔𝟔𝟕

18
Solution using Method 2
−𝟏
𝟏𝟎
𝑷 = 𝟑𝟎𝟎𝟎 𝟏 + 𝟎. 𝟎𝟖
𝟏𝟐

𝑷 = 𝟑𝟎𝟎𝟎 𝟏. 𝟎𝟔𝟔𝟔𝟔𝟔𝟔𝟔𝟔𝟔𝟕 −𝟏

𝑷 = ₱𝟐𝟖𝟏𝟐. 𝟓𝟎 19
20
THANKS!

21

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