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Lesson 5 (Business Math)

- The document discusses the concepts of simple interest, including the key components of principal, rate, and time. - It provides the simple interest formula: Interest = Principal x Rate x Time. - An example calculation is shown to find the interest and maturity value on a $2,000 loan at 12% interest for 2 years.

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wilhelmina roman
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292 views

Lesson 5 (Business Math)

- The document discusses the concepts of simple interest, including the key components of principal, rate, and time. - It provides the simple interest formula: Interest = Principal x Rate x Time. - An example calculation is shown to find the interest and maturity value on a $2,000 loan at 12% interest for 2 years.

Uploaded by

wilhelmina roman
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Lesson 5

•Simple Interest
PRINCIPAL
is the amount borrowed.

RATE (Interest rate)


Is the cost of using money expressed as a p
ercentage of the principal for a given period of
time, which is usually per year.

TIME
• Is the term of period of loan
SIMPLE INTEREST FORMULA

I = Prt
Where: I - interest (amount paid for the u
se of money)
P - principal (amount borrowed/
lend/ invested)
r - rate (percent of interest being ch
arged)
t - time (no. of periods for which th
e money will be borrowed/lent/invested
The rate and the time should always agre
e, that is, if rate is per annum time shoul
d be in years , if rate is per month, time s
hould be in months and if rate is per days
time should be in days.
To find the maturity value or future va
lue F ( total amount due upon maturity)
•

F=P+ 1
If we substitute our basic formula for inte
rest in formula 2. We will have.

F= P + 1
F = P + Prt
• F = P [ 1+ rt ]
Example:

Tessa borrowed ₱ 2,000 at 12% interest for 2 years.


Find the interest (I) and the maturity value (F).
Given:
P= ₱ 2000
r= 12%
t= 2 years

Find: I and F
•
Solutions:
a. Interest (I)
I = Prt
= 2000 × 12% / yrs × 2 yrs
I = ₱ 2000 × 12 / 100 × 2
I = ₱ 480

b. Maturity Value ( F )
F = P+1
Note: If we are not asked for the amount
of interest , but only for the maturity valu
e, we can use of formula (3).

F = P ( 1 + rt )
= ₱ 2000 [ 1 + ( 12% ) ( 2 ) ]
= ₱ 2000 [ 1 + ( . 12) ( 2 ) ]
= ₱ 2000 [ 1 + 0.24 ]
• F = ₱ 2,480
Knowing the maturity value it would be ver
y easy to get the interest. We simply deduct
the Principal ( P ) from the maturity value (
F ).
thus:

I=F-P
= ₱ 2, 480 - ₱ 2000
• = ₱ 480
ACTUAL TIME
AND
APPROXIMATE TIME
Approximate Time
like ordinary interest assumes that eac
h of 12 months in a year has 30 days (360
days in a year)

Actual Time
• counts the exact number of days; hen
ce, a year taken as composed of 365 day
s.
Find the actual time and the approximate time
between April 22 and August 25.

a. Actual Time
April has 30 days
- 22 8
Days in
April
May 31
125
June 30
days
July 31
b. Approximate Time

Months Days
8 ( August ) 25 (Aug.25)
- 4 ( April ) -22 (April22)
= 4 mon. = 3 days
× 30 days/ mo.
= 120 days
+ 3 days
• = 123 days
ORDINARY INTEREST
And
EXACT INTEREST
• When time is expressed in days, interest coul
d either be ordinary interest or exact interest
. For ordinary interest, one year is taken as 3
60 days.
• I = P × r × D/360
• Where D is the number of days
• For exact interest one year is taken as 365 da
ys.
• I = P × r × D/365

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