197 views

Uploaded by Elizabeth Solayao

- Session 2
- Park - Fundamentals of Engineering Economics_ 2nd Edition_solution Manual_ch3
- Ch03
- pp
- Analysis
- Akhuwat
- Consumer Financing
- In-Class Practice Exercise (Topic 2 Part 1)
- UP Land Acquisition Policy 2011 English
- Williams, McCarthy Kinley, Rudy & Picha, a Partnership, and Kreindler & Kreindler, a Partnership, Plaintiffs-Counterdefendants-Appellees v. Northwestern National Insurance Group, an Insurance Corporation, and Graphic Arts Technical Foundation, Inc., a Corporation, Defendants-Counterplaintiffs, Third-Party v. Mildred v. Dunbar, Individually, and as of the Estate of Richard v. Dunbar, Deceased, Third-Party, 750 F.2d 619, 3rd Cir. (1984)
- Group Exerciase
- Release Waiver and Quitclaim
- MM Ispahani Rating Surveillance Report 2012
- QUIZ #2
- The Role of Stress Testing in Risk Management- Roger Stein
- Lecture No3
- DBP v. CA
- Lecture 15
- lecture 4
- 10

You are on page 1of 31

SIMPLE DISCOUNT

Concepts: Simple Interest, Simple Discount,

Ordinary and Exact Simple Interest, Interest on

Actual and Approximate Time, Promissory Note

OBJECTIVES:

At the end of this unit, you must be able to

1. differentiate simple interest from simple

discount;

2. compute simple interest using actual or

approximate time;

3. compute ordinary and exact interest;

4. determine whether the promissory note is an

interest bearing or a non-interest-bearing note;

5. solve problems on simple interest and simple

discount using appropriate formulas.

OVERVIEW

For every amount borrowed or invested a

corresponding portion of the amount is paid or

earned and this is called interest.

Simple interest is an interest that is

paid/earned at the end of a loan/investment

period.

OVERVIEW (CONTINUED)

When interest is paid in advance, interest deducted

from the principal is called simple discount.

When a borrower is not ready to pay his debt, he can

write a note stipulating his promise to pay an amount at

a specified time with a specified interest rate.

DEFINITION OF TERMS

Debtor/Maker

an individual or institution that borrows money for any

purpose

Lender

an individual or institution who loans the money

Interest I

payment for the use of borrowed money or the amount

earned on an invested money

Principal P

the capital or sum of money borrowed or invested

Rate of Interest r

fractional part of the principal that is paid on the loan or

investment (expressed as percent)

Time t

number of years for which the money is borrowed or

invested

Maturity Value or Final Amount F

combined amount of the principal and the interest

accumulated over a certain period of time

(also called Future Value)

SIMPLE INTEREST

interest computed based on the principal and is paid at the

end of the specified period of time

Formula:

I Pr t

where

P = principal invested

r = rate of interest in decimals

t = time in years

SIMPLE INTEREST

Final Amount or Maturity Value F

F P I

F P Pr t P 1 rt

EXAMPLES

1. Find the interest paid by Ms. April on

P25,000 that she borrowed for three years at

4% simple interest.

2. Determine the simple interest to be paid by

Lorna if she borrowed P1,200 at 6 % for 8

months?

3. At what rate of interest did Mary invest the

amount of P27,500 for it to earn a simple

interest of P3, 245 for three years?

EXAMPLES (CONTINUED)

4. How much was borrowed by Ms. Michelle if the interest

she paid after 3 months at 10.5% simple interest is P3,000?

5. How long should Dan invest the amount of P80,000 to

earn an interest of P4,500 at 6.5% simple interest?

6. How much is the final amount would Ms. Nessa receive if

she invested P75,000 for 4 years at 5 % simple interest?

a

rate

per

day

that

assumes

360

days

Oi

per year

a

rate

per

day

that

assumes

365

days

Ei

per year

Default: Ordinary Interest

Why do you think banks prefer to use

ordinary interest in their business? Support

your answer.

Actual time based on counting the exact

number of days in a time period

Approximate time based on counting 30 days

in each month

Default: Actual Time

MONTH

NUMBER OF DAYS

January

31 days

February

28 days, 29 in leap

years

March

31 days

April

30 days

May

31 days

June

30 days

July

31 days

August

31 days

September

30 days

October

31 days

November

30 days

December

31 days

EXAMPLES

September 12 is 60 days.

To find the actual time from July 12 to

September 12, add the following:

Days in July (31 - 12 =) 19

Days in August

31

Days in September +12

62 days

actual time

Oi act = Pr

Default

360

approximate time

Oi app = Pr

360

actual time

Ei act = Pr

365

approximate time

Ei app = Pr

365

Note:

If the type of interest is not specified

in any problem, the problem will be

solved using the Bankers Rule or

ordinary interest in actual time.

EXAMPLES

7. For 209 days, what would be the interest if

Gretel invested Php 43 500.00 at

(a) 5 % ordinary simple interest?

(b) 5 % exact simple interest?

(c) How much is the difference between these

two investments?

interest on P8350 at 17% from February 14

2010 to September 12 of the same year using

actual and approximate time.

DO IT ON YOUR OWN

1. What final amount should Carol

pay for a loan of P8,200 at 14 %

simple interest she borrowed on

March 10, 2000 if she promised to

pay on November 25, 2000.

ANS: P9,043.92

out a loan for 80,000, at 10% interest, for 60

days.

a. What is the maturity value of the loan? ANS: P1,333.33

b. When will the loan mature?

ANS: The loan will mature on Oct. 5.

PRESENT VALUE

value of an amount scheduled at some future time

also called principal and denoted by P

formula is given by

where

F

P

1 rt

F = accumulated amount

r = simple interest rate in decimals

t = term of loan or investment

PRESENT VALUE

EXAMPLES

10. How much must Ivy invest today in order to have

P32,500 available in 4 years if money is worth 12% simple

interest

11. Find the present value of P19,200 for 120 days at 4 5/8

% simple interest.

12. Determine the present value of a 7-month 12.3% simple

interest loan if its final amount is P19, 345?

PRESENT VALUE

EXAMPLES

13. Find the present value of Dorys loan, which amounted

to P45,650.75 from January 5, 2008 to April 25, 2008 if the

money is worth 8.5% simple interest.

SIMPLE DISCOUNT

amount and is paid at the beginning of a

specified period of time

interest paid in advanced

formula is given by

where

I a Fdt

F = amount of loan

d = simple discount rate in decimals

t = term of discount

SIMPLE DISCOUNT

Amount of loan is equal to the maturity

value of the loan.

Let proceeds P be the amount received

by the borrower after removing the

interest on the loan

To solve for the proceeds, we use the formula

P F Ia

P F 1 dt

SIMPLE DISCOUNT

the present value (proceeds) P of F on a

day which is t years before F is due.

I

the

discount

on

the

loan

F

interest

Interest is P125.

Borrower must

pay back P2125

Maturity

Value

on the

maturity date

of the loan.

discount notes

Amount of loan= P2000

Proceeds

Borrower receives P1875.

Discount

Interest is P125.

Borrower must

pay back P2000

on theMaturity

maturity

Value

date of the loan.

SIMPLE DISCOUNT

EXAMPLES

14. George borrowed P160,000 from the DLSU Credit

Cooperative for a term of one year and 3 months. The

interest charged is 10% simple discount rate. Find the

proceeds of the loan.

15. Ms. Zamora needs P18,800 today. How much should she

borrow from MsD bank charging 16 % interest-in-advance

payable in 2 years?

16. How long should P25,000 be discounted to have proceeds

of P22,000 at 14% simple discount rate?

SIMPLE DISCOUNT

EXAMPLES

17. Determine the discount rate if P25,000 is the proceeds of

a loan of P35,000 due in 14 months?

18. At a simple discount rate of 12%, find the discount on

P6,550 borrowed on January 13, 2009 if the debt is repaid on

July 13, 2009.

To discount an amount is the same as finding the present

value (proceeds) of an amount at a given simple discount

rate.

18. Discount P18,000 from August 3, 2010 to May 4, 2011 with

a simple discount rate of 6.2%.

Exercises

1. Sam is saving up to buy the new PlayStation that will be

released in 2 years. It is expected to cost P35,000. How much

does Sam need to deposit in a savings account today that is

earning 6.45% per annum for him to have enough money in

order to purchase the PlayStation in 2 years?

2. Sam has P60,000 and cant decide which of the

following 2 offers are better. Bank ABC Ltd is currently

offering customers 6.50% simple interest for 7 months

and bank XYZ Ltd is offering 6.95% simple interest for 4

months. Which bank should Sam bank at?

3. Discount P18,000 from August 3, 2010 to May 4, 2011

with a simple discount rate of 6.2%.

Simple Interest Notes vs Simple Discount Notes

Which loan costs more to the borrower?

P3,000 @ 7% for 10 months.

P3,000 @ 7% for 10 months.

I = Prt

I = 3000 x .07 x 10/12

I = P175

Borrower gets

3000

$__________.

I = Fdt

I = 3000 x .07 x 10/12

I = P175

Borrower gets

2825

$__________.

- Session 2Uploaded bykartavyajain
- Park - Fundamentals of Engineering Economics_ 2nd Edition_solution Manual_ch3Uploaded byShahriar Shajib
- Ch03Uploaded byHatem Al-Doweny
- ppUploaded byshazarafia
- AnalysisUploaded byDivya Kakumanu
- AkhuwatUploaded bySajid Ali
- Consumer FinancingUploaded byZAINulabdin
- In-Class Practice Exercise (Topic 2 Part 1)Uploaded byphan_phuong_26
- UP Land Acquisition Policy 2011 EnglishUploaded bybparsaul
- Williams, McCarthy Kinley, Rudy & Picha, a Partnership, and Kreindler & Kreindler, a Partnership, Plaintiffs-Counterdefendants-Appellees v. Northwestern National Insurance Group, an Insurance Corporation, and Graphic Arts Technical Foundation, Inc., a Corporation, Defendants-Counterplaintiffs, Third-Party v. Mildred v. Dunbar, Individually, and as of the Estate of Richard v. Dunbar, Deceased, Third-Party, 750 F.2d 619, 3rd Cir. (1984)Uploaded byScribd Government Docs
- Group ExerciaseUploaded byAbdul Basit Bangash
- Release Waiver and QuitclaimUploaded bytinct
- MM Ispahani Rating Surveillance Report 2012Uploaded byAsif Sabir
- QUIZ #2Uploaded byBarretto Rac
- The Role of Stress Testing in Risk Management- Roger SteinUploaded byLuma Souza Ramos
- Lecture No3Uploaded byRomel Nedamo
- DBP v. CAUploaded byMarvilieMonteroSerna
- Lecture 15Uploaded byhkmaplevtest
- lecture 4Uploaded byMaria Zakir
- 10Uploaded bycristine jagodilla
- Debt Reduction Calculator 20Uploaded byBrian Mettille
- Assignment No 1 SFA&DUploaded bySyed Shabbir Rizvi
- FandI_Subj102_200104_exampaper.pdfUploaded byClerry Samuel
- Time ValueUploaded bysweetgirl198701
- Computer PracticeUploaded byHitesh Joshi
- Quiz SolutionsUploaded byarmaan
- Time Value of MoneyUploaded byDjoko Nug
- Owners AdvantageUploaded byJoe Massey
- FMformulasheetUploaded bySteve Brown
- Consumer BankingUploaded byBillu Rocx

- GCO_Pillar I_Trends and IndicatorsUploaded bymanojiocindiatimes
- ST-GL-HAL-BAR-QA000Uploaded byJavi Bla
- Nps-sss Petition LetterUploaded byrebenson
- Kiyo Saki ReportUploaded byjengape
- 2018 resume - meran topalianUploaded byapi-355840717
- The Open Economy Revisited &the Mundell-Fleming Model and the Exchange-Rate RegimeUploaded byAditya Singh
- Information Systems Strategic Plan for BVDC v3Uploaded byNorman Kenneth Santos
- IMG Transaction Code OBYC IntegrationUploaded byManohar G Shankar
- Fibonacci and Clouds 28 February 2016Uploaded byLucky Malihan
- Fundamentals of Procure to PayUploaded bysweetshene
- 29797-32614-1-PBUploaded byAchmad Fanani
- The Essence of Corporate GovernanceUploaded byShayna1
- Dbe, Du_mba (Be) SyllabusUploaded byGaurav Chandra
- ch8Uploaded bysparts23
- ResumeUploaded byPeterBrubaker
- World Bank report VnUploaded byjongker
- Tinpus FarmakoekonomiUploaded byYesi Widya Iswari
- Resume Gaurav SharmaUploaded byJassi Nishad
- MBA Latest Syllabus[1]Uploaded bymayank_sai081430
- Kuveyt Turk Istanbul Properity ReportUploaded bysuhailalmallah
- 2010-10-10_210322_P11-5A.docUploaded byAarti J
- Wigger and Buch-HansenUploaded byPancho Rebollo Bautista
- Property ManagerUploaded byapi-79002961
- ADB WP12 Measuring Inclusive GrowthUploaded byhthite
- 10 Krugman PPT c13Uploaded byShehroze Moeen
- The Global Innovation Sweepstakes: A Quest to Win the FutureUploaded byThe Atlantic Council
- Employee Turnover- IntroUploaded bykumaresan
- Crop Life Science ltd. research report presentationUploaded bymarkkishan
- India Foreign Trade Policy [1]Uploaded bysambhu_n
- Financial Ratio Analysis of HULUploaded byRakesh Balani