INTEREST

LEARNING OBJECTIVES:
 To know the nature of simple interest and
compound interest.
 To compute interest on money borrowed
and invested.
 To solve investment problems using
simple interest and compound interest.
 To differentiate future value from present
HELLO! value.
 To solve interest when time is expressed
in different ways.
2
 REFLECT ON THE FOLLOWING QUOTATIONS!

“Beware of little expenses; a small leak will sink a great ship.”

~Benjamin Franklin~
“You cannot escape the responsibility of tomorrow by evading it today.”
~Abraham Lincoln~
“A man who pays his bills on time is soon forgotten.”
~Oscar Wilde~
“To contract new debts is not the way to pay old ones.”
~George Washington~
“When prosperity comes, do not use all of it.”
~Confucius~ 3
CREDIT
INTEREST
INVESTMENT 4
#BMATHUGOT

5
 WHAT IS INTEREST?

 LENDER/CREDITOR INVESTOR
 BORROWER/DEBTOR

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FINANCIAL INSTITUTIONS

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TYPES OF INTEREST

SIMPLE COMPOUND

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 SIMPLE INTEREST

I = Prt
Where:
I = Amount of interest paid or received.
P = Principal amount of the loan or investment.
r = Annual rate of simple interest.
t = Time period (term) of the loan or
investment.
F = Maturity value of the loan or investment.
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 OTHER FORMULAS!

P = I/rt I = F-P

F = P+I
r = (I/Pt)100
F = P(1+rt)
t = I/Pr
F = P+Prt
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 NOTE:
1. When time is expresses in no. of years: I = Pr(no. of years)

2. When time is expressed in no. of months: I = Pr(no. of months/12)

3. When time is expressed in no. of days:

a.) Ordinary interest (Io)

= Pr(no. of days/360)
b.) Exact interest (Ie)
= Pr(no. of days/365)

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 NOTE:
4. When time is expressed between dates:
a.) Ordinary interest
*a.i) Io – Actual time = Pr(actual no. of days/360)
a.ii)Io – Approximate time = Pr(approximate no. of days/360)

b.) Exact interest

b.i) Ie – actual time = Pr(actual no. of days/365)
b.ii) Ie–approximate time = Pr(approximate no. of days/365)

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 ILLUSTRATIVE EXAMPLE:

1. Find the interest and amount on 500

pesos at 6 ¾% simple interest for 4
years.

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 ILLUSTRATIVE EXAMPLE:

2. Find the interest and amount on 600

pesos at 7 ½% simple interest for 9
months.

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 ILLUSTRATIVE EXAMPLE:

3. Find the interest and amount on 900

pesos at 8 3/8 % simple interest for 2
years and 6 months.

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 ILLUSTRATIVE EXAMPLE:

4. If a principal of 2,500 earns interest of

185 pesos in 3 years and 3 months,
what interest rate is in effect?

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 ILLUSTRATIVE EXAMPLE:

5. A principal earns interest of 385 pesos

in 2 years and 9 months at a simple
interest rate of 9 ½%. Find the
principal invested.

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 ILLUSTRATIVE EXAMPLE:

6. How long will it take for 8,000 pesos

to earn 2,400 pesos if it is invested at 6
½% simple interest?

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 ILLUSTRATIVE EXAMPLE:

7. A boy borrowed 15,000 pesos from a

bank at 11 ¼% simple interest for 2
years and 9 months. How much did
the boy pay back the bank?

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 BOARDWORK:

1. What amount of interest will be

charge on 7,300 pesos borrowed for
3 years at a simple interest rate of
12% per annum?

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 BOARDWORK:

2. Maria paid 9,250 pesos on a loan

made 6 months before at 12%
simple interest. Find the interest
generated.

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 BOARDWORK:

3. If a nine-month term deposit at a

bank has a simple interest rate of
9% per annum, how much will have
to be deposited to earn 225 pesos
of interest?
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 BOARDWORK:

4. What is the present value of

5,275 pesos due in 6 months if
11% interest is paid?

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 BOARDWORK:

5. Pietro makes an investment by

lending 24,000 pesos to Selmo for
2 years at an interest rate of 11%
per annum. What is the maturity
value of the investment?
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 BOARDWORK:

6. Justin placed 18,000 in a 240-day

term deposit earning 8 ½% per
annum. How much will the bank
pay Justin on the maturity date?

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 ORDINARY AND EXACT INTEREST

*Used when time is expressed in no. of days.

a.) Ordinary interest (Io)

= Pr(no. of days/360)
b.) Exact interest (Ie)
= Pr(no. of days/365)

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 ILLUSTRATIVE EXAMPLE:

1. Find the ordinary and

exact interest on 8,800 pesos
for 85 days at 11 ¾%
simple interest.

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 ILLUSTRATIVE EXAMPLE:

2. Find the amount due if 14,400

was invested at 15 4/5% for
250 days using:
a.) Ordinary interest
b.) Exact interest
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 ACTUAL AND APPROXIMATE TIME

*Used when time is expressed JAN 31 JUL 31

between 2 dates.
FEB 28;29 AUG 31

a.) Actual time – exact no. of days MAR 31 SEP 30

in a month. APR 30 OCT 31

b.) Approximate time – all months
MAY 31 NOV 30
within a
year JUN 30 DEC 31

contain 30
days.
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 ILLUSTRATIVE EXAMPLE:

1. Find the actual and approximate

time from March 24 to
September 24, 2017.

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 ILLUSTRATIVE EXAMPLE:

2. Find the actual and

approximate time from
November 1, 2015 to
March 23, 2016.

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 BOARDWORK:

1. Find the actual and approximate (time )

no. of days:
a.) From October 9, 2016 to February 14, 2017.
b.) From July 30, 2017 to November 18, 2017.

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 INTEREST BETWEEN DATES

FOUR METHODS
a.) Io – Actual
b.) Io – Approximate
c.) Ie – Actual
d.) Ie - Approximate
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 NOTE:
4. When time is expressed between dates:
a.) Ordinary interest
*a.i) Io – Actual time = Pr(actual no. of days/360)
a.ii)Io – Approximate time = Pr(approximate no. of days/360)

b.) Exact interest

b.i) Ie – actual time = Pr(actual no. of days/365)
b.ii) Ie–approximate time = Pr(approximate no. of days/365)

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 NOTE:

BANKER’S RULE
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 ILLUSTRATIVE EXAMPLE:
1. Find the interest
using the 4 methods
on 8,000 pesos at
11 ½% from
March 8, 2017
to September 19, 2017.
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 ILLUSTRATIVE EXAMPLE:
2. Find the exact interest
and amount on 12,200
pesos at 12 4/5% simple
interest from April 10,2017
to November 11, 2017
using approximate time.

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ILLUSTRATIVE EXAMPLE:
3. Find the ordinary
interest and amount
on 11,100 at
11 2/5% simple interest
from December 19, 2016
to March 4, 2017 using
the actual time.
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ILLUSTRATIVE EXAMPLE:
4. What amount should
be paid on the due
date January 6, 2018
on a loan of 12,500
pesos made on
August 9, 2017 with
10 1/8% simple interest?
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SIMPLE DISCOUNT
A deduction from the final
amount (F) or Maturity Value
(MV) of a loan or obligation.

Also referred to as:

Bank discount
Interest in-advance
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The amount which the borrower
will receive after deducting the
discount.

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D = Fdt or BD = MV x d x t

Proceeds (P) = MV-BD or MV(1-dt)

MV = Proceeds/(1-dt)
Where:
D = amount of discount
F = final amount
d = discount rate
t = time/term of discount
OTHER FORMULAS:

d = D/Ft
t = D/Fd
F = D/dt
Present Value (P) = F-D or F(1-dt)
Final Amount (F) = P/(1-dt)
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ILLUSTRATIVE EXAMPLE:

1. Black borrowed 15,000 pesos for 9

months from Panther who charged 11
1/8% simple discount. How much money
did Black receive?

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ILLUSTRATIVE EXAMPLE:

2. How much loan would Kiray ask for,

if she needs 15,200 pesos cash which
will be paid in 2 years and 3 months with
10 4/5% simple discount?

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ILLUSTRATIVE EXAMPLE:

3. How long will it take for 6,500 pesos

to amount to 9,800 pesos if the discount
rate is 11 ¼%?

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ILLUSTRATIVE EXAMPLE:

4. If the proceeds of a loan of 12,500

pesos will be paid with 12,900 pesos at
the end of
1 year and 9 months, what is the simple
discount rate?
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ILLUSTRATIVE EXAMPLE:

5. Accumulate 18,500 pesos for 4 years

and 9 months at 6 3/8% simple discount?

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ILLUSTRATIVE EXAMPLE:

6. Discount 16,400 pesos for

5 years and 3 months at 9 7/8% simple
discount?

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ILLUSTRATIVE EXAMPLE:

7. Winchester availed of a 245,000 pesos

loan at 14% discount rate for 9 months.
Find the bank discount and proceeds of
the loan.

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BOARDWORK:

1. Clyde’s bank charges 10 ¾% for

discounting loan. If Aaron a borrower
agrees to repay 22,850 pesos after 1 year
and 7 months, how much does he receive
now?
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BOARDWORK:

2. Eun Woo received just 16,600 pesos from

his original 18,500 salary loan. If his financing
company charged him 10 2/5% simple
discount, what was the term of the loan and
how much is the amount of discount?

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