Simple Interest

Simple Interest Formula

Exact & ApproximateTime
Exact & Ordinary Interest
Four Commercial Practices

Terms to remember:
Interest: an amount paid or earned for the use
of money.
Simple interest: interest earned when a loan
or investment is repaid in a lump sum.
Principal: 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.

The Simple Interest Formula

The interest formula shows how interest, rate,
and time are related and gives us a way of
finding one of these values if the other three
values are known.

I=PxRxT

Find the Principal, Rate or Time Using

the Simple Interest Formula

Find the interest paid on a loan

Principal = P1,200
Interest rate = 8% (or 0.08)
Time = 1 year
Interest = P x R x T
Interest = 1,200 x 0.08 x 1
The interest on the loan is P96.

Try these examples

Find the interest on a 2-year loan of
P4,000 at a 6% rate.
P480
Find the interest earned on a 3-year
investment of P5,000 at 4.5% interest.
P675

Finding the Maturity Value of a Loan

Maturity value(S): the total amount of money
due by the end of a loan period; the amount of
the loan and interest.
If the principal and the interest are known, add
them.
S=P+I
S = P(1+RT)

Look at this example

1. A homemaker can purchase furniture on a
2-year simple interest loan at 9% interest per year.
. What is the maturity value for a P25, 000 loan?
. S = P (1 + RT) Substitute known values.
. S = 25, 000 ( 1 + 0.09 x 2)
2. To save money, Stan invested P25, 000 for 42
months at 4 % simple interest. How much
interest did he earn?

Try these examples

1. Terry is going to borrow P40,000 at 7.5%
interest. What is the maturity value of the loan
after three years?
. P49, 000
2. Mr. Sherman will invest P30, 000 at 8% for 5
years. What is the maturity value of the
investment?
. P42, 000

3. Akiko is saving a little extra money to pay for

her car insurance next year. If she invests
P100,000 for 18 months at 4%, how much
interest can she earn?
. P6, 000
4. Harry is going to borrow P200,000 for 42
months at 7% . What will the amount of
interest owed be?
. P49, 000

Finding the Approximate and

Exact Time
Approximate time: time that is based on
counting 30 days in each month.
Exact time: time that is based on counting
the exact number of days in a time period.

Examples
The approximate time from July 12 to
September 12 is 60 days.
To find the exact 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

Try these examples

April 26, 2013 Dec. 30, 2014
Sept. 7, 2013 May 24, 2014
June 28, 2011 September 20, 2014

Finding the Exact & Ordinary Interest

Exact Interest (EI)
Divide the number of days by 365 or 366 for a
leap year.
Ordinary Interest (OI)
Divide the number of days by 360.

Examples
1. Find the exact interest and maturity value if
P35, 000 is invested for 90 days at 8%.
2. A loan of P50, 000 at 7% annual interest rate.
The loan was made on March 15, 2013 and due
on May 15, 2014. How much is the ordinary
interest and maturity value?

Four Commercial Practices

Exact Time Exact Interest
Exact Time Ordinary Interest
Approximate Time Exact Interest
Approximate Time Ordinary Interest

Simple Interest
Finding Rate
Finding Time
Present Value

Finding Rate and Time

1. A loan for P23, 200 was repaid with P25, 080
after 6 months. What rate was used?
2. How many days will it take for P5, 000 to earn
P250 if it is invested at 10%.

Present Value at Simple Interest

1. Find the present value of P50, 000 in 8 months
at 12%.
2. A cellular phone is being sold for P24, 000
cash or P24, 500 in 3 months. If money is
worth 8%, which of the two options is better
and by how much?