Simple Interest

Business Math
Introduction
When you deposit money into a savings at a bank
you expect the bank to pay you for the privilege of
saving your money with them. This extra money is
called interest.
Interest is also paid by a borrower to a lender for the
privilege of using money.
Interest is the amount paid for the use of another
amount of money, called the principal amount or
simply principal.
The description of interest suggests that three elements play important role in the
computation of interest.

i. Principal is the base in which interest is computed. If an amount is loaned or

borrowed, this amount is referred to as principal.

ii.Term is the unit of time for which the principal is loaned, or the length of time
the principal is borrowed.

iii.Interest rate is the multiplier expressed as percent of the principal to be paid

each term.

The maturity value, or simply the amount, is the sum of the principal and the
interest that accumulates over the agreed term.
SIMPLE INTEREST

- Refers to the amount earned for

one year calculated by multiplying
the principal by the interest rate.
Simple Interest

Rate of interest is
Simple Interest
the percent
charged or earned
I=P  r  t
Time that the
Principal is the money is borrowed
amount of money or invested (in
borrowed or years)
invested
MATURITY VALUE

The balance or future value F is given

by

F = P + I = P + Prt = P(1 + rt).

EXAMPLE

An amount of Php 150,000 is invested

for 9 months a 4%.

Find the interest and the maturity value.

An amount of Php 1, 000,000 is invested in a
financial institution.

a.How long will it take for the amount to reach

Php 1,001,000 at 2% simple interest?

b.At what interest rate will it earn Php 1,000 in 10

months.