Dr.

Heba Elsegai Year 2

English section
1) Simple Interest.
2) Discount Interest.
3) Compound Interest.
4) Ordinary Annuities.
5) Other Annuities Certain.
6) Debt Retirement Methods.
7) Investing in Stocks and Bonds.
8) Depreciation and Capital Budgeting.
9) Advanced Topics in Annuities.
1) Basic definitions.
2) Basic Simple Interest Formula.
3) Types of Time and Interest.
4) Future Value at Simple Interest.
5) Present Value at Simple Interest.
6) Simple Interest Debt Instruments.
7) Equations of Value.
8) Investments.
9) Partial Payments.
10) Equivalent Time
1) Basic definitions.
2) Basic Simple Interest Formula.
3) Types of Time and Interest.
4) Future Value at Simple Interest.
5) Present Value at Simple Interest.
6) Simple Interest Debt Instruments.
7) Equations of Value.
8) Investments.
9) Partial Payments.
10) Equivalent Time
Money
 Money

It is the medium of exchange for buying

and selling goods and services.
 Money

It is the medium of exchange for buying

and selling goods and services.

Its value can fluctuate due to

supply and demand.
Loan
 Loan

It is the sum that is expected to be paid back with

interest.
 Loan

It is the sum that is expected to be paid back with

interest cost of borrowed money
 Loan

It is the sum that is expected to be paid back with

interest cost of borrowed money

It is called Principal or Present value

Simple Interest:
An interest is called a simple interest if the
interest charged based only on the original
principal but paid at the end of the term.
Simple Interest:
An interest is called a simple interest if the
interest charged based only on the original
principal but paid at the end of the term.

The actual length of the loan in time

units corresponding to the rate.
Simple Interest:
An interest is called a simple interest if the
interest charged based only on the original
principal but paid at the end of the term.

The actual length of the loan in time

units corresponding to the interest rate.

It is the percent of the principal that is the

basis for the interest.
 Loan

An initial signing date Due date

(Starting date) (Maturity date)

The number of days between these two dates are used

for the term.
 Loan

An initial signing date Due date

(Starting date) (Maturity date)

The number of days between these two dates are used

for the term the actual length of the loan.
 The number of days between these two dates are used
for the term the actual length of the loan.

Every day has a serial number between 1 and 366.

 Loan

An initial signing date Due date

(Starting date) (Maturity date)
 Loan

An initial signing date Due date

(Starting date) (Maturity date)

Maturity value: the amount of money the borrower will

pay back.
 Loan

An initial signing date Due date

(Starting date) (Maturity date)

Maturity value: the amount of money the borrower will

pay back. Mathematically: S = P + I
Maturity value Principal Interest
1) Basic definitions.
2) Basic Simple Interest Formula.
3) Types of Time and Interest.
4) Future Value at Simple Interest.
5) Present Value at Simple Interest.
6) Simple Interest Debt Instruments.
7) Equations of Value.
8) Investments.
9) Partial Payments.
10) Equivalent Time
 I=Pit
Interest Time in years
Principal

Rate per year

(Interest rate)
• 6 months 6/12 or 0.5
• 6 months 6/12 or 0.5

• Change the rate to a decimal 7% = 0.07

• 6 months 6/12 or 0.5

• Change the rate to a decimal 7% = 0.07

• The interest is needed.
• The interest is needed.
• Solve the equation for i.
• The interest is needed.
• Solve the equation for i.
• 9 months will be written as ¾ of a year or 0.75.
• The interest is needed.
• Solve the equation for i.
• 9 months will be written as ¾ of a year or 0.75.
• The time is needed.
• The time is needed.
• Solve the equation for t.
• The time is needed.
• Solve the equation for t.
Promissory note : is a document on which one party (the
maker) writes his or her promise to pay another party (the
payee) the principal and interest for a loan due at some date
in the future.
Promissory note : is a document on which one party (the
maker) writes his or her promise to pay another party (the
payee) the principal and interest for a loan due at some date
in the future.
It often looks like a fancy check, but it can be as simple as
a handwritten piece of paper.
Promissory note : is a document on which one party (the
maker) writes his or her promise to pay another party (the
payee) the principal and interest for a loan due at some date
in the future.
It often looks like a fancy check, but it can be as simple as
a handwritten piece of paper.
Certain information must appear on the note:
the principal borrowed, the interest rate, the length of the
term or maturity date, the signing date and the borrower’s
signature .
First, we calculate the interest and then we add it to
the principal.
First, we calculate the interest and then we add it to
the principal.

This total is the maturity value (or future value) of the note.
First, we calculate the interest and then we add it to
the principal.

This total is the maturity value (or future value) of the note.

Remember that 18 months is 18/12 of a year or 1.5.

First, we calculate the interest and then we add it to
the principal.

This total is the maturity value (or future value) of the note.

Remember that 18 months is 18/12 of a year or 1.5.

First, we calculate the interest and then we add it to
the principal.

This total is the maturity value (or future value) of the note.

Remember that 18 months is 18/12 of a year or 1.5.

Note:
Numerator
(months/days)
The time fraction = Denominator
(number of months/days)

Months
The resulting units Months/year = Years
Days

Days/year
= Years
1) Basic definitions.
2) Basic Simple Interest Formula.
3) Types of Time and Interest.
4) Future Value at Simple Interest.
5) Present Value at Simple Interest.
6) Simple Interest Debt Instruments.
7) Equations of Value.
8) Investments.
9) Partial Payments.
10) Equivalent Time
Two methods of computing the number of
days (Finding time)

Exact time Approximate time

Two methods of computing the number of
days (Finding time)

Exact time Approximate time

It uses every day of the term
but the first day.

This day is called interest-free day.

Two methods of computing the number of
days (Finding time)

Exact time Approximate time

- We assume that every month has 30 days.
It uses every day of the term - The number of months is measured from
but the first day. the starting date of the loan containing
the maturity date.
This day is called interest-free day. - If the number of months exceeds 30 days,
then exact time method is used for the
remainder of the term.
Two methods of computing the number of
days (Finding time)

Exact time Approximate time

- We assume that every month has 30 days.
- The number of months is measured from
the starting date of the loan containing
the maturity date.
- If the number of months exceeds 30 days,
then exact time method is used for the
remainder of the term.
Exact time
method
 Exact time
method

General Rule: the serial of the starting date is subtracted

from the serial number of the maturity date.
 Exact time
method

The serial number for Apr 14 104

 Exact time
method

The serial number for Apr 14 104

The serial number for Oct 20 293

 Exact time
method

The serial number for Apr 14 104

The serial number for Oct 20 293

Then, the time is calculated as 293 – 104 = 189 days.

 Approximate
time approach
 Approximate
time approach

Apr is the 4th month & Oct is the 10th month

 Approximate
time approach

Apr is the 4th month & Oct is the 10th month

So, there are 6 months of 30 das each Apr 14 to Oct 14.

 Approximate
time approach

Apr is the 4th month & Oct is the 10th month

So, there are 6 months of 30 das each Apr 14 to Oct 14.

The exact time from Oct 14 to Oct 20 is 6 days.

 Approximate
time approach

Apr is the 4th month & Oct is the 10th month

So, there are 6 months of 30 das each Apr 14 to Oct 14.

The exact time from Oct 14 to Oct 20 is 6 days.

Now, the math gives us:

6 × 30 + 6 = ----- days.
 Approximate
time approach

Apr is the 4th month & Oct is the 10th month

So, there are 6 months of 30 das each Apr 14 to Oct 14.

The exact time from Oct 14 to Oct 20 is 6 days.

Now, the math gives us:

6 × 30 + 6 = 186 days.
 Practically, there are problems of using Exact
time method:

If a given year is a leap year (i.e., 29 days Feb), If the two dates for the loan span two
this results in making the serial table calculation or more years.
shorter by one day.
 Practically, there are problems of using Exact
time method:

If a given year is a leap year (i.e., 29 days Feb), If the two dates for the loan span two
this results in making the serial table calculation or more years.
shorter by one day.
Solution

To add a day to all serial numbers after Feb 29.

 Practically, there are problems of using Exact
time method:

If a given year is a leap year (i.e., 29 days Feb), If the two dates for the loan span two
this results in making the serial table calculation or more years.
shorter by one day.
Solution Solution

To avoid getting the days of the wrong part

To add a day to all serial numbers after
of the year, find
Feb 29.
the exact days for the portion of the term
in the first year and
add them to the number of days that are in
the second year.
 Practically, there are problems of using Exact
time method:

If a given year is a leap year (i.e., 29 days Feb), If the two dates for the loan span two
this results in making the serial table calculation or more years.
shorter by one day.
Solution

To avoid getting the days of the wrong part of the year, find
the exact days for the portion of the term in the first year and
add them to the number of days that are in the second year.
The serial number for Feb 11 is 42.
The serial number for Feb 11 is 42.

The serial number for July 31 is 212.

The serial number for Feb 11 is 42.

The serial number for July 31 is 212 + 1 (leap year).

The serial number for Feb 11 is 42.

The serial number for July 31 is 212 + 1 (leap year).

Then, the number of days is 213 – 42 = 171 days.

There are 30 exact days in Dec (365 - 335 = 30).
There are 30 exact days in Dec (365 - 335 = 30).

The serial number of March 15 is 74.

There are 30 exact days in Dec (365 - 335 = 30).

The serial number of March 15 is 74.

Then, the exact number of days is 30 + 74 = 104

days.
 Two methods of computing interest

Ordinary interest Exact interest

 Two methods of computing interest

Ordinary interest Exact interest

It uses a 360-day / year in

the denominator of the time fraction.
Ex: 12 months of 30 days each.

Benefit: It generates slightly more

interest for the lender.
 Two methods of computing interest

Ordinary interest Exact interest

It uses a 360-day / year in It uses a 365-day / year in

the denominator of the time fraction. the denominator in the time fraction.
Ex: 12 months of 30 days each.
Note that if a year has a 366 day, then
it is called a leap year.

Benefit: It generates slightly more

interest for the lender.
Answer
Answer
Answer
Answer
Answer
Answer
Note that:

The use of Exact time and Ordinary interest is

called Banker’s Rule.
(1)
(1)

(2)
1) Basic definitions.
2) Basic Simple Interest Formula.
3) Types of Time and Interest.
4) Future Value at Simple Interest.
5) Present Value at Simple Interest.
6) Simple Interest Debt Instruments.
7) Equations of Value.
8) Investments.
9) Partial Payments.
10) Equivalent Time
Future value refers to the value of money at
some future date due to the accrual of interest.
(i.e., maturity date).
Future value refers to the value of money at
some future date due to the accrual of interest.
(i.e., maturity date).

It is also called maturity value.

Derivation of the formula
Derivation of the formula
Derivation of the formula
Derivation of the formula
Derivation of the formula
Derivation of the formula

Simple interest factor

Maturity
value
Maturity Apr 20, 2004
value (Starting date)
Maturity Apr 20, 2004 0.075
value (Starting date) (Interest rate)
 Maturity Apr 20, 2004 0.075
Oct 30, 2004 value (Starting date) (Interest rate)
(Maturity date)
 Maturity Apr 20, 2004 0.075
Oct 30, 2004 value (Starting date) (Interest rate)
(Maturity date)

Exact time
and
Ordinary interest
Case study
An interesting application of simple interest involves invoices that have prompt payment
discounts associated with their payment structure.

An invoice may have terms which say, for example, that a 2% discount is offered if paid
within 10 days, this is to encourage prompt payment. Otherwise, the net is due in 45 days.
 Case study
An interesting application of simple interest involves invoices that have prompt payment
discounts associated with their payment structure.

An invoice may have terms which say, for example, that a 2% discount is offered if paid
within 10 days, this is to encourage prompt payment. Otherwise, the net is due in 45 days.

Question about these invoices?

Whether the discount (as interest earned) gives a better return than leaving the money
in a bank.

The following two examples will illustrate how to make this judgment.