Simple Interest

Definitions
• Simple interest is interest charged on the
entire principal for the entire length of the
loan.
• Principal is the loan amount.
• Rate is the interest rate.
• Time is the length of the loan in years.
 Definitions
• Simple Interest is an amount paid for using
money owned by another person.
• It is computed only once at the end of the
term.
• It is usually applied when the term is less than
one year.
 Simple Interest Formula
• Simple Interest = Principal * Rate * Time
• I = P *R*T
 When using the formula I = PRT:
• 1. Rate (R) must first be changed to a decimal
or fraction.
• 2. Time (T) must first be converted to years.
• So, for example, a rate of 7.5% should be
changed to .075 and a time of 6 months
should be changed to 6/12 = .5 year before
using I = PRT.
 Maturity Value
• The maturity value of the loan is the amount
that must be repaid when the loan is due.
• It is computed by adding principal and
interest.
• It is also referred to as the Amount or Future
Value.
 Finding Maturity Value
• Maturity Value = Principal + Interest
•M = P + I
 Finding Simple Interest
• To start her business, Jessica needs to borrow
P185,000 for 9 months. Her bank would not lend
her the money since she has no experience or
assets. She found an individual who would lend
her the money at 18.5% interest rate. However,
her uncle agreed to cosign on a loan for her,
meaning that he would have to pay the loan if
Jessica failed to do so. On this basis, the bank
would lend the money at 10% simple interest.
• Find the interest at (a) 18.5% and (b) 10% (c)
Then find the amount saved using the lower
interest rate.
Solution:
• (a) First, convert 18.5% to .185 and 9 months to
9/12 year. Then substitute values into I = PRT to
find the interest. The principal (P) is the amount
of the loan, P185,000.
• I = PRT
• I = P185,000 * .185 *9/12
• I = P25,668.75 simple interest
• (b) I = PRT
• I = P185,000 * .10 *9/12
• I = P13,875 simple interest
• (c) Difference = P25,668.75 – P13,875 =
P11,793.75
 Finding Maturity Value
• Ginger needs to borrow P28,300 to remodel
her bookstore so that she can serve coffee to
customers as they browse or sit and read. She
borrows the funds for 10 months at an
interest rate of 9.25%. Find the interest due on
the loan and the maturity value at the end of
10 months.
 Solution
• Interest = PRT
• I = P28,300 * .0925 *10/12
• I = P2,181.4583333333…
• I = P2,181.46
• Maturity Value = P + I
• M = P28,300 + P2181.46 = P30,481.46
Alternative Formula for Maturity Value
• M=P+I
• But I = PRT
• M = P + PRT
• M = P(1 + RT)
• Substituting values in the previous problem
• M = P28,300*(1 + .0925*10/12)
• M = P30,481.4583333333…
• M = P30,481.46
 Finding Principal
• How much should be invested at 7.5% for 15
months to earn an interest of P5000?
• P = I / RT
• P = P5000 / (.075*15/12)
• P = P53,333.333333…
• P = P53,333.33
 Finding Rate
• At what simple interest rate should P150,000
be invested in for 36 weeks for it to earn
P7500?
• R = I / PT
• R = P7500 /(P150,000*36/52)
• R = 0.0722222222…
• R = 7.22222…%
• R = 7.22%
 Finding Time
• For how long should P275,000 be borrowed at
5.25% simple interest rate for it to earn
P8000?
• T = I / PR
• T = P8000/(P275,000*.0525)
• T = 0.5541125541 years
• T = 0.55 years
Discount
 Discount

• Discount is an amount deducted from list

price or original price.

• It is expressed as a percent of the list price or

original price.
 Discount
• Discount problems are similar to percentage
problems.
• Percentage corresponds to the amount of
discount.
• Rate corresponds to the percent or rate of
discount.
• Base corresponds to the list price or original
price, the amount on which the discount is
computed.
 Discount Formulas

• Discount = List price x Discount Rate

• Net Price = List Price - Discount

 Finding Discount
• Oliver’s Auto supply purchased a dozen foot
pumps for P750 each. The purchase was
subject to a trade discount of 20%. How much
did Oliver’s Auto supply save?
• 1ST Solution:
• P750 x 12= P9000
• P9000 x .20 = P1800
• Oliver’s Auto Supply saved P1800.

• 2nd Solution:
• P750 x .20 = P150
• P150 x 12 = P1800
• Oliver’s Auto Supply saved P1800.
 Finding List Price
• A discount of P875.75 for a refrigerator was
given to a dealer after a trade discount of 10%
on the list price. What was the original price
of the refrigerator?
• List Price = Discount / Discount Rate
• List Price = P875.75 / .10
• List Price = P8757.50
• The original price of the refrigerator was
P8757.50 .
 Finding Discount Rate
• Mr. Garcia ordered merchandise listed at
P150,000. The invoice received showed the
net price to be P127,500. Find the discount
rate.
• Discount = List price – Net Price
• Discount = P150,000 – P127,500
• Discount = P22,500

• Discount Rate = Discount / List Price

• Discount Rate = P22,500 / P150,000
• Discount Rate = 0.15
• Discount Rate = 0.15 x 100 %
• Discount Rate = 15%
• The discount rate is 15% .
 Finding the Net Price
• A pair of earrings was sold with a discount of
P2,500.00 which is 12% of the original price.
For how much did the earrings sell?
• List Price = Discount / Discount Rate
• List Price = P2,500 / 0.12
• List price = P20,833.333333333
• List Price P20,833.33

• Net Price = List Price – Discount

• Net Price = P20,833.33 – P2,500
• Net Price = P18,333.33
• The earrings sold for P18,333.33 .