WMSU-ISMP-GU-001.

00
Effective Date: 7-DEC-2016

MATHEMATICS OF INVESTMENT

______________________________________________________

ORDINARY AND EXACT INTEREST

SIMPLE DISCOUNT
______________________________________________________

MICHAEL C. DELIVA

Page 1 of 7
CONTROLLED COPY
 WMSU-ISMP-GU-001.00
Effective Date: 7-DEC-2016

WESTERN MINDANAO STATE UNIVERSITY

Copyright © by Western Mindanao State University
All rights reserved. Published (2020)
Printed in the Philippines
ISBN 978-971-0487-42-4
No part of this publication may be reproduced or distributed
in any form or by any means, or stored in a database or
retrieval system, without prior written permission of
WESTERN MINDANAO STATE UNIVERSITY

TABLE OF CONTENTS

Kinds of Simple Interest--------------------------------------------------------------------------- 5

Simple Discount----------------------------------------------------------------------------------------
6

Exercises-------------------------------------------------------------------------------------------- 7

Page 2 of 7
CONTROLLED COPY
 WMSU-ISMP-GU-001.00
Effective Date: 7-DEC-2016

BACKGROUND OF THE MODULE

Ordinary and simple interest are two basic kinds of simple

interest. The two uses the same formula for solving the simple interest but they
differ on using the time. This module is intended for second year students who
are enrolled in Bachelor of Secondary Education major in Mathematics.

OBJECTIVES OF THE MODULE

The main purpose of this module is to help students analyze and

distuinguish between interest and discount formula, compute for equivalent
interest and discount rates and distinguish between the use of interest rate and
discount rate. With this module examples are simplified so that complex lessons
will be understood by the students who are working independently.

Page 3 of 7
CONTROLLED COPY
 WMSU-ISMP-GU-001.00
Effective Date: 7-DEC-2016

ORDINARY AND EXACT INTEREST

SIMPLE DISCOUNT

Introduction

Interest is define as a money paid for the use of money.Simple interest is interest calculated
on the principal portion of aloan or the original contribution to a savings account and it has 2 kinds.
Ordinary and simple interest are two basic kinds of simple interest. The two uses the same formula for
solving the simple interest but they differ on using the time

Objectives:

At the end of this lesson, you should be able to:

1. Analyze and distuinguish between interest and discount formula

2. Compute for equivalent interest and discount rates
3. Distinguish between the use of interest rate and discount rate

Page 4 of 7
CONTROLLED COPY
 WMSU-ISMP-GU-001.00
Effective Date: 7-DEC-2016

Read and Ponder

Kinds of Simple Interest

There are basically two kinds of simple interest: ordinary and exact. These two terms uses the
same formula for solving the simple interest but they differ on using the time.
Ordinary simple interest is a simple interest that uses 360 days as the equivalent number of
days in a year. On the other hand, exact simple interest is a simple interest that uses exact
number of days in a year which is 365 (or 366 for leap year).

Example
Problem 1

1. On May 30, 2012 a businessman loans $15,000 in the bank for the expansion of his
restaurant. It was agreed that he will pay the amount with 6% rate of interest on August 10,
2012. What is the ordinary simple interest to be paid?

Answer: $180

Explanation:

Principal amount is $15,000.

Rate of interest is 6%.
Counting the number of days from May 30 to August 10;
Note: Since May 30 is the beginning date, it is not included in counting.
May 31 1
June 1-30 30
July 1-31 31
August 1-10 10 Total 72 days

Converting days into years:

72 days x (1year/360days) = 1/5years
Using the formula for solving the simple interest;
Interest = Principal x Rate x Time
Interest = $15,000 x 6% x 1/5
Interest = $15,000 x 0.06 x 1/5
Interest = $180
Therefore, the businessman will pay $180 interest.

Problem 2
2. Mike borrowed $1800 from his aunt last December 25, 2020. He promised that he will pay
his aunt on Feb 14, 2021 at 8% rate interest. Find the exact simple interest to be paid by
Mike.

Page 5 of 7
CONTROLLED COPY
 WMSU-ISMP-GU-001.00
Effective Date: 7-DEC-2016

Answer: $20.12
Explanation:
Principal amount is $1,800.
Rate of interest is 8%.
Counting the number of days from December 25 to February 14;
Dec 25-31 6
Jan 1-31 31
Feb 1-14 14
Total 51 days
Converting days into years:
51 days x (1year/365days) = 51/365years
Using the formula for solving the simple interest;
Interest = Principal x Rate x Time
Interest = $1,800 x 8% x 51/365
Interest = $1,800 x 0.08 x 51/365
Interest = $20.12
Therefore, Mike will pay $20.12 interest

SIMPLE DISCOUNT
The process of finding the present calue of a given amount that is due on a future date
and includes a simple interest is called discounting at simple interest, or commonly, the
simple discount method. In other words, to discount an amount by the simple interest process
is to find its present value. When interest is involves, the amount must be larger than its
present value. The difference between the amount and its present value is called the simple
discount.
STEPS:
Discounting an interest bearing debt
To find the present value of an interest-bearing debt (or to discount the amount by the
simple discount method), take the following steps:
Step 1: Find the maturity value (the amount) according the original interest rate and
the time stipulated for the debt. Use the formula S=P(1+in), where S is the amturity value and
P is the original debt.
Step 2: Find the present value (the value on the date of discount) of the maturity value
according to the interest rate for discounting and the discount period. The discount period is
the period from the date of discount to the maturity date. Use the formula in the form P= S/1+
in, where P is the present value and S is the maturity value. However, the values of i and n in
this step are often different from the values in i and n in step 1.

Let’s Try! Solve on your own! 

1. A debt of €870.50 is due in six months. If the debt is settled now and the simple interest
rate of 6% is allowed, what is the present value and the simple discount?

Page 6 of 7
CONTROLLED COPY
 WMSU-ISMP-GU-001.00
Effective Date: 7-DEC-2016

See if you can do this!

Directions: Answer the following questions on a piece of paper.

1. Radio Kasarilan borrowed $148,500 on May 12 with interest due on August 27. Find the
interest on the loan, if the interest is 10% using

a. exact interest
b. ordinary interest

2. A loan of $2000 with a simple annual interest rate of 14% was made on June 14 and was
due
on August 14 of the same year. Find the exact interest.

3. A debt of €870.50 is due in six months. If the debt is settled now and the simple interest
rate of 6% is allowed, what is the present value and the simple discount?

Congratulations for a job well done.

Page 7 of 7
CONTROLLED COPY