ES 21 – VIDEO LECTURE 1

Simple Interest – only the principal earns interest.

I =Pni
F=P+ I
F=P+ Pni
F=P(1+¿)

Where: I – interest
i – rate of interest per interest period
n = number of interest period
P = principal or present worth
F = Future worth or accumulated amount

Types of Interest:
 Ordinary Simple Interest – computed on the basis of 12 months of 30 days each or 360 days a year
 Exact Simple Interest – is based on the exact number of days in a year 365 days for an ordinary year and
366 days for a leap year
- 31- day months ( Jan. Mar. May. July. Aug. October. Dec)
- 30 – day months ( April, June, Sept. Nov. )
 To find whether a year is ordinary year or leap year, if the year is divisible by 4, then it is leap year
(use 29 days for feb.) otherwise not leap year (use 28 days for Feb)

Example:
1. If you got a character loan of P10,000 from a bank worth 18% interest per annum, how much interest
would you have paid in 2 years.

Given:
P = P10, 000
i = 18%
n=2
I=?

I =Pni
I = ( P10, 000 ) (2) (0.18)
I = P 3, 600
 2. A money worth P4,000 is borrowed for 75 days at 16% per annum simple interest. How much will be
due at the end of 75 days

Given:
P = P 4, 000
n = 75 days
i = 16% per annum
F=?
F=P(1+¿)
= P 4, 000 ( 1 + 75days/ 360 x 0.16)
= P 4133. 33

3. If a man borrowed money from his girlfriend with simple interest rate of 12%, determine the present
worth of P75, 000, which is due at the end of 7 months.

Given:
i = 12%
n = 7 months
F = P 75, 000
P=?
P=F /(1+¿)
= P 75, 000 / (1 + 7/12 x 0.12 )
= P 70, 093. 46

4. Daisy borrowed money from a certain financing firm. She received P1842 from the firm and promised
to pay P2000 at the end of 10 months. What is the simple interest rate?
Given:
P = P1842
F = P2000
n = 10 months
i=?
F = P ( 1 + ni)
i = F/P – 1 / n
= ( P2000 / P1842 – 1 ) / 10/12
= 0. 1029 = 10.29%
 5. The future worth of P10 000 at 5% simple annual interest rate is P12 500. How long is the interest
period?
Given:
P = P10 000
i = 5%
F = P12 500
n=?
F=P(1+¿)
n = F/P – 1 / i
= ( P12 500 / P10 000 – 1 ) / 0.05
= 5 years