General Mathematics

Quarter 2 - Module 1:
Simple Interest
General Mathematics
Alternative Delivery Mode
Quarter 2 - Module 1: Simple Interest
First Edition, 2020

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 What I Need to Know

This module was designed and written with you in mind. It is here to help you master
the concepts of Simple Interest. The scope of this module permits it to be used in many
different learning situations. The language used recognizes the diverse vocabulary level of
students. The lessons are arranged to follow the standard sequence of the course. But the
order in which you read them can be changed to correspond with the textbook you are now
using.
The module focuses on Simple Interest. After going through this module, you are
expected to:
1. illustrate simple interest;
2. compute simple interest, maturity value, future value, and simple value in
simple interest; and
3. solve problems involving simple interest.

What I Know

Choose the letter of the best answer. Write the chosen letter on a separate sheet
of paper.
1. You get a student loan from the New Mexico Educational Assistance
Foundation to pay for your educational expenses this year. Find the interest
on the loan if you borrowed ₱2 000 at 8% for 1 year.
A. ₱120 B. ₱140 C. ₱160 D. ₱180
2. You are starting your own small business in town. You borrow ₱10 000 from
the bank at a 9% rate for 5 years. Find the interest you will pay on this loan.
A. ₱4 500 B. ₱5 000 C. ₱5 500 D. ₱ 600
3. Robert deposits ₱3 000 in the bank for 3 years which earn him an interest of
8%. What is the amount that he will get after 3 years?
A. ₱240 B. ₱3 720 C. ₱480 D. ₱3 480
4. Seth invested a certain amount of money and got back an amount of ₱ 8 400.
If the bank paid an interest of ₱700, find the amount that Seth has invested.
A. ₱ 8 000 B. ₱ 5 000 C. ₱ 6 500 D. ₱7 700
5. Diego deposited ₱10 000 which will mature in 4 years at a rate of 6% per
annum. Find amount Diego will get upon maturity.
A. ₱12 400 B. ₱12 000 C. ₱2 400 D. ₱1 240
6. This is the date on which the money borrowed or loaned is to be completely
repaid.
A. conversion period C. maturity date
B. loan date D. origin date
7. This refers to the amount paid or earned for the use of money.
A. conversion period C. principal
B. interest D. rate
8. How much was the interest if Sophia borrowed ₱45,000.00 and paid a total
of ₱55,500.00 at the end of the term?
A. ₱10 500.00 C. ₱11 500.00
B. ₱45 000.00 D. ₱100 500.00

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 9. John borrowed ₱45,400.00 at 10% simple interest rate. How much should
he repay after 3 years?
A. ₱13 620.00 C. ₱59 020.00
B. ₱46 762.00 D. ₱104 420.00
10. At what simple interest rate was ₱18 350.00 invested, if it earned ₱1 025.00
interest for 1.5 years?
A. 0.0372% C. 3.72%
B. 0.1193% D. 11.93%

Lesson

1 Simple Interest

What’s In

Remember that interest is the charge for borrowing the money. So, Raquel had to
pay back the original amount borrowed (principal) and the interest. Let's look at some
more examples of interest.

Example 1: When Kevin bought a new office phone, he borrowed $1 200 at a rate of
18% for 9 months. How much interest did he pay?

Solution: P = $1,200, R = 0.18 and T = 0.75

Remember that the interest formula asks for the time in years. However, the time
was given in months. So, to get the time in years we represent 9 months as 9/12 of a
year, or 0.75.
I = P*R*T

I = (1200)*(0.18)*(0.75) = 162.00

Answer: Kevin paid $162.00 in interest.

What’s New

What is simple interest?

Simple interest is a quick and easy method of calculating the interest charge on
a loan. Simple interest is determined by multiplying the daily interest rate by the
principal by the number of days that elapse between payments.
Simple Interest = P x I x N, where:

P = principle

I = daily interest rate

N = number of days between payments

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 This type of interest usually applies to automobile loans or short-term loans,
although some mortgages use this calculation method.
When you make a payment on a simple interest loan, the payment first goes
toward that month’s interest, and the remainder goes toward the principal. Each
month’s interest is paid in full so it never accrues.
“On the one hand, when you save money in the bank, you will gain an interest
paid by the bank. On the other hand, when you borrow money, you are charged an
interest on the amount you borrowed. How are gained and charged interests computed?”
A debtor pays the bank an amount which is more than the amount they
borrowed. An investor may withdraw from the bank more than the amount deposited.
This additional sum is called INTEREST.

Definition of terms:
Lender or creditor – person (or institution) who invests the money or makes the funds
available.
Borrower or debtor – person (or institution) who owes the money or avails of the funds
from the lender.
Origin or loan date – date on which money is received by the borrower.
Repayment date or maturity date – date on which the money borrowed or loaned is to
be completely repaid.
Time or term (t) – amount of time in years the money is borrowed or invested; length
of time between the origin and maturity dates.
Principal or present value (P) – amount of money borrowed or invested on the origin
date.
Rate of interest or simply rate (r) – annual rate, usually in percent, charged by the
lender, or rate of increase of the investment.
Interest (I) – amount paid or earned for the use of money.
Maturity Value or Future Value (F) – amount after t years that the lender receives from
the borrower on the maturity date; equal to the sum of principal and the interest earned

What is It

What is Maturity Value?

Maturity value is the amount payable to an investor at the end of a debt instrument’s
holding period (maturity date). For most bonds, the maturity value is the face amount of
the bond. For some certificates of deposit (CD) and other investments, all of the interest is
paid at maturity. If all of the interest is paid at maturity, each of the interest payments may
be compounded. To calculate the maturity value for these investments, the investor adds
all of the compounding interest to the principal amount (original investment).

Example: Angela deposited ₱2 000 in an account at rate of 3.75% simple interest. 8 months
later, she deposited another ₱3 000 into account. Find the total amount in the account
three years after the first deposit.

After understanding the question, it is better to split the solution into two parts
before we can get the answer. These parts are:
1. Find the total amount after 8 months
2. Find the total amount for the rest of the period
Since we are finding the total amount, we can use the maturity value formula shown
below:
S = P(1+rt)

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 1) Find the total amount after 8 months

It is important to know that the interest 3.75% is on a per year basis

(or per annum basis), unless stated otherwise. Therefore, it is
important to convert 8 months to years. Since 1 year consists of 12
months, we divide 8 months with 12. Here's how:

Next, we need to convert 3.75% to a decimal by dividing it with 100. Here's how:

Alright, we are all set to calculate the total amount in the account after 8/12 year.
These are the information that we have:

1. Principal, P = ₱2 000
2. Interest rate, r = 0.0375
3. Duration/Period, t = 8/12

Substituting these values into the maturity value formula:

Hence, after 8 months, the total amount in the account is ₱2050.

Let's go to the second part:

2) Find the total amount for the remaining period

Now, after covering the first 8 months, let's find the maturity
value for the rest of the remaining period. Since, 3 years has 36
months (3 x 12), the:

Next, we have to convert 28 months to year by dividing it with 12:

Angela deposited another ₱3 000 into her account. Therefore, the amount of money
in her account after 8 months will be:

Hence, we have the following information:

1. Principal, P = ₱5050
2. Interest rate, r = 0.0375
3. Duration/Period, t = 28/12

We can calculate for the maturity value after 3 years using the above information.
This is shown below:

Therefore, the total amount in

the account three years after the
first deposit is ₱5 491.88.

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 What’s More

Let’s first investigate how to solve future value of simple interest by defining it.
Simple interest is the amount of money paid on a loan. It is the easiest type of interest to
calculate and understand because its value.
I = Prt (Simple Interest = Principal x Interest Rate x Time).
Below you will see example of a simple interest problem:

If you deposit ₱800 in an account paying 6% simple interest for 4 years,

determine the amount of interest earned on the given deposit.

From this, we can find future value of simple interest:

When A is the future value, we can see that this amount is just our initial quantity with
the addition of simple interest. An example of a future value of simple interest problem
would be:

If you deposit ₱1 300 in an account paying 10% simple interest for 2 years,
determine the future value of the deposit

We can have students study this concept using an Excel Spread Sheet. In the
spreadsheet, the students can have the first input as the principal and second input as
the time in years. This way, they can see how the interest rate affects the future
value. They can also play with the values to fully see what happens to the amount the
longer it is used.

What I Have Learned

Directions: Complete the table below by solving the unknown quantities in each row.

Principal Rate Time Simple Interest Future Value

(P) (r) (t) (Is) (F)

1. ₱500 000.00 12.5% 10 years

2. 2.5% 4 years ₱1 500.00

3. 1 year and
₱36 000.00 ₱4 860.00
6 months

4. ₱250 000.00 0.5% ₱1 400.00

5. ₱10 000.00 4% 5 months

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Solution:
1. Given: P = ₱500,000.00 ; r = 12.5% or 0.125 ;t = 10 years

Is = Prt F = P+Is
Is = ₱500 000.00(0.125)(10) F = ₱500 000.00 + ₱625 000.00
Is = ₱625 000.00 F = ₱1 125 000.00
2. Given: r = 2.5% or 0.025 ; t = 4 years ; Is = ₱1,500.00

P = Is/rt F = P+Is
P = ₱1 500.00/0.025 (4) F = ₱15 000.00 + ₱1 500.00
P = ₱15 000.00 F = ₱16 500.00
3. Given: P = ₱36 000.00 ; t = 1 6/12 years or 1.5 years ; Is = ₱4 860.00

r = Is/Pt F=P+Is
r = ₱4 860.00/₱36 000.00(1.5 ) F = ₱36 000.00 + ₱4 860.00
r = 0.09 or 9% F = ₱40 860.00

4. Given: P = ₱250 000.00 ; r = 0.5% or 0.005 ; Is = ₱1 400.00

t = Is/Pr F = P+Is
t = ₱1 400.00/₱250 000.00(0.005) F = ₱250 000.00 + ₱1 400.00
t = 1.12 years F = ₱251 400.00

5. Given: P = ₱10,000.00 ; r = 4% or 0.04 ; t = 5/12 year

Is = Prt F = P+Is
Is = ₱10 000.00 (0.04)(5/12) F = ₱10 000.00 + ₱166.67
Is = ₱166.67 F = ₱10 166.67

Key Takeaways

 Simple interest is calculated by multiplying the daily interest rate by the

principal, by the number of days that elapse between payments.
 Simple interest benefits consumers who pay their loans on time or early
each month.
 Auto loans and short-term personal loans are usually simple interest loans.

What I Can Do

People who need money to start a business, buy a house, or for other purposes
may borrow money from a bank. If you borrow money, you must pay interest. Banks
also pay interest on money deposited in savings accounts.
Interest is the extra money which must paid in return for the use of someone
else’s money. The amount, which is the principal and the interest, must be paid back
within a specified period of time. This period is of time is called time of the loan.

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 The amount of interest a borrower pays depends on the bank’s rate of interest,
the amount of money borrowed (principal), and the length of time that the money is
borrowed.
The rate of interest which is set by the bank is always given as a percentage of
the principal. This is usually calculated over a period of one year. The term per annum
means per year.
Simple interest is the interest paid on the principal only for each time period.

Answer the following problems involving simple interest. Write your complete
solutions and answers on a 1 whole sheet of paper.

1. Find the simple interest on a loan of ₱65 000.00 if the loan is given at a rate of
2% and is due in 5 years and 3 months?

2. How much money will you have after 4 years if you deposited ₱10 000.00 in a
bank that pays 6% simple interest?

Assessment

Directions: Read each statement carefully. Choose the letter of the correct answer and
write it on a 1 whole sheet of paper.

1. This is the date on which money is received by the borrower.

A. conversion period C. maturity date
B. loan date D. repayment date

2. 315% is equivalent to
A. 0.0032 C. 0.32
B. 0.032 D. 3.2

3. This refers to the interest charged on the principal alone for the entire
duration or period of the loan or investment.
A. compound interest C. interest rate
B. future value D. simple interest

4. This refers to the number of years for which the money is borrowed or
invested.
A. conversion period C. principal
B. interest rate D. time

5. An interest resulting from the periodic addition of simple interest to the

principal amount.
A. compound amount C. interest rate
B. compound interest D. simple interest

6. What is the formula in computing the present value of F in a financial

transaction involving compound interest?
A. P=F1+i-n C. P=F1-i-n
B. P=F1+in D. P=F1-in

7. How much was the interest if Althea invested ₱30 400.00 and received a
total of ₱40 300.00 at the end of the term?
A. ₱9 900.00 C. ₱40 300.00
B. ₱30 400.00 D. ₱70 700.00

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8. How much is the future value on this financial transaction, P = ₱10 000.00,
r = 5%, and t = 3 years?
A. ₱1 500.00 C. ₱21 500.00
B. ₱11 500.00 D. ₱25 000.00

9. What is the total number of conversion periods when a certain amount is

borrowed at 5.5% compounded quarterly for 4 years?
A. 4 C. 16
B. 12 D. 22

10. What is the interest rate per conversion period if ₱29 500.00 was invested
at 2.5% compounded semi-annually for 5 years and 4 months?
A. 0.0025 C. 0.025
B. 0.0125 D. 2.5

11. Edgardo invested ₱15 600.00 at 10.25% interest rate. How long will it
take his investment to earn an interest of ₱5 055.00?
A. 0.32 years C. 6.29 years
B. 3.16 years D. 30.11 years

12. Find the simple interest on a loan of ₱65 000.00 if the loan is given at a
rate of 8% and is due in 6 years and 3 months.
A. ₱3 250.00 C. ₱32 500.00
B. ₱31 200.00 D. ₱46 800.00

13. Jamaico made a loan of ₱20 450.00 from a bank that charges 3% simple
interest. How much must he pay the bank after 2 years?
A. ₱1 227.00 C. ₱32 720.00
B. ₱21 677.00 D. ₱42 127.00

14. At what interest rate compounded semi-annually will ₱15 000.00

accumulate to ₱25,000.00 in 10 years?
A. 2.05% C. 4.05%
B. 2.59% D. 5.17%

15. ABC University anticipates additional expenses of ₱367 800.00 for a new
equipment needed for offering a new course 5 years from now. How much
should be invested in an account that earns 12% compounded monthly?
A. ₱62 427.83 C. ₱202 455.37
B. ₱165 344.63 D. ₱668 181.05

Additional Activities

1. A sum of ₱5 000 is borrowed for 4 years at 2% per annum. Find the simple
interest and the amount to be paid back.

2. If the simple interest on ₱500 at 4% per annum is ₱35. Find the period of
the loan.

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