Interest Simple interest Simple amount Four basic concepts

BUSINESS MATHEMATICS

SIMPLE INTEREST

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Interest

Definition
An amount paid or earned for the use of money
Usually expressed as percent per annum
Simple interest and compound interest

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Interest

Definition
An amount paid or earned for the use of money
Usually expressed as percent per annum
Simple interest and compound interest

Example 1:Loan (paid)

Borrowed RM 1000 → End of year RM 1080
Interest = RM 80

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Interest

Definition
An amount paid or earned for the use of money
Usually expressed as percent per annum
Simple interest and compound interest

Example 1:Loan (paid)

Borrowed RM 1000 → End of year RM 1080
Interest = RM 80

Example 2:Investment(earned)
Deposited RM 1000 → End of year RM 1050
Interest = RM 50
R. Chandrashekar Business Mathematics
Interest Simple interest Simple amount Four basic concepts

Simple Interest

Definition
Calculated on the original principle (for the entire period it is
borrowed or invested).

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Simple Interest

Definition
Calculated on the original principle (for the entire period it is
borrowed or invested).

Formula
I = Prt
where

I = Simple interest
P = Principal
r = Rate of simple interest
t = time or term in years

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Example:
RM 1000 is invested for two years in a bank, earning a simple
interest rate of 8% per annum. Find the simple interest earned.

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Example:
RM 1000 is invested for two years in a bank, earning a simple
interest rate of 8% per annum. Find the simple interest earned.

Solution:

I = Prt
= RM1000 × 0.08 × 2
= RM160

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Simple Amount

Definition
Sum of the original principle and the interest earned

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Simple Amount

Definition
Sum of the original principle and the interest earned

Formula
S = P(1+rt)
where

S = Simple amount
P = Principal
r = Rate of simple interest
t = time or term in years

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Example:
RM 10000 is invested for 4 years 9 months in a bank earning a
simple interest rate of 10% per annum. Find the simple amount at
the end of the investment period.

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Example:
RM 10000 is invested for 4 years 9 months in a bank earning a
simple interest rate of 10% per annum. Find the simple amount at
the end of the investment period.

Solution:

S = P(1+rt)
= RM10000(1 + 0.1 × 4.75)
= RM14, 750

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Example:
Raihan invests RM 5000 in an investment fund for three years. At
the end of the investment period, his investment will be worth RM
6125. Find the simple interest rate that is offered.

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Example:
Raihan invests RM 5000 in an investment fund for three years. At
the end of the investment period, his investment will be worth RM
6125. Find the simple interest rate that is offered.

Solution:

I = Prt
RM1125 = RM5000 × r × 3
r = 7.5%

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Example:
How long does it take a sum of money to triple itself at a simple
interest rate of 5% per annum.

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Example:
How long does it take a sum of money to triple itself at a simple
interest rate of 5% per annum.

Solution: Let

Principal = RMK and Time = t years.

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Example:
How long does it take a sum of money to triple itself at a simple
interest rate of 5% per annum.

Solution: Let

Principal = RMK and Time = t years.

I = Prt
2K = K × 0.05 × t
t = 40 years

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Example:
Twenty-four months ago, a sum of money was invested. Now the
investment is worth RM 12000. If the investment is extended for
another twenty-four months, it will become RM 14000. Find the
original principal and the simple interest rate that was offered.

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Example:
Twenty-four months ago, a sum of money was invested. Now the
investment is worth RM 12000. If the investment is extended for
another twenty-four months, it will become RM 14000. Find the
original principal and the simple interest rate that was offered.

Solution: Let
Original principal = RM P

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Example:
Twenty-four months ago, a sum of money was invested. Now the
investment is worth RM 12000. If the investment is extended for
another twenty-four months, it will become RM 14000. Find the
original principal and the simple interest rate that was offered.

Solution: Let
Original principal = RM P
Simple interest rate = r%

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Example:
Twenty-four months ago, a sum of money was invested. Now the
investment is worth RM 12000. If the investment is extended for
another twenty-four months, it will become RM 14000. Find the
original principal and the simple interest rate that was offered.

Solution: Let
Original principal = RM P
Simple interest rate = r%

12000 = P (1 + 2r) (1)

14000 = P (1 + 4r) (2)

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Example:
Twenty-four months ago, a sum of money was invested. Now the
investment is worth RM 12000. If the investment is extended for
another twenty-four months, it will become RM 14000. Find the
original principal and the simple interest rate that was offered.

Solution: Let
Original principal = RM P
Simple interest rate = r%

12000 = P (1 + 2r) (1)

14000 = P (1 + 4r) (2)
(2) 14000 1 + 4r
: =
(1) 12000 1 + 2r

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

14000(1 + 2r) = 12000(1 + 4r)

r = 10%

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

14000(1 + 2r) = 12000(1 + 4r)

r = 10%

Subtituting r = 10% into equation (1),

12000 = P [1 + 2(0.1)]
P = RM 10000

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Example:
Muthu invested RM 10000 in two accounts, some at 10% per
annum and the rest at 7% per annum. His total interest for one
year was RM 820. Find amount invested at each rate.

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Example:
Muthu invested RM 10000 in two accounts, some at 10% per
annum and the rest at 7% per annum. His total interest for one
year was RM 820. Find amount invested at each rate.

Solution: Let
Amount invested at 10% = RM K

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Example:
Muthu invested RM 10000 in two accounts, some at 10% per
annum and the rest at 7% per annum. His total interest for one
year was RM 820. Find amount invested at each rate.

Solution: Let
Amount invested at 10% = RM K
Amount invested at 7% = RM (10000-K)

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Example:
Muthu invested RM 10000 in two accounts, some at 10% per
annum and the rest at 7% per annum. His total interest for one
year was RM 820. Find amount invested at each rate.

Solution: Let
Amount invested at 10% = RM K
Amount invested at 7% = RM (10000-K)

K(10%) + (10000 − K)(7%) = 820

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Example:
Muthu invested RM 10000 in two accounts, some at 10% per
annum and the rest at 7% per annum. His total interest for one
year was RM 820. Find amount invested at each rate.

Solution: Let
Amount invested at 10% = RM K
Amount invested at 7% = RM (10000-K)

K(10%) + (10000 − K)(7%) = 820

0.1K + 700 − 0.07K = 820
K = RM 4000

RM 4000 was invested at 10% and RM 6000 at 7%.

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Exact time
The exact number of days between two given dates.

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Exact time
The exact number of days between two given dates.

Approximate time
Number of days between two given dates (1 month = 30days)

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Exact time
The exact number of days between two given dates.

Approximate time
Number of days between two given dates (1 month = 30days)

Ordinary simple interest

Simple interest (1 year = 360 days)

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Exact time
The exact number of days between two given dates.

Approximate time
Number of days between two given dates (1 month = 30days)

Ordinary simple interest

Simple interest (1 year = 360 days)

Exact simple interest

Simple interest (1 year = 365/366 days)

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Example:
Find
a) exact time,
b) approximate time
from 15 March to 29 August of the same year.

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Example:
Find
a) exact time,
b) approximate time
from 15 March to 29 August of the same year.

Solution:
Month Exact time (Days) Approximate time (Days)
March 16 15

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Example:
Find
a) exact time,
b) approximate time
from 15 March to 29 August of the same year.

Solution:
Month Exact time (Days) Approximate time (Days)
March 16 15
April 30 30

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Example:
Find
a) exact time,
b) approximate time
from 15 March to 29 August of the same year.

Solution:
Month Exact time (Days) Approximate time (Days)
March 16 15
April 30 30
May 31 30

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Example:
Find
a) exact time,
b) approximate time
from 15 March to 29 August of the same year.

Solution:
Month Exact time (Days) Approximate time (Days)
March 16 15
April 30 30
May 31 30
June 30 30

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Example:
Find
a) exact time,
b) approximate time
from 15 March to 29 August of the same year.

Solution:
Month Exact time (Days) Approximate time (Days)
March 16 15
April 30 30
May 31 30
June 30 30
July 31 30

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Example:
Find
a) exact time,
b) approximate time
from 15 March to 29 August of the same year.

Solution:
Month Exact time (Days) Approximate time (Days)
March 16 15
April 30 30
May 31 30
June 30 30
July 31 30
August 29 29

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Example:
Find
a) exact time,
b) approximate time
from 15 March to 29 August of the same year.

Solution:
Month Exact time (Days) Approximate time (Days)
March 16 15
April 30 30
May 31 30
June 30 30
July 31 30
August 29 29
Total 167 164

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Example:
RM 1000 was invested on 15 March 2005. If the simple interest
rate offered was 10% per annum, find the interest received on 29
August 2005 using

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Example:
RM 1000 was invested on 15 March 2005. If the simple interest
rate offered was 10% per annum, find the interest received on 29
August 2005 using
a) exact time and exact simple interest,

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Example:
RM 1000 was invested on 15 March 2005. If the simple interest
rate offered was 10% per annum, find the interest received on 29
August 2005 using
a) exact time and exact simple interest,
Solution:
167
I = RM 1000 × 0.1 × = RM 45.75
365

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Example:
RM 1000 was invested on 15 March 2005. If the simple interest
rate offered was 10% per annum, find the interest received on 29
August 2005 using
a) exact time and exact simple interest,
Solution:
167
I = RM 1000 × 0.1 × = RM 45.75
365

b) exact time and ordinary simple interest,

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

Example:
RM 1000 was invested on 15 March 2005. If the simple interest
rate offered was 10% per annum, find the interest received on 29
August 2005 using
a) exact time and exact simple interest,
Solution:
167
I = RM 1000 × 0.1 × = RM 45.75
365

b) exact time and ordinary simple interest,

Solution:
167
I = RM 1000 × 0.1 × = RM 46.39
360

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

c) approximate time exact exact simple interest,

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

c) approximate time exact exact simple interest,

Solution:
164
I = RM 1000 × 0.1 × = RM 44.93
365

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

c) approximate time exact exact simple interest,

Solution:
164
I = RM 1000 × 0.1 × = RM 44.93
365

d) approximate time exact ordinary simple interest,

R. Chandrashekar Business Mathematics

Interest Simple interest Simple amount Four basic concepts

c) approximate time exact exact simple interest,

Solution:
164
I = RM 1000 × 0.1 × = RM 44.93
365

d) approximate time exact ordinary simple interest,

Solution:
164
I = RM 1000 × 0.1 × = RM 45.56
360

R. Chandrashekar Business Mathematics