Lecture Note One: Simple Interest

ISIBOR Osebor MSc, PhD. (In View)

Business Maths 1

WHAT IS SIMPLE INTEREST?

Simple interest is a method to calculate the amount of interest charged on a sum at a given rate and for a given
period of time. In simple interest, the principal amount is always the same, unlike compound interest where we
add the interest to the principal to find the principal for the new principal for the next year.
In this lesson, you will be introduced to the concept of borrowing money and the simple interest that is derived
from borrowing. You will also be introduced to terms such as principal, amount, rate of interest, and time period.
Through these terms, you can calculate simple interest using the simple interest formula.
Simple interest is a method of interest that always applies to the original principal amount, with the same rate of
interest for every time cycle. When we invest our money in any bank, the bank provides us interest on our amount.
The interest applied by the banks is of many types and one of them is simple interest. Now, before going deeper
into the concept of simple interest, let's first understand what is the meaning of a loan.
A loan is an amount that a person borrows from a bank or a financial authority to fulfil their needs. Loan examples
include home loans, car loans, education loans, and personal loans. A loan amount is required to be returned by
the person to the authorities on time with an extra amount, which is usually the interest you pay on the loan.
Simple Interest Formula
Simple interest is calculated with the following formula:
S.I. = (P × R × T)/100,
where P = Principal, R = Rate of Interest in % per annum, and T = Time, usually calculated as the number
of years. The rate of interest is in percentage R% (and is to be written as R/100, thus 100 in the formula).

• Principal: The principal is the amount that was initially borrowed (loan) from the bank or invested. The
principal is denoted by P.
• Rate: Rate is the rate of interest at which the principal amount is given to someone for a certain time, the
rate of interest can be 5%, 10%, or 13%, etc. The rate of interest is denoted by R.
• Time: Time is the duration for which the principal amount is given to someone. Time is denoted by T.
o If Time is given in x days, it will be x/365 years
o If Time is given in x weeks, it will be x/52 years
o If Time is given in x month, it will be x/12 years
• Sometimes, the simple interest formula is written as just SI = PRT where R is the rate of interest as a
decimal. i.e., if the rate of interest is 5% then R can be written as 5/100 = 0.05.

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Amount: When a person takes a loan from a bank, he/she has to return the principal borrowed plus the interest
amount, and this total returned is called the Amount.
Amount = Principal + Simple Interest
A = P + S.I.
A = P + PRT
A = P(1 + RT)
How to Find Simple Interest?
Simple interest is found by using the formula SI = (PRT)/100 where P is the principal, R is the rate of interest, and
T is the duration. The values of P, R, and T have to be substituted in this formula to calculate the simple interest.
Here is an example to understand the process better for same P and R values but for different T values.
Example 1:
Michael's father had borrowed $1,000 from the bank and the rate of interest was 5%. What would the simple
interest be if the amount is borrowed for 1 year? Similarly, calculate the simple interest if the amount is borrowed
for 2 years, 3 years, and 10 years? Also, calculate the amount that has to be returned in each of these cases.
Solution:
Principal Amount = $1,000, Rate of Interest = 5% = 5/100. (Add a sentence here describing the given information
in the question.)

Simple Interest Amount

1 Year S.I = (1000 × 5 × 1)/100 = 50 A = 1000 + 50 = 1050

2 Year S.I = (1000 × 5 × 2)/100 = 100 A = 1000 + 100 = 1100

3 Year S.I = (1000 × 5 × 3)/100 = 150 A = 1000 + 150 = 1150

10 Year S.I = (1000 × 5 × 10)/100 = 500 A = 1000 + 500 = 1500

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Most banks these days apply compound interest on loans because in this way banks get more money as interest
from their customers, but this method is more complex and hard to explain to the customers. On the other hand,
calculations become easy when banks apply simple interest methods. Simple interest is much more useful when
a customer wants a loan for a short period of time, for example, 1 month, 2 months, or 6 months.
When someone goes for a short-term loan using simple interest, the interest applies on a daily or weekly basis
instead of a yearly basis. Consider that you borrowed $10,000 on simple interest at a 10% interest rate per year,
so this 10% a year rate is divided into a rate per day which is equal to 10/365 = 0.027%. So, you have to pay $2.73
a day extra on $10,000.

Simple Interest vs Compound Interest

Simple interest and compound interest are two ways to calculate interest on a loan amount. It is believed that
compound interest is more difficult to calculate than simple interest because of some basic differences in both.
Let's understand the difference between simple interest and compound interest through the table given below:

Simple Interest Compound Interest

Simple interest is calculated on the Compound interest is calculated on the accumulated sum
original principal amount every time. of principal and interest.

It is calculated using the following It is calculated using the following formula: C.I.= P × (1
formula: S.I.= P × R × T +R)T - P

It is equal for every year on a certain It is different for every span of the time period as it is
principal. calculated on the amount and not the principal.

Example 2: Robert purchased a car worth $48,000, he borrowed the money from the bank at 10% per annum for
a period of 4 years. How much amount he has to pay after the period.
Solution:
The principal value for the car is $48,000, the rate of simple interest is 10% and the time period given is 4 years.
Using the formula for amount, A= P(1 +RT), A= 48000 × (1 + 10/100 × 4)
A= 48000 × (1 + 2/5)
A= 48000 × 7/5
A= $67200
Answer: Therefore, Robert has to pay $67,200.

Example 3: If Maria borrowed a sum of $46,500 for a period of 21 months at 20% per annum, then find the simple
interest that she will need to pay.
Solution:

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The principal amount is $46,500 and the rate of interest is 20% = 20/100. The time period given is 21 months =
21/12 years. Using the simple interest formula,
SI = P × R × T
SI = 46500 × 20/100 × 21/12
SI = $16275.
Answer: Therefore, Maria is going to pay $16,275.

Example 4: How much money was invested at 5% annual simple interest for 4 years to earn $3500?
Solution:
Assume that principal value is P.
Rate of interest is, R = 5% = 0.05.
Time is, T = 4 years.
Amount is, A = 3500.
Using the simple interest formula of amount,
A = P (1 + RT)
3500 = P (1 + 0.05 · 4)
3500 = 1.2 P
Dividing both sides by P,
P = 3500/1.2 = 2916.67
Answer: The invested money = $ 2916.67.

CLASS WORK 1:
1. Find the simple interest on N3000 at a 7% rate of interest for one year.
2. Find the simple interest on N10,000 at the rate of 5% for 9 months. Also find the total amount after this time.
3. Find the simple interest on N156,000 for 24 Weeks at the rate of 5% per annum. Also find the total amount.
4. Find the simple interest on N8,000 for 40 days, at 10% per annum
5. What will be the amount of simple interest for N15,000 for 7 1/2 years if the rate of interest is 6%.

CLASS WORK 2:
Calculate (a) the interest payable and (b) the total amount owing on the following deposits at simple interest.
(i) N 3,000,000 borrowed for 5 years at 8% per annum
(ii) N 10,000 invested for 4 years at 9.5% per annum
(iii) N 500,000 borrowed for 2 years at 18% per annum
(iv) N 2,500 invested for 6 months at 8.75 per annum
(v) N 45,000 borrowed for 2 weeks at 15.5% per annum

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CLASS WORK 3:
The following questions relate to simple interest, provide solutions to them.
i. What is the actual rate of interest if N 40,000 deposited for 3 years attracts interest of N 1,440?
ii. For how long would N 5000 have to be left in an account paying 4% interest per annum to give a balance
of N 6000?
iii. A school’s rich benefactor wants to deposit a certain sum in an account paying interest at 10.5% so that it
will produce interest of N 120,000 per year, to pay for scholarships. How much should she deposit?
iv. A boy borrows N 10,000 from his sister and promises to pay back N 110 a week. what is this as an annual
rate of interest?
v. For how long should a depositor leave a sum in a 6.25% per annum savings account in order to earn the
same amount interest, assuming the interest is withdrawn each year?

INDICES
Index laws are the rules for simplifying expressions involving powers of the same base number. A number of the
form am where a is a real number, a is multiplied by itself m times The number a is called the base and the super
script m is called the index (plural indices) or exponent.
The expression 25 is defined as follows:

We call "2" the base and "5" the index.

Index is referred to as the power or exponent raised to a number or variable. Index in its plural form is termed
as indices. If we write 2³ or a⁵, here 3 and 5 and indices.
Each number naturally has an index of 1 but we do not write it as it does not denote any change of value
mathematically. If the index is anything other than 1, we require to write it down as the power of the base number.
The index of a number can also be zero or negative.
The index represents the number of times a number has to be multiplied by itself. These numbers are governed by
several indices rules that we will discuss here. Given below is the representation of the index of a number.

Laws of Indices Formulas

The laws of indices are a set of fundamental rules that govern the way indexes or indices are to be dealt with
mathematically. Indices are not just used to improve the ease of writing the numbers mathematically but also have
a specific function and therefore these indices rules are of utmost importance.
Only after knowing these Laws of Indices rules can you solve the algebraic indices problems.

1. Multiplication Law
To multiply powers with the same base, add the indices.
aⁿ × aᵐ = aⁿ⁺ᵐ
Example:
4³ × 4⁶ = 4³⁺⁶ = 4⁹

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2. Division Law
To divide powers with the same base, subtract the indices.

= am n, (provided m > n.)

−

3. Zero Power Law

If a base has its index as 0, then the value of the base becomes one, no matter what the base value is.
A0 = 1

4. Negative Power
If a base has a negative index, it can be represented as reciprocal with the positive index as its power.

A-1 = 1/A

A-3 = 1/A3

5. Multiple Powers Law (Power on Power Law)

To raise a power to a power, multiply the indices. If you have a power that is raised to another power, then you
multiply the powers.
(am)n = amn.
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6. Fractional Powers Law
A power that is represented as a fraction means the power of a root or the root of a power.
Am/n = n√Am

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SIMULTANEOUS EQUATIONS
The terms simultaneous equations and systems of equations refer to conditions where two or more unknown
variables are related to each other through an equal number of equations.
To solve Simultaneous Equations, we use:
1. The Substitution Method
2. The Elimination method
3. Graphical method

The Substitution Method

Several algebraic techniques exist to solve simultaneous equations. Perhaps the easiest to comprehend is the
substitution method.
Take, for instance, our two-variable example problem:

Below is the solved example with steps to understand the solution of simultaneous linear equations using the
substitution method in a better way.
Example: Solve the following simultaneous equations using the substitution method.
b= a + 2
a + b = 4.
Solution:
The two given equations are
b = a + 2 ————–(1)
a + b = 4 ————–(2)
We will solve it step-wise:
Step 1: Substitute the value of b into the second equation. We will get,
a + (a + 2) = 4
Step 2: Solve for a
a +a + 2 = 4
2a + 2 = 4
2a = 4 – 2
a = 2/2 = 1
Step 3: Substitute this value of a in equation 1
b=a+2
b=1+2
b=3
step 4: Hence, the solution for the given simultaneous equations is: a = 1 and b = 3

Elimination Method
Go through the solved example given below to understand the method of solving simultaneous equations by the
elimination method along with steps.
Example: Solve the following simultaneous equations using the elimination method.
4a + 5b = 12,
3a – 5b = 9
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Solution:
The two given equations are
4a + 5b = 12 …….(1)
3a – 5b = 9……….(2)
Step 1: The coefficient of variable ’b’ is equal and has the opposite sign to the other equation. Add equations 1 and
2 to eliminate the variable ‘b’.
Step 2: The like terms will be added.
(4a+3a) +(5b – 5b) = 12 + 9
7a = 21
Step 3: Bring the coefficient of a to the R.H.S of the equation
a = 21/ 7
Step 4: Dividing the R.H. S of the equation, we get a = 3
Step 5: Now, substitute the value a=3 in the equation (1), it becomes
4(3) + 5b = 12,
12 + 5b = 12
5b = 12-12
5b =0
b = 0/5 = 0
Step 6: Hence, the solution for the given simultaneous equations is a = 3 and b = 0.

Practice Problems
1. Solve: 5x + 3y = 7 and -3x + 5y = 23
2. Solve for a and b:
10a – 8b = 6
10a – 9b = -2
3. Solve the simultaneous equations 2x - y = 5 and y - 4x = 1 using the appropriate method.
Answer: Solution of simultaneous equations 2x - y = 5 and y - 4x = 1 is x = -3 and y = -11.
4. Find the solution of the simultaneous equations 2x - 4y + z = 2, x + 5y - 3z = 7, 3x + 2y - z = 10 using the
substitution method.
Answer: Solution is x = 58/21, y = 19/21, and z = 2/21.

QUADRATIC EQUATIONS
Quadratics can be defined as a polynomial equation of a second degree, which implies that it comprises a minimum
of one term that is squared. It is also called quadratic equations. The general form of the quadratic equation is:
ax² + bx + c = 0
where x is an unknown variable and a, b, c are numerical coefficients. For example, x 2 + 2x +1 is a quadratic or
quadratic equation. Here, a ≠ 0 because if it equals zero then the equation will not remain quadratic anymore and it
will become a linear equation, such as:
bx+c=0
Thus, this equation cannot be called a quadratic equation.
The terms a, b and c are also called quadratic coefficients.

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The solutions to the quadratic equation are the values of the unknown variable x, which satisfy the equation. These
solutions are called roots or zeros of quadratic equations. The roots of any polynomial are the solutions for the
given equation.

The formula for a quadratic equation is used to find the roots of the equation. Since quadratics have a degree equal
to two, therefore there will be two solutions for the equation. Suppose ax² + bx + c = 0 is the quadratic equation,
then the formula to find the roots of this equation will be:
x = [-b±√(b2-4ac)]/2a

The sign of plus/minus indicates there will be two solutions for x. Learn in detail the quadratic formula here.

Beneath are the illustrations of quadratic equations of the form (ax² + bx + c = 0)

• x² –x – 9 = 0
• 5x² – 2x – 6 = 0
• 3x² + 4x + 8 = 0
• -x² +6x + 12 = 0

How to Solve Quadratic Equations?

There are basically four methods of solving quadratic equations. They are:
1. Factoring
2. Completing the square
3. Using Quadratic Formula
4. Taking the square root
Factoring of Quadratics
• Begin with a equation of the form ax² + bx + c = 0
• Ensure that it is set to adequate zero.
• Factor the left-hand side of the equation by assuming zero on the right-hand side of the equation.
• Assign each factor equal to zero.
• Now solve the equation in order to determine the values of x.
Suppose if the main coefficient is not equal to one then deliberately, you have to follow a methodology in the
arrangement of the factors.
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Example:
2x²-x-6=0
(2x+3)(x-2)=0
2x+3=0
x=-3/2
x=2

Using Quadratic Formula

For the given Quadratic equation of the form, ax² + bx + c = 0
Therefore the roots of the given equation can be found by:

where ± (one plus and one minus) represent two distinct roots of the given equation.
Taking the Square Root
We can use this method for the equations such as:
x2 + a2 = 0
Example: Solve x2 – 50 = 0.
x2 – 50 = 0
x2 = 50
Taking the roots both sides
√x2 = ±√50
x = ±√(2 x 5 x 5)
x = ±5√2

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MATRIX ALGEBRA

A Matrix (Plural Matrices) is an ordered set of numbers, it is a collection of numbers ordered by rows and columns.
A matrix is an array of numbers. A matrix with m rows and n columns is order m x n.
A matrix, in general sense, represents a collection of information stored or arranged in an orderly fashion. The
mathematical concept of a matrix refers to a set of numbers, variables or functions ordered in rows and columns.
Such a set then can be defined as a distinct entity, the matrix, and it can be manipulated as a whole according to
some basic mathematical rules.
It is customary to enclose the elements of a Matrix in parenthesis, bracket or braces.
A matrix with 9 elements is shown below.

Matrix [A] has 3 rows and 3 columns. Each element of matrix [A] can be referred to by its row and column number.
For example,
A23 = 6
An item in a matrix is called an entry or an element. Matrices of the same size can be added and subtracted entry
wise and matrices of compatible sizes can be multiplied.

ORDER OF A MATRIX
The order of a matrix is defined as the size of the matrix in terms of its number of rows and columns.
Order of a matrix = No. of rows × No. of columns
Matrix [A], therefore, is a matrix of order 3 × 3.

TYPES OF MATRICES
VECTOR MATRIX: this is a special type of Matrix that has only one row (Row Vector Matrix) or only one column
(Column Vector Matrix). Both are described below:

COLUMN MATRIX: A matrix with only one column is called a column matrix or column vector.

ROW MATRIX: A matrix with only one row is called a row matrix or row vector.

SCALAR MATRIX: is a Matrix with only one row and one column.

SQUARE MATRIX: A matrix having the same number of rows and columns is called a square matrix.

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RECTANGULAR MATRIX: A matrix having unequal number of rows and columns is called a rectangular matrix.

DIAGONAL MATRIX: this is a square matrix with all the non-diagonal elements as zeros. If all elements except
the elements of the principal diagonal of a square matrix are zero, the matrix is called a diagonal matrix.

IDENTITY OR UNIT MATRIX: it is a diagonal matrix with all its diagonal elements as 1. A square matrix in
which all elements of the principal diagonal are equal to 1 while all other elements are zero is called the unit matrix.

ZERO or NULL MATRIX: A matrix whose elements are all equal to zero is called the null or zero matrix.

TRANSPOSE OF A MATRIX: The transpose [A]T of an m × n matrix [A] is the n × m matrix obtained by
interchanging the rows and columns of [A].

SYMMETRIC MATRIX: A matrix [A] is said to be symmetric if aij = aji for all i and j. This is a square matrix
which is equal to its transpose (i.e. if A is a square matrix, then its symmetric is A = AT).
1 1 -1 1 1 -1
A= 1 2 0 = AT= 1 2 0
-1 0 5 -1 0 5

SKEW-SYMMETRIC MATRIX: A square matrix that is equal to the opposite of its transpose. i.e. A = -AT
0 2 -45 0 -2 45
T
A= -2 0 -4 =-A = 2 0 4
45 4 0 -45 -4 0

EQUALITY OF MATRICES
Two matrices are equal if all corresponding elements are equal.
[A] = [B] if aij = bij for all i and j

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MATRIX OPERATIONS
Addition and Subtraction of Matrices
Two matrices can be added (subtracted) by adding (subtracting) the corresponding elements of the two matrices.

Addition of Matrices
Definition: The expression zij = aij + bij means “to element in row i, column j of matrix A add element in row i,
column j of matrix B”. If we do this with each element of A and B we end with matrix Z. An example is given in

a. b.

c.

[C]= [A]+ [B]= [B]+ [A]

Matrices [A], [B] and [C] must have the same order.

d.

The above figure shows addition operation; in the same manner the subtraction is performed in analogous manner.
The expression zij = aij - bij, means “to element in row i, column j of matrix A deduct element in row i, column j of
matrix B”. If we do this with each element of A and B we end with matrix Z.
Subtraction of Matrices
Solution. We have in the above example if we want to find the subtraction between the two matrices we will perform
the following operation:
a. b.

c.

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d.

e.

f.

Multiplication of a Matrix by a scalar (Scalar Multiplication)

Definition: If A = (aij) is a matrix and k is a scalar, then kA is another matrix whose ( i, j)th element is k aij for all
possible values of i and j.
Thus, k A = (k aij)
g.

If a matrix is multiplied by a scalar k, each element of the matrix is multiplied by k.

Multiplication of Matrices (Dot Multiplication)

Two matrices can be multiplied together provided they are compatible with respect to their orders. The number of
columns in the first matrix [A] must be equal to the number of rows in the second matrix [B]. The resulting matrix
[C] will have the same number of rows as [A] and the same number of columns as [B].
Two matrices A and B may be multiplied together, provided the number of elements in the rows of matrix A are
equal to the number of elements in the columns of matrix B.
In general terms, when multiplying a matrix of dimensions (m by n), by a matrix of dimensions (n by r),
Compatibility means m = r and the resulting matrix has dimensions (m by r).
Thus a 2 by 3 matrix multiplied by a 3 by 1 matrix gives a matrix of dimensions 2 by 1.

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where m is the number of columns in [A] and also the number of rows in [B].
Definition: Consider two matrices A and B with the following characteristics: the number of columns in A equals
the number of rows in B. These are conformable with respect to one another, and they can be multiplied together
to form a new matrix Z.

The expression zij = ai1* b1j + ai2* b2j + ai3* b3j + ... aim* bnj, means “add the products obtained by multiplying
elements in each i row of matrix A by elements in each j column of matrix B”. The Figure below shows what we
mean by this statement.

The order in which we multiply terms does matter. The reason for this is that we need to multiply row elements by
column elements and one by one. Therefore, A*B and B*A can produce different results. We say “can produce”
because there exist special cases in which the operation is commutative (order does not matter).
h.

i. j.

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k.

l.

m. n.

EXERCISES

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Use the sets of matrices above to solve the following…

DETERMINANT OF A MATRIX

The Determinant of A 2 By 2 Matrix

The determinant of a 2 by 2 matrix,
Is defined as (ad −bc)
The elements of the determinant of a matrix are written between vertical lines. Thus, the determinant of
is written as and is equal to (3×6) − (−4×1), i.e.

18−(−4) or 22. Hence the determinant of a matrix can be expressed as a single numerical value.

The Determinant of A 3 By 3 Matrix

The minor of an element of a 3 by 3 matrix is the value of the 2 by 2 determinant obtained by covering up the row
and column containing that element. Thus for the matrix

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the minor of element 4 is obtained by covering the row (4 5 6), and the column

leaving the 2 by determinant

i.e. the minor of element 4 is (2×9) − (3×8) = −6.

The sign of a minor depends on its position within the matrix, the sign pattern being
Thus the signed-minor of element 4 in the matrix

The signed-minor of an element is called the cofactor of the element.

The value of a 3 by 3 determinant is the sum of the products of the elements and their cofactors of any row or any
column of the corresponding 3 by 3 matrix.
There are thus six different ways of evaluating a 3×3 determinant— and all should give the same value.

The value of this determinant is the sum of the products of the elements and their cofactors, of any row or of any
column. If the second row or second column is selected, the element 0 will make the product of the element and its
cofactor zero and reduce the amount of arithmetic to be done to a minimum.

The same result will be obtained whichever row or column is selected. For example, the third column expansion is

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Important Properties of Determinants
1. The value of a determinant is not altered if its rows are written as columns in the same order.

2. If any two rows (or two columns) of a determinant are interchanged, the value of the determinant is multiplied
by –1.

3. A common factor of all elements of any row ( or column) can be placed before the determinant.

4. If the corresponding elements of two rows (or columns) of a determinant are proportional, the value of the
determinant is zero.

Meaning: Row 2 (Row 1) is linearly dependent on Row 1 (Row 2). Therefore, the linear system with three unknowns
does not have a unique solution.

5. The value of a determinant remains unaltered if the elements of one row (or column) are altered by adding to
them any constant multiple of the corresponding elements in any other row (or column).

6. If each element of a row (or a column) of a determinant can be expressed as a sum of two, the determinant can
be written as the sum of two determinants.

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EXERCISE: Simplify the following matrix operations showing all steps and workings

(a.) 2 1 3 4
×
7 5 6 8

(b.) If Matrix B is 1 2 3 find B × BT

4 -5 -6

(c.) If Matrix A is 2 0 5 find A2 × 6A

3 4 6
1 7 3

EXERCISE: Given that A= 2 5 1 and B= 3 2 4 C= 2 2 2

3 2 2 1 2 2 2 3 5
1 1 2 1 4 1 1 6 2
Evaluate the following:
(a.) 3A - C
(b.) A - BT
(c.) A + B - CT
(d.) 2C + B – A
(e.) 3B – 3BT
(f.) 2A + I – AT
Solve the following:
(a.) 2A + A
3. (a.) Given that A= 9 1 5 and B= 8 7 6
(b.) 4A – B
1 6 2 7 2 9 (c.) 2B – B + A
5 2 7 6 9 1
(d.) 3B – 3B

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