Chapter 08: Simple Interest

What is Interest?
Solve for simple interest
I = P*R*T
Calculate maturity value
Determine the number of days from one date to another
Exact Simple Interest
Ordinary Simple Interest
What is a Note?
Due date of Note
Find Principal
P = I/(R*T)
Find Rate
R = I/(P*T)
Find Time
T = I/(P*R)
Discount Notes
Bank Discount
Proceeds
Face Value
Effective Interest Rate for Simple Interest Discount Note
Interest:
Interest is rent paid on money
Firms, businesses and individuals borrow money in order to
invest the money and earn a higher rate of return than the
interest rate
Firms, businesses and individuals invest money to earn
interest

Principal:
Amount borrowed, lent out, or invested

Simple Interest:
Interest paid on only the principal

Compound Interest:
Interest paid on principal and past interest also known as
"interest on interest"

Simple Interest Rate:

Annual % rate paid or received
 Calculate Simple Interest
I = Simple interest
P = Principal
R = Interest Rate
T = Time in YEARS ** If you are given time in months or days, you must convert it to years

I=P*R*T
Hank’s Auto shop takes out a loan from the bank for $10,000 in order to buy new equipment. Hank is considering whether he
should take out the loan for 6 months at 7% or 1.5 years at 10%. Find the simple interest on both loans.

Step 1: List details:

Loan # 1
Principal = $ 10,000.00
Rate = 7.00%
Time = 6 Months

Loan # 2
Principal = $ 10,000.00
Rate = 10.00%
Time = 1.5 Years

Step 2: Set up and solve

Loan # 1 Loan # 2

Convert Time to years = 6

Months/12 Months = 6/12 =

I = P*R*T = I = P*R*T =
$10,000.00*0.07*6/12 = $10,000.00*0.1*1.5 =

Step 3: State in words

erest

t convert it to years

equipment. Hank is considering whether he

he simple interest on both loans.

Loan # 2

<== Do not have to

round because we are
not using these
numbers in any
subsequent
calculations. The
formatted display of
the number is
sufficient.
 Calculate Maturity Value
P = Principal
I = Simple interest
P + I = Maturity Value

M=P+I
Christina takes out a $6,500.00 loan for 30 months at 10% interest in order to buy a used Jetta. Find the
interest due on the loan and the maturity value.

Principal = $ 6,500.00
Time = 30 Months
Simple Interest Rate = 10.00%

Interest = 6500*0.1*30/12 = =ROUND(B11*B13*B12/12,2) (because we are going to ad

Principal =
P + I = Maturity Value = 6500 + 1625 =
because we are going to add it to principal later)
 Find The Number Of Days From One Date To Another
Find the number of days from November 4 to February 21

1) To do it by hand you have to look at a calendar or use the knuckle trick or learn the Rhyme method
Sunday, November 4, 2007 Saturday, December 1, 2007 Tuesday, January 1, 2008
Friday, November 30, 2007 Monday, December 31, 2007 Thursday, January 31, 2008
26 31 31

Total Days = 109

To do it in Excel you put the two date in two different cells, and then in a third cell subtract the earlier date from th
2) date (this method fits the requirement of not counting the start date and counting the end date)
Earlier date Sunday, November 4, 2007
Later date Thursday, February 21, 2008
Total days from 11/4/y to 2/21/y Remember the keyboard
shortcut for "General Number
Format" ==> Ctrl + Shirt + ~
Earlier date Friday, February 23, 2007
Later date Saturday, March 24, 2007
Total days from 2/23/y to 3/24/y
Date To Another
ry 21

k or learn the Rhyme method

Friday, February 1, 2008
Thursday, February 21, 2008
21

l subtract the earlier date from the later

and counting the end date)

Remember the keyboard

shortcut for "General Number
Format" ==> Ctrl + Shirt + ~
 I=P*R*T
Number of days assumed in one year = 365
Exact Interest time = # of days in the loan period/365

Number of days assumed in one year = 360

Ordinary Interest time = # of days in the loan period/360

Find the exact interest and the banker’s interest given the following data:
Principal = $10,000 $ 10,000.00
Simple interest = 10% 10.00%
Loan taken out on January 1, 2007
Loan paid back on July 31, 2007

Exact Interest time

Total days from 1/1/y to 7/31/y =
Number of days assumed in one year =

Interest = P * R * T = $10,000 * 0.1 * 211/ =

=P*R*T
assumed in one year = 365
This will always be smaller because you are comparing the same thing to a
bigger number (think of 1/3 compared to 1/2)

assumed in one year = 360

This will always be bigger because you are comparing the same thing to a
smaller number (think of 1/2 compared to 1/3)

d the banker’s interest given the following data:

Ordinary Interest time

Total days from 1/1/y to 7/31/y =
Number of days assumed in one year =

Interest = P * R * T = $10,000 * 0.1 * 211/ =

 Notes
Promissory Notes:
A legal document in which on person or firm agrees to pay:
A stated amount of money
Plus interest computed at a stated rate
At a stated time in the future
To another person or firm
A promissory note is the written record of a loan

Maker or Payer or Debtor of the note:

The person borrowing the money

Payee or Creditor of the note:

The person lending the money

Term:
Length of time until the note is due

Face Value or Principal:

The principal amount due – the amount written of the face of the promissory note.

Simple Interest Note:

A promissory note for a loan in which the interest is calculated using the simple interest formula:
I = PRT = Face Value x Simple Interest Rate x Time
 Find The Due Date Of A Note
When the term for a loan is given in DAYS, count the number of days from the day after the promissory
date.

Example:
When is a 90-day loan made on January 15, 2004 due?
Date
Term length
Due Date

When the term for a loan is given in MONTHS, the loan is due on the same day the loan is made, after th
of months has passed
If the date should be at the end of the month, but that day does not exist, use the last day of the month, a
as the due date
When the loan term is given in months, do not convert the time to days in order to find the due da

Example:
When is a 6-month loan made on January 15, 2004 due?
It is due on the 15th, 6 months later:
Term of loan
Note Issue Date
Due Date

Example:
When is a 3-month note made on January 31 due?
It is due on April 31, but April 31 does not exist.
The due date becomes April 30.
Term of loan
Note Issue Date
Due Date
e Date Of A Note
number of days from the day after the promissory note issue
date.

ample:
1/15/2004
90
days

n is due on the same day the loan is made, after the number
hs has passed
day does not exist, use the last day of the month, as it exists,
e due date

different
convert the time to days in order to find the due date.

ample:

6 Months
Thursday, January 15, 2004
=EDATE(B12,B10) months

ample:

3 Months
Saturday, January 31, 2004
=EDATE(B19,B18)
 Example 1: If you take out a 90 days, $5,000.00 loan with a simple interest rate of 7.25% on January 6, 2004, what is the due
and maturity value (use 365 days in a year)?

Step 1: List Details:

Term 90 days
Principal $ 5,000.00
Simple Interest Rate = 7.25%
Note Issue Date Tuesday, January 6, 2004
Days in the Year 365

Step 2: Set up and solve

Interest = P * R * T = $5,000 * 0.0725 * 90/365 = =ROUND(B5*B6*B4/B8,2) (must round
Principal = =B5
Maturity Value =SUM(B12:B13)
Due Date =B7+B4

Step 3: State in Words

Example 2: If you take out a 6 month, $3,800.00 loan with a simple interest rate of 11.00% on March 2, 2004, what is the due
and maturity value?

Step 1: List Details:

Term 6 months
Principal $ 3,800.00
Simple Interest Rate = 11.00%
Note Issue Date Tuesday, March 2, 2004
Months in the Year 12

Step 2: Set up and solve

Interest = P * R * T = $3,800 * 0.11 * 6/12 = =ROUND(B25*B26*B24/B28,2)
Principal = =B25
Maturity Value =SUM(B32:B33)
Due Date =EDATE(B27,B24)

Step 3: State in Words

nuary 6, 2004, what is the due date

B5*B6*B4/B8,2) (must round because we are going to use it in a later calculation)

March 2, 2004, what is the due date

B25*B26*B24/B28,2)
 Find Principal Given Interest, Rate, & Time

Formulas:
Interest = P*R*T
Principal = I/(R*T)
Rate = I/(P*T)
Time (in years) = I/(P*R)

Gardenia borrows a principal amount that earns $50.00 interest for the lender, the simple interest rate on the loan is 10.00%,
is out for 180 days. Find the principal amount.

Step 1: List Details:

Interest $ 50.00
Principal
Rate 10.00%
Time 180 days
Days in a year 365

Step 2: Set up and solve

<== Do not have to rou
Principal = I/(R*T) = 50/(0.1*180/365) = =B12/(B14*B15/B16) because we are not usi
any subsequent calcula
formatted display of the
sufficient.
Check with Interest = P*R*T ==> =B21*B14*B15/B16

Step 3: State in Words

Time

interest rate on the loan is 10.00%, and the loan

nt.

<== Do not have to round

because we are not using this in
any subsequent calculations. The
formatted display of the number is
sufficient.
 Find Rate Given Interest, Principal, & Time

Formulas:
Interest = P*R*T
Principal = I/(R*T)
Rate = I/(P*T)
Time (in years) = I/(P*R)

Gardenia borrows $750.00 and pays $75.00 interest. If the loan is out for 270 days, find the interest rate.

Step 1: List Details:

Interest $ 75.00
Principal $ 750.00
Rate
Time 270 days
Days in a year 365

Step 2: Set up and solve

Rate = I/(P*T) = $75.00/($750.00*270/365) = =B12/(B13*B15/B16)

Check with Interest = P*R*T ==> =B12/(B13*B15/B16)

Step 3: State in Words

me

0 days, find the interest rate.

<== Do not have to round

because we are not using this in
any subsequent calculations.
The formatted display of the
number is sufficient.
 Find Time Given Interest, Principal, & Rate

Formulas:
Interest = P*R*T
Principal = I/(R*T)
Rate = I/(P*T)
Time (in years) = I/(P*R)

Gardenia deposits $10,000.00 in a savings account at an interest rate of 10.00%. If she earns $750.00 interest, how many da
the account?

Step 1: List Details:

Interest $ 750.00
Principal $ 10,000.00
Rate 10.00%
Time days
Days in a year 360

Step 2: Set up and solve

Time (in years) = I/(P*R) = $750.00/($10,000.00*10.00% = =B12/(B13*B14)

Time in days = *360 = =B21*B16

Check with Interest = P*R*T ==> =B13*B14*B22/B16

Step 3: State in Words

Find Time Given Interest, Principal, & Rate

Formulas:
Interest = P*R*T
Principal = I/(R*T)
Rate = I/(P*T)
Time I/(P*R)

Gardenia deposits $10,000.00 in a savings account at an interest rate of 10.00%. If she earns $750.00 interest, how many m
in the account?

Step 1: List Details:

Interest $ 750.00
Principal $ 10,000.00
Rate 10.00%
Time months
Months in a year 12
 Step 2: Set up and solve

Time I/(P*R) = $750.00/($10,000.00*10.00% = 0.750 =B12/(B13*B14)

Time in days = 0.75*12 = 9 =B21*B16

Step 3: State in Words

From the data presented, we calculated the Time to be 9 months.

cipal, & Rate

arns $750.00 interest, how many days did she leave the money in

<== Do not have to round because we

want to use the unrounded decimal to
multiply times the number of days in a
year. (We need the unrounded decimal
so that we get the actual number of
days).

cipal, & Rate

arns $750.00 interest, how many months did she leave the money
Time to be 9 months.
 Simple Discount Notes or “Interest in Advance Notes”:

The idea of a Simple Discount Note is:

1 You go to the bank and ask to borrow $1,000
The bank says sure, but we will only give you $900 today, then you have to pay
2 use the $1,000 back in one year
3 You say: "What??!? Why only $900, if I have to pay back $1,000?"
The bank says: "We are going to collect the $100 interest up front. This is
4 called a Simple Discount Note."

Simple Discount Notes or “Interest in Advance Notes”:

The bank collects the interest in advance
The borrower pays the full face value back on the due date
The borrower receives the face value minus the interest on the day that the funds
are disbursed.
The amount the borrower receives is called “Proceeds”
The interest in advance is called “bank discount” or “discount”
Example: Principal (face value) - Interest (Discount) = Proceeds

$ 1,000.00 - $ 100.00 = $ 900.00

Err:502
Type of Note Amount Received
Simple Interest >> Face Value or Principal +
Simple Discount >> Proceeds +
** The face value and the maturity value are the same for a S. discount note

Bank Discount = Face Value or Maturity Value *

B = M *

Proceeds = Face Value or Maturity Value -

P = M -

Example 1:
If you take out a loan with a maturity value (face value) of $2000 and the bank discount is $150, what are the
proceeds?

Step 1: List Details:

Face Value or Maturity Value = $ 2,000.00
Bank Discount = $ 150.00

Step 2: Set up and solve

Proceeds = Face Value or Maturity Value -

P = M -
= -

Step 3: State in Words

Example 2:
Cynthia Thomas signs an $8500, 9-month note. If the bank discounts the note at 9%, find the amount of the discount
and proceeds.

Step 1: List Details:

Face Value or Maturity Value = 8,500.00
Time = 9 months
Discount Rate (Interest Rate) = 9.00%
Months in the year = 12

Step 2: Set up and solve

Bank Discount = Face Value or Maturity Value *

B = M *

Bank Discount = $8,500.00*09.00%*9/12 = =

Proceeds = 8500-573.75 = =

Step 3: State in Words

.
 Interest Repayment amount
Interest = Maturity Value
Bank Discount = Face Value or Maturity Value
value are the same for a S. discount note

Discount Rate (Interest Rate) * Time

D * T

Bank Discount
B

the bank discount is $150, what are the

Bank Discount
B

note at 9%, find the amount of the discount

months

Discount Rate (Interest Rate) * Time

D * T

=ROUND(C33*C35*C34/C36,2)
 If you know the proceeds you want, how do you figure out the amount to
borrow, the maturity value or face value?

Formula = Maturity Value = Proceeds / (1 - Discount Rate * Time) =

M = P/(1-D*T) =

Example 1:
Mike Modigliani needs $4000 to buy a machine. Find the amount he needs to
borrow (maturity value) if he plans to repay the note in 180 days and the bank
charges a 12% discount rate.
<== Do not have to
Step 1: List Details: round because we
are not using this in
Proceeds = $ 4,000.00
any subsequent
Discount Rate (interest Rate) = 12.00% calculations. The
Time = 180 Days formatted display of
Days in Year = 360 the number is
sufficient.
Step 2: Set up and solve

M = P/(1-D*T) = $4,000.00/(1-0.12*180/360) = =C9/(1-C10*C11/C12)

Step 3: State in Words

 <== Do not have to
round because we
are not using this in
any subsequent
calculations. The
formatted display of
the number is
sufficient.

=C9/(1-C10*C11/C12)

4255.3191
 Simple Interest Note Simple Discount Note
Face Value 7500 7500
Interest 225 225
Amount available to borrower 7500 7275
Maturity value 7725 7500 Formula:
Time in days 90 90 R = I/PT
Days in year 360 360 Variables:
R = Interest Rate or Bank Disco
Effective Interest Rate Simple Interest Note = 0.1200000 =B3/(B2*B6/B7) I = Interest or Bank Discount
P = Principal or Proceeds
T = Time in years
Effective Interest Rate Simple Discount Note = 0.123711340206186 =C3/(C4*C6/C7)

Why is this higher?

Because you paid the

same amount of interest
but received fewer initial
funds
Formula:
R = I/PT

Variables:
R = Interest Rate or Bank Discount Rate
I = Interest or Bank Discount
P = Principal or Proceeds
T = Time in years
 Calculate Simple Interest
I = Simple interest
P = Principal
R = Interest Rate
T = Time in YEARS ** If you are given time in months or days, you must convert it to years

I=P*R*T
Hank’s Auto shop takes out a loan from the bank for $10,000 in order to buy new equipment. Hank is considering whether he
should take out the loan for 6 months at 7% or 1.5 years at 10%. Find the simple interest on both loans.

Step 1: List details:

Loan # 1
Principal = $ 10,000.00
Rate = 7.00%
Time = 6 Months

Loan # 2
Principal = $ 10,000.00
Rate = 10.00%
Time = 1.5 Years

Step 2: Set up and solve

Loan # 1 Loan # 2

Convert Time to years = 6

Months/12 Months = 6/12 = 0.5

I = P*R*T = I = P*R*T =
$10,000.00*0.07*6/12 = $ 350.00 $10,000.00*0.1*1.5 =

Step 3: State in words

The simple interest on loan # 1 is $350.00 for 1/2 of a year. The simple interest for loan # 2 is $1,500.00 for 1.5 years.
erest

t convert it to years

equipment. Hank is considering whether he

he simple interest on both loans.

Loan # 2

<== Do not have to

round because we are
not using these
$ 1,500.00 numbers in any
subsequent
calculations. The
formatted display of
the number is
t for loan # 2 is $1,500.00 for 1.5 years. sufficient.
 Calculate Maturity Value
P = Principal
I = Simple interest
P + I = Maturity Value

M=P+I
Christina takes out a $6,500.00 loan for 30 months at 10% interest in order to by a used Jetta. Find the
interest due on the loan and the maturity value.

Principal = $ 6,500.00
Time = 30 Months
Simple Interest Rate = 10.00%

Interest = 6500*0.1*30/12 = $ 1,625.00 =ROUND(B11*B13*B12/12,2) (because we are going to ad

Principal = $ 6,500.00
P + I = Maturity Value = 6500 + 1625 = $ 8,125.00
because we are going to add it to principal later)
 Find The Number Of Days From One Date To Another
Find the number of days from November 4 to February 21

1) To do it by hand you have to look at a calendar or use the knuckle trick or learn the Rhyme method
Sunday, November 4, 2007 Saturday, December 1, 2007 Tuesday, January 1, 2008
Friday, November 30, 2007 Monday, December 31, 2007 Thursday, January 31, 2008
26 31 31

Total Days = 109

To do it in Excel you put the two date in two different cells, and then in a third cell subtract the earlier date from th
2) date (this method fits the requirement of not counting the start date and counting the end date)
Earlier date Sunday, November 4, 2007
Later date Thursday, February 21, 2008
Total days from 11/4/y to 2/21/y 109 Remember the keyboard
shortcut for "General Number
Format" ==> Ctrl + Shirt + ~
Earlier date Friday, February 23, 2007
Later date Saturday, March 24, 2007
Total days from 2/23/y to 3/24/y 29
Date To Another
ry 21

k or learn the Rhyme method

Friday, February 1, 2008
Thursday, February 21, 2008
21

l subtract the earlier date from the later

and counting the end date)

Remember the keyboard

shortcut for "General Number
Format" ==> Ctrl + Shirt + ~
 I=P*R*T
Number of days assumed in one year = 365
Exact Interest time = # of days in the loan period/365

Number of days assumed in one year = 360

Ordinary Interest time = # of days in the loan period/360

Find the exact interest and the banker’s interest given the following data:
Principal = $10,000 $ 10,000.00
Simple interest = 10% 10.00%
Loan taken out on January 1, 2007
Loan paid back on July 31, 2007

Exact Interest time

Total days from 1/1/y to 7/31/y = 211
Number of days assumed in one year = 365

Interest = P * R * T = $10,000 * 0.1 * 211/365 = $ 578.082192

=P*R*T
assumed in one year = 365
This will always be smaller because you are comparing the same thing to a
bigger number (think of 1/3 compared to 1/2)

assumed in one year = 360

This will always be bigger because you are comparing the same thing to a
smaller number (think of 1/2 compared to 1/3)

d the banker’s interest given the following data:

Ordinary Interest time

Total days from 1/1/y to 7/31/y = 211
Number of days assumed in one year = 360

Interest = P * R * T = $10,000 * 0.1 * 211/360 = $ 586.111111

Is $586.11 bigger than $578.08?

1
 Find The Due Date Of A Note
When the term for a loan is given in DAYS, count the number of days from the day after the promissory
date.

Example:
When is a 90-day loan made on January 15, 2004 due?
Date
Term length
Due Date

When the term for a loan is given in MONTHS, the loan is due on the same day the loan is made, after th
of months has passed
If the date should be at the end of the month, but that day does not exist, use the last day of the month, a
as the due date
When the loan term is given in months, do not convert the time to days in order to find the due da

Example:
When is a 6-month loan made on January 15, 2004 due?
It is due on the 15th, 6 months later:
Term of loan
Note Issue Date
Due Date

Example:
When is a 3-month note made on January 31 due?
It is due on April 31, but April 31 does not exist.
The due date becomes April 30.
Term of loan
Note Issue Date
Due Date
e Date Of A Note
number of days from the day after the promissory note issue
date.

ample:
1/15/2004
90
4/14/2004 days

n is due on the same day the loan is made, after the number
hs has passed
day does not exist, use the last day of the month, as it exists,
e due date

different
convert the time to days in order to find the due date.

ample:

6 Months
Thursday, January 15, 2004
Thursday, July 15, 2004 =EDATE(B12,B10) months

ample:

3 Months
Saturday, January 31, 2004
Friday, April 30, 2004 =EDATE(B19,B18)
 Example 1: If you take out a 90 days, $5,000.00 loan with a simple interest rate of 7.25% on January 6, 2004, what is the due
and maturity value (use 365 days in a year)?

Step 1: List Details:

Term 90 days
Principal $ 5,000.00
Simple Interest Rate = 7.25%
Note Issue Date Tuesday, January 6, 2004
Days in the Year 365

Step 2: Set up and solve

Interest = P * R * T = $5,000 * 0.0725 * 90/365 = $ 89.38 =ROUND(B5*B6*B4/B8,2) (must round
Principal = $ 5,000.00 =B5
Maturity Value $ 5,089.38 =SUM(B12:B13)
Due Date Monday, April 5, 2004 =B7+B4

Step 3: State in Words

The maturity value of the loan is $5,089.38 and the due date is April 5, 2004.

Example 2: If you take out a 6 month, $3,800.00 loan with a simple interest rate of 11.00% on March 2, 2004, what is the due
and maturity value?

Step 1: List Details:

Term 6 months
Principal $ 3,800.00
Simple Interest Rate = 11.00%
Note Issue Date Tuesday, March 2, 2004
Months in the Year 12

Step 2: Set up and solve

Interest = P * R * T = $3,800 * 0.11 * 6/12 = $ 209.00 =ROUND(B25*B26*B24/B28,2)
Principal = $ 3,800.00 =B25
Maturity Value $ 4,009.00 =SUM(B32:B33)
Due Date Thursday, September 2, 2004 =EDATE(B27,B24)

Step 3: State in Words

The maturity value of the loan is $4,009.00 and the due date is September 2, 2004.
nuary 6, 2004, what is the due date

B5*B6*B4/B8,2) (must round because we are going to use it in a later calculation)

5, 2004.

March 2, 2004, what is the due date

B25*B26*B24/B28,2)

ber 2, 2004.
 Find Principal Given Interest, Rate, & Time

Formulas:
Interest = P*R*T
Principal = I/(R*T)
Rate = I/(P*T)
Time (in years) = I/(P*R)

Gardenia borrows a principal amount that earns $50.00 interest for the lender, the simple interest rate on the loan is 10.00%,
is out for 180 days. Find the principal amount.

Step 1: List Details:

Interest $ 50.00
Principal
Rate 10.00%
Time 180 days
Days in a year 365

Step 2: Set up and solve

<== Do not have to rou
Principal = I/(R*T) = 50/(0.1*180/365) = 1013.89 =B12/(B14*B15/B16) because we are not usi
any subsequent calcula
formatted display of the
sufficient.
Check with Interest = P*R*T ==> 50 =B21*B14*B15/B16 Checks out!!

Step 3: State in Words

From the data presented, we calculated the Principal to be $1,013.89.

Time

interest rate on the loan is 10.00%, and the loan

nt.

<== Do not have to round

because we are not using this in
any subsequent calculations. The
formatted display of the number is
sufficient.

be $1,013.89.
 Find Rate Given Interest, Principal, & Time

Formulas:
Interest = P*R*T
Principal = I/(R*T)
Rate = I/(P*T)
Time (in years) = I/(P*R)

Gardenia borrows $750.00 and pays $75.00 interest. If the loan is out for 270 days, find the interest rate.

Step 1: List Details:

Interest $ 75.00
Principal $ 750.00
Rate
Time 270 days
Days in a year 365

Step 2: Set up and solve

Rate = I/(P*T) = $75.00/($750.00*270/365) = 13.52% =B12/(B13*B15/B16)

Check with Interest = P*R*T ==> $ 75.00 =B12/(B13*B15/B16) Checks out!!

Step 3: State in Words

From the data presented, we calculated the Rate to be 13.52%.

me

0 days, find the interest rate.

<== Do not have to round

because we are not using this in
any subsequent calculations.
The formatted display of the
number is sufficient.

13.52%.
 Find Time Given Interest, Principal, & Rate

Formulas:
Interest = P*R*T
Principal = I/(R*T)
Rate = I/(P*T)
Time (in years) = I/(P*R)

Gardenia deposits $10,000.00 in a savings account at an interest rate of 10.00%. If she earns $750.00 interest, how many da
the account?

Step 1: List Details:

Interest $ 750.00
Principal $ 10,000.00
Rate 10.00%
Time days
Days in a year 360

Step 2: Set up and solve

Time (in years) = I/(P*R) = $750.00/($10,000.00*10.00% = 0.750 =B12/(B13*B14)

Time in days = 0.75*360 = 270 =B21*B16

Check with Interest = P*R*T ==> $ 750.00 =B13*B14*B22/B16

Step 3: State in Words

From the data presented, we calculated the Time to be 270 days.

Find Time Given Interest, Principal, & Rate

Formulas:
Interest = P*R*T
Principal = I/(R*T)
Rate = I/(P*T)
Time I/(P*R)

Gardenia deposits $10,000.00 in a savings account at an interest rate of 10.00%. If she earns $750.00 interest, how many m
in the account?

Step 1: List Details:

Interest $ 750.00
Principal $ 10,000.00
Rate 10.00%
Time months
Months in a year 12
 Step 2: Set up and solve

Time I/(P*R) = $750.00/($10,000.00*10.00% = 0.750 =B12/(B13*B14)

Time in days = 0.75*12 = 9 =B21*B16

Step 3: State in Words

From the data presented, we calculated the Time to be 9 months.

cipal, & Rate

arns $750.00 interest, how many days did she leave the money in

<== Do not have to round because we

want to use the unrounded decimal to
multiply times the number of days in a
year. (We need the unrounded decimal
so that we get the actual number of
days).

Checks out!!

Time to be 270 days.

cipal, & Rate

arns $750.00 interest, how many months did she leave the money
Time to be 9 months.
Type of Note Amount Received
Simple Interest >> Face Value or Principal +
Simple Discount >> Proceeds +
** The face value and the maturity value are the same for a S. discount note

Bank Discount = Face Value or Maturity Value *

B = M *

Proceeds = Face Value or Maturity Value -

P = M -

Example 1:
If you take out a loan with a maturity value (face value) of $2000 and the bank discount is $150, what are the
proceeds?

Step 1: List Details:

Face Value or Maturity Value = $ 2,000.00
Bank Discount = $ 150.00

Step 2: Set up and solve

Proceeds = Face Value or Maturity Value -

P = M -
1,850.00 = $ 2,000.00 -

Step 3: State in Words

We have to pay back $2,000.00 and you are going to give us only $1,850.00?!?

Example 2:
Cynthia Thomas signs an $8500, 9-month note. If the bank discounts the note at 9%, find the amount of the discount
and proceeds.

Step 1: List Details:

Face Value or Maturity Value = 8,500.00
Time = 9 months
Discount Rate (Interest Rate) = 9.00%
Months in the year = 12

Step 2: Set up and solve

Bank Discount = Face Value or Maturity Value *

B = M *

Bank Discount = $8,500.00*09.00%*9/12 = = 573.75

Proceeds = 8500-573.75 = = 7,926.25

Step 3: State in Words

After we subtracted the bank discount of $573.75 from the face value ($8,500.00) our proceeds were $7,926.25.
 Interest Repayment amount
Interest = Maturity Value
Bank Discount = Face Value or Maturity Value
value are the same for a S. discount note

Discount Rate (Interest Rate) * Time

D * T

Bank Discount
B

the bank discount is $150, what are the

Bank Discount
B
$ 150.00

give us only $1,850.00?!?

note at 9%, find the amount of the discount

months

Discount Rate (Interest Rate) * Time

D * T

=ROUND(C33*C35*C34/C36,2)
$8,500.00) our proceeds were $7,926.25.
 If you know the proceeds you want, how do you figure out the amount to
borrow, the maturity value or face value?

Formula = Maturity Value = Proceeds / (1 - Discount Rate * Time) =

M = P/(1-D*T) =

Example 1:
Mike Modigliani needs $4000 to buy a machine. Find the amount he needs to
borrow (maturity value) if he plans to repay the note in 180 days and the bank
charges a 12% discount rate.
<== Do not have to
Step 1: List Details: round because we
are not using this in
Proceeds = $ 4,000.00
any subsequent
Discount Rate (interest Rate) = 12.00% calculations. The
Time = 180 Days formatted display of
Days in Year = 360 the number is
sufficient.
Step 2: Set up and solve

M = P/(1-D*T) = $4,000.00/(1-0.12*180/360) = $ 4,255.32 =C9/(1-C10*C11/C12)

Step 3: State in Words

If Mike Modigliani needs $4,000.00 to buy a machine (proceeds) and the bank is offering him a note
due in 180 days and a bank discount rate of 12%, the face value or maturity value would have to be
$4,255.32.
 <== Do not have to
round because we
are not using this in
any subsequent
calculations. The
formatted display of
the number is
sufficient.

=C9/(1-C10*C11/C12)
 Simple Interest Note Simple Discount Note
Face Value 7500 7500
Interest 225 225
Amount available to borrower 7500 7275
Maturity value 7725 7500 Formula:
Time in days 90 90 R = I/PT
Days in year 360 360 Variables:
R = Interest Rate or Bank Disco
Effective Interest Rate Simple Interest Note = 0.1200000 =B3/(B2*B6/B7) I = Interest or Bank Discount
P = Principal or Proceeds
T = Time in years
Effective Interest Rate Simple Discount Note = 0.123711340206186 =C3/(C4*C6/C7)

Why is this higher?

Because you paid the

same amount of interest
but received fewer initial
funds
Formula:
R = I/PT

Variables:
R = Interest Rate or Bank Discount Rate
I = Interest or Bank Discount
P = Principal or Proceeds
T = Time in years