INTEREST

SIMPLE AND
COMPOUND
INTEREST

Prepared by GWEBA John 11/6/22

 LEARNING OBJECTIVES
2

Explaining the concept of simple

interest.
Using interest formula to calculate
Interest, Rate and Time.
Calculating the Present and Future
value of the investments.
Identifying the concepts of Exact and
Ordinary simple interest
Prepared by GWEBA John 11/6/22
 KEY TERMS
3

Interest (I)- A fee paid as the result of

using borrowed or invested money.
Principal (P)- Original amount of money
invested or borrowed.
Rate (R)- Percent at which the interest is
being charged.
Amount (A)- Sum of principal and Interest
at the end of a certain period.

Prepared by GWEBA John 11/6/22

 Cont...
4

Debtor- Is the borrower of

certain amount of money.
Creditor- Some one who lend
money

Prepared by GWEBA John 11/6/22

 TYPES OF INTEREST
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Simple Interest
Compound Interest

Prepared by GWEBA John 11/6/22

 SIMPLE INTEREST ( I)
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Interest calculated on the

original principal only for the
entire period of borrowed or
invested money.

Prepared by GWEBA John 11/6/22

Calculations using simple interest
7

Prepared by GWEBA John 11/6/22

 Formula for simple interest
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If we can work out one year’s interest we

can solve most simple interest questions.
Now Interest will be given as follows;

I=PxRxT where by I- interest, P-

principal, R –rate and T – is the number of
periods between 0 and future time

Prepared by GWEBA John 11/6/22

 More examples...
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Tsh1,000,000 is invested for

2 years in a bank, earning a
simple interest rate of 8% per
annum. Find the simple
interest earned.

Prepared by GWEBA John 11/6/22

 Examples...
10

Akiko is saving a little extra

money to pay for her car
insurance next year. If she
invests 1000000 for 18
months at 4%. How much
interest can she earn?
Prepared by GWEBA John 11/6/22
 11


Abu deposited Tsh
6,000,000 in a bank and
obtained 120,000 simple
interest after 3 months. Find
the simple interest rate
offered.
Prepared by GWEBA John 11/6/22
 Examples...
12

Judy paid Tsh 108,000

interest on a loan that she
had for 6 months. The
interest rate was 12%. How
much was the principal?

Prepared by GWEBA John 11/6/22

 Examples...
13

Tsh1,000,000 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.
Prepared by GWEBA John 11/6/22
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John invests 5,000,000 in an

investment fund for three years.
At the end of the investment
period, his investment will be
worth 6,125,000. Find the
simple interest rate that is
offered.
Prepared by GWEBA John 11/6/22
 15

How long does it take

a sum of money to
triple itself at a simple
interest rate of 5% per
annum?
Prepared by GWEBA John 11/6/22
 16

Kenny invests Tsh Y in a

bank. After 3 years, his
investment will be worth
5,439,000. If the simple
interest rate is 8.5% per
annum, find the value of Y.
Prepared by GWEBA John 11/6/22
 17

5 years ago, Ali invested $

6,660 in a bank at a simple
interest rate of 7.2%. Find the
number of years required if Ali
wanted the amount in the
account to become $ 9,537.12.

Prepared by GWEBA John 11/6/22

 Examples...
18

Lily invested $ 10,000 in 2

accounts, some at 10% per
annum and the rest at 7% per
annum. Her total interest for
one year was $ 820. Find the
amount invested at each rate

Prepared by GWEBA John 11/6/22

 BASIC CONCEPTS IN SIMPLE INTEREST
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EXACT TIME Exact number of days

btn two given dates
APPROXIMATE TIME Days between 2 given
dates assuming that
1month=30 days
ORDINARY SIMPLE Use a year with 360 days
INTEREST
EXACT SIMPLE Use a year with 365/366
INTEREST days

Prepared by GWEBA John 11/6/22

 Examples...
20

Tsh1,000 was invested on

15/03/2012. If the simple
interest rate offered was 10% per
annum, find the interest received
on 29/08/2012 using a)exact
time and exact simple interest.

Prepared by GWEBA John 11/6/22

 21

Tsh1,000 was invested on

15/03/2012. If the simple
interest rate offered was 10%
per annum, find the interest
received on 29/08/2012 using
b) exact time and ordinary
simple interest.
Prepared by GWEBA John 11/6/22
 22

Tsh 1,000 was invested on

15/03/2012. If the simple interest
rate offered was 10% per annum,
find the interest received on
29/08/2012 using c) approximate
time and exact simple interest.

Prepared by GWEBA John 11/6/22

 23

On 15 February 2011, Amy deposited

Tsh P in an account that paid 8% per
annum simple interest. On 30 August
2011, she withdrew Tsh 8,000 from the
account and the balance in the account
was Tsh 4,000. Find the initial deposit
Tsh P using the Banker’s rule.

Prepared by GWEBA John 11/6/22

 PRESENT VALUE ( P )
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Present value, P is the

value in today’s money
of a sum of money to be
received in the future.

Prepared by GWEBA John 11/6/22

 PRESENT VALUE
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Prepared by GWEBA John 11/6/22

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Where by P= Present
value, S – Simple
amount, R -Rate of
simple interest and T-
time or terms in years
Prepared by GWEBA John 11/6/22
 EXAMPLES...
27

Find the present value

at 8% simple interest of
a debt $ 3,000 due in
ten months.

Prepared by GWEBA John 11/6/22

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A loan was given out on 20

August 2008 at 7% simple
interest. It was paid up on 31
Dec 2008 with a payment of RM
9,299.25. Find the loan amount
using the Banker’s Rule

Prepared by GWEBA John 11/6/22

 COMPOUND INTERST
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Interest from each time period

is added to the principal, and
then earns interest in the
following time periods.

Interest on interest

Prepared by GWEBA John 11/6/22

 COMPOUND INTEREST FORMULA
30

mn
r
A = P(1 + )
m

Prepared by GWEBA John 11/6/22

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Where by A= Final amount (Principal + Interest)

P= principal 0r present value at t= 0
r= annually rates of interest expressed as a
decimal
m = number of compounding periods in a year
n = length of time in years

Prepared by GWEBA John 11/6/22

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Example 1: If you deposit Ts
h40,000 into an account payi
ng 6%  interest compounded 
annually, how 
much money will be in the ac
count after 5 years? 
Prepared by GWEBA John 11/6/22
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Example 2: If you deposit Ts
h65,000 into an account payi
ng 8% annual interest compo
unded monthly, how 
much money will be in the ac
count after 7 years? 
Prepared by GWEBA John 11/6/22
 34

David invested $1800 in a

savings account that
pays 4.5% interest
compounded semi-
annually. Find the value
of the investment in 12
years.
Prepared by GWEBA John 11/6/22
 35

The Hemmings borrowed

$3000 for home
improvements. They repaid
the loan and $600 in simple
interest four years later. What
simple annual interest rate did
they pay?
Prepared by GWEBA John 11/6/22
 36

Theresa invested $800 in a

savings account that pays
4% interest compounded
quarterly. Find the value of
the investment after 6
years.

Prepared by GWEBA John 11/6/22

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Prepared by GWEBA John 11/6/22