FINANCE

INTEREST
Amount paid for a borrowed capital.
2 KINDS OF INTEREST

1.SIMPLE INTEREST
Directly proportional to the principal rate of interest and length of
time.

2.COMPOUND INTEREST
Interest after end of period is added to the length of principal where
the sum of which becomes the principal for the next period and so on.
SIMPLE INTEREST

I = PRT Where: I = interest earned at the end of time, T/₧,$

P = borrowed amount or principal /₧, $
R = rate of simple interest /%
T = time/length of time/year
S=P+I
Where: S = amount or future value of P

S=P+I
I = P + Prt
S = P ( 1 + rt )
Determine the simple interest of Php500 borrowed at
the rate of 10% for ½ year.

Given: P = ₧500 Solution: I = PRT

r = 10%
t = ½ yr.
Substitute: I = 500 (.10)(½)
I = 500 (.10)(.5)
I = ₧25
SUMMARY OF SIMPLE INTEREST FORMULA

I = Prt S = P+I
P = S-1
P= I = S-P
r= S = P(1+rt)
s= P=

r=

t =
PROBLEM:

1. How long would it take ₧20 to earn ₧3 if the agreed rate is

10% per yr. simple interest.

Given: P=₧20 Solution: I=Prt I = Prt

r=10% = Prt =I
t=1yr. 1.5 t = Pr
I=3
2.How much must be inverted to earn an interest of ₧100 at
the rate of 10% per year simple interest for 1 year.

Given: I=₧100 P=
r=10% P=
t=1yr. P=

Solution: P= P = 1000
 3. Philip bonus borrowed ₧1500 for 2 yrs. And 6 months with
interest at 9%. How much does he give at the end of that time.

Given: P=1500 Substitute: S = 1500[1+0.09(2.5)]

S = 1500[1+0.225]
t=2yrs. & 6months S = 1500[1.225]
r=9% S = ₧1837.5
Solution: S=P(1+rt)
Where: 9%=0.09
t=2yrs.+6months[ ]
t=2yrs.
t=2.5yrs.
2 KINDS OF SIMPLE INTEREST

1. ORDINARY SIMPLE INTEREST

– number of days per year = 360

2. EXACT SIMPLE INTEREST

– number of days per year = 365
2 Ways of Computing the Time, (t).

1. APPROXIMATE TIME
- 30 days

2. EXACT TIME
- actual number of days
Find the number of days from march 20, 1992 to November
16, 1992

Given: March 20, 1992 – November

16, 1992
Reqd: t (no.of days)
Solution: b.) APPROXIMATE
a.) EXACT TIME 92 11 16
March 20-31=11 92 3 20
April 1-30=30 7 26
May 1-30=30
June 1-30=30
t=7months +26days
July 1-30=31 t=7months[ ]+26days
Aug. 1-31=31 t=210=26
Sept. 1-30=30 t=236 days
Oct. 1-31=31
Nov. 1-16=16
t=241 days
After n=1 S = P+I where: I =
S = P+Pi I = Pi
S = P(1+i)
After n=2 S = P(1+i)+P(1+i)I
S = P(1+i)(1+i)
S = P(1+i)²
After n=3 S = P(1+i)²+P(1+i)I
S = P(1+i)²(1+i)
S = P(1+i)³
After n period S = P(1+i)n
where: S = future amount or compound amount
P = principal or present values
n = term of compound interest/interest period
I = rate of compound/interest rate per yr.
and i=
where: j = nominal rate
m = frequency of conversion/conversion per period
and n = mt
where: t = time in year
NOMINAL RATE FREQUENCY

Compounded annually or yearly m=1

Compounded semiannually or 6 m=2
months
Quarterly m=4
Compounded monthly m = 12
Compounded daily m = 360

I=S–P

Where: I = interest
S = future worth
p = present value
Accumulate Php2500 for 5 years at 8% compounded quarterly

Given: P = Php2500 Subt: S = 2500

t = 5 yrs. S = 2500
j = 8% S = 2500(1.4859)
m=4 S = Php3714.75
Solution: S = P
Where: i =
i=
i = 2%
i = .02

n = mt
n = 4(5)
n = 20
Find the amount due at the end of 10 yrs. and 9 months. If Php4200 is invested at 9%
compounded semi annually.
Given: t = 10 yrs. & 9 months
P = Php4200 subt:
j = 9% s = 4200 (1 + .045) 21.5
m=2 s = 4200 (1.045) 21.5

S= p(1+i)ⁿ s = 4200 (2.5763)

Where: i = j s = P 10,820.46

i = 9%
m
i = 4.5%
i = .045
n = mt 2

Where t = 10 years + 9mos 1yr/12mos

t = 10 + .75
t = 10.75 years
n = 2 (10.75)
n = 21.5 period