SIMPLE

INTEREST
SHEENA MAY L. ACUNA
AU-FC1-STEM 11-M6
 Definition of Terms
• Lender or Creditor- a person (or institution) who invests the money or makes the funds
available.
• Barrower or Debtor – the person (or institution) who owes the money or avails the
funds from the lender.
• Origin or Loan date- the date on which the money or avails funds from the lender.
• Repayment date or Maturity Date- a date on which the money borrowed or loans is to
the completely repaid.
• Time or Term (t)- the amount of time in years the money is borrowed or invested, the
length of time between the origin and maturity date.
• Principal Amount (P) – the amount of money borrowed or invested on the origin date.
• Rate (r)- annual rate usually in percent charge by the lender or rate of increase of the
investment.
• Interest (I) – the amount paid or earned for the use of money.
• Maturity Value or Future Value – amount after t years; that the lender receives from the
borrower on the maturity date.
 SIMPLE INTEREST
Simple Interest is a quick and easy
method of calculating charge on a loan.
Simple interest is determined by
multiplying the daily interest rate by
the number of days that elapse
between payments.
SIMPLE INTEREST
FORMULA
I=PRT
I= Interest
P= Principal (Initial Value)
r= Interest Rate
t= Time ( years)
ILLUSTRATION OF SIMPLE INTEREST

EXAMPLE # 1

A bank offers a 0.25% annual simple

interest rate for a particular deposit. How
much interest will be earned if 1M pesos
is deposited in their swings account for 1
year?
ILLUSTRATION OF SIMPLE INTEREST

EXAMPLE # 2

What is the amount of maturity value of

₱150,000 at a 6 1\2 % simple
interest rate for 3 years?
ILLUSTRATION OF SIMPLE INTEREST

EXAMPLE # 3

At what simple interest rate per annum

will ₱25,000 accommodate to ₱
33,000 in 5 years?
MATURITY VALUE FOR SIMPLE INTEREST
FORMULA
F=P(1+rt)
F= Maturity (future) value
P= Principal (Initial Value)
r= Interest Rate
t= Time/term ( years)
ILLUSTRATION OF MATURITY ( FUTURE)
VALUE

EXAMPLE # 1

Find the maturity value if 1 million

pesos is deposited in a bank at an
annual simple interest rate of 0.25%
after (a) 1 year and (b) 5 years.
 Remainder
 Always convert the percentage into decimal form.
 To get the interest to subtract it.
 To find the maturity value add the principal amount &
interest
 COMPOUND
INTEREST
SHEENA MAY L. ACUNA
AU-FC1-STEM 11-M6
 COMPOUND INTEREST
Compound interest (or compounding interest ) is the
interest on the loan or deposit calculated based on
both the initial principal and the accumulated
interest from previous periods. Compound interest
can be thought of as “interest on interest” and that
will make a sum grow at a faster rate than simple
interest, which is calculated only on the principal
amount.
FORMULA IN FINDING
COMPOUND INTEREST

lC=F-P
F = Maturity(Future) value at the end of the term
P= Principal or present Value
l= Compound Interest
FORMULA IN FINDING THE
MATURITY VALUE
F=P(1+rn)
F = Maturity(Future) value at the end of the term
P= Principal or present Value
r= Interest Rate
t= Time/term ( years)
 Maturity Value ,Compounding m
times a year

F=P(1+jn) i=

F = Maturity(Future) value at the end of the term

P= Principal or present Value
r= Interest Rate
t= Time/term ( years)