Simple interest

and mortgages
Interest is defined as the cost of
borrowing money, as in the case of
interest charged on a loan balance.
Conversely, interest can also be the rate
paid for money on deposit, as in the
case of a certificate of deposit. Interest
can be calculated in two ways: simple
interest or compound
Simple interest is calculated on the
principal, or original, amount of a
loan.Compound interest is calculated
on the principal amount and the
accumulated interest of previous
periods, and thus can be regarded as
“interest on interest.”
Simple Interest formula
The formula for calculating Simple
interest is:
simple interest= Pxixn
where:
P= Principal
I = Interest rate
n = Term of the loan
Thus, if simple interest is charged at 5%
on $ 10,000 loan that is taken out for
three years, then the total loan amount of
interest payable by the borrowers is
calculated as $ 10,000× 0.05×3 = $1,500
interest on this loan is payable at $ 500
annually, or $ 1,500 over the three-year
loan term
Compound Interest formula
The formula for calculating compound
interest in a year is :
Where:
A= final amount
P= initial principal balance
r= interest rate
n= number of times interest applied
t= number of time periods elapsed
While the total interest payable over the
three-year period of the loan is $ 1,576.25,
unlike simple Interest, the interest amount
is not the same for all three years also takes
into consideration the accumulated interest
of previous periods. Interest payable at the
end of each year is shown in the table
below
 Opening Closing
Year Interest
balance Balance
At 5%(1)
(P) (P+1)

1 $10,000.00 $500.00 $10,500.00

$11,025.00
2 $10,500.00 $525.00

$11,025.00 $551.25 $11,576.2

3
Simple interest:
1. If you deposit ₱10,000 in a bank account
that pays an annual interest rate of 5%,

2. If you invest ₽20,000 in a bond that pays

an annual interest rate of 3% for 2 years,
•3. If you lend ₱5,000 to a friend and they
agree to pay you an annual interest rate of
10% after one year

4. If you borrow ₱15,000 from a bank at an

annual interest rate of 6% for 3 years,
5. If you invest ₱50,000 in a mutual fund that
pays an annual interest rate of 4% for 5
years,
Maturity value, on the other hand, is
the amount that an investment is
worth at the end of its term. It’s the
total of the principal (the original
amount invested or loaned) plus the
interest earned
The formula for maturity value when dealing with
simple interest is M = P + I, where:

- M is the maturity value

- P is the principal
- I is the interest

So, if you're calculating maturity value using

simple interest, you could combine the two
formulas to get M = P + (PRT).
•Maturity Value:

1. If you invest ₱10,000 in a 5-year term

deposit with an annual interest rate of 5%,
the maturity value would be ₱12,500.

2. If you purchase a ₱20,000 bond that pays

an annual interest rate of 3% for 2 years, the
maturity value would be ₱21,200 ₱20,000.
• 3. If you lend ₱5,000 to a friend and they agree3. If you
lend ₱5,000 to a friend and they agree to pay you an
annual interest rate of 10% after one year, the maturity
value would be ₱5,500.
•
• 4. If you borrow ₱15,000 from a bank at an annual
interest rate of 6% for 3 years, the maturity value you
would owe is ₱17,700 (₱15,000 + ₱15,000 * 6% * 3). to
pay you an annual interest rate of 10% after one year,
the maturity value would be ₱5,500.
•5. If you invest ₱50,000 in a
mutual fund that pays an annual
interest rate of 4% for 5 years, the
maturity value would be ₱60,000.
Ordinary interest is calculated on the
basis of a 360-day year or a 30-day
month; exact interest is calculated on a
365-day year. The interest formulas for
both ordinary and exact interest are
actually the same, with time slightly
differing when given as number of days.
Interest is the sum paid for the use of
money. Business concerns and
individuals who find themselves in
need of cash or financial credit
borrow money and agree to pay a
certain percentage for the privilege of
using the borrowed amount.
Time is given in terms of days,
two possible equivalence may
be used:* 360 days = 1 year*
365 days = 1 year
Formulas to be used will be:
I = Prt
P = principal (original sum),
r = rate of interest
t = time expressed in years
Sample problems:What is the ordinary
interest on $1,360 for 90 days at
4%? Given: P = $1,360, r = 4%, D = 90
days
NOTE USE : 360 DAYS ORDINARY
INTEREST*
Solution: I. * P=$1,360* R=4%* D=90*
1,360 (0.04) =54.4* (90|360)=0.25*
54.4x0.25=$13.60* I.=$13.60
Find the exact interest on $500 at 8% for 45
days.
Given: P = $500, r = 8%, D = 45 daysNOTE USE:

365 DAYS FOR THE EXACT INTEREST

* Solution: I. *
P=$500* R=8%* D=45 DAYS* 500 (0.08)=40*
(45/365)=0.12328767* 40x0.12328767= $4.93*
I.=$4.93%
Finance charges on unpaid balance

Unpaid balance method- the

finance charge is based on a
portion of the previous balance you
have not yet paid.
Formula:

Unpaid balance=Previous balance-

(payments +credits
Finance charge=Unpaid balance × Period
Rate
New balance=Unpaid balance +Finance
charge+New Purchases
Casper had a previous balance of $154.90 on
his credit card. He made a $50.00 payment
and made two purchases for $47.87 and
$120.69. If his periodic interest rate is 2.25%,
find the new balance.

Unpaid balance=154.90-50=$104
Finance Charge= .0225 × 104.90=$2.36
New balnce =104.90 + 2.36 + 47.87 +120.69
=$ 275.82
Previous balance is $600, payment of
$100 the periodic interest rate is
1.5%
Find the new balance.

Unpaid balance= 600-100 =$ 500

Finance charge =.015×500=$7.50
New balance=500+7.50=$507.50
Installments
In credit sale, the costumer may pay the
purchase price and credit charges in
monthly payements called installments. It
may be computed just once on the
principal, or monthly on the unpaid
balance.
Terms Used in Installment Purchase
1. Cash price is the price paid at time of purchase
2.Down payment is the initial partial payment done by
the consumer or borrower in purchasing goods
3.Amount financed is the total amount paid usually
done in regular payments to pay off the balance
4.Finance charge includes the interest and any fee
associated with an installment loan.
5.Installment price is the sum of all installment
payments, finance charge if there is any and down
payment.
Installment formula:

IP= total of installment payement

+down payment+ finance charge
P⁰ - is the loan amount, beginning
balance, or principal.d - is the loan
payment. ( the monthly payment, annual
paymen, etc.)r - is the annual interest
rate in decimal form.
( Example: 5%=0.005)k - is the number of
compounding periods in one year.N - is
the length of the loan in years.
•Example:If you can afford $150 per
month car payment for 5 years,
what car price should you shop for?
The loan interest is 6%
If you want to purchase a car for
$15000 and you have been approved
for loan at 4% interest for 5 years,
what will the monthly payment be?
• Assignment
1. A TV was bought for Rs. 21,000. The value of the
TV was depreciated by 5% per annum. Find the value
of the TV after 3 years. (Depreciation means the
reduction of value due to use and age of the item)-
(compound Interest)

2.Dave borrows $1500 to repair his house. He will

pay off the loan after 3 years by paying back the
principal plus 3.5% interest for each year. How much
will he pay in interest, and how much will she pack
back altogether(simple interest)
3.Let’s say you invest $5000 in a fixed deposit account
that offers an annual interest rate of 6%. The investment
has a tenure of 3 years.( maturity value)

4.Let’s say you borrow $2000 from a friend and agree to

pay back the loan with an annual interest rate of 8%.
The interest is calculated annually. After 2 years, how
much interest will you owe?(simple interest)
5.What is the ordinary interest on
₱12600 for 80 days at 6%

6. What is the exact interest on

₱12600 for 80 days at 6%
7.The installment price of pool table
was $1,220 for a 12-month loan . If a
320 down payment was made find the
installment payment.(installment)
Group 1
Jasmine Veloz
Summer Pelaez
Joyce Tan-gan
Maria Moñana Virtudazo
Mary Grace Jagape
Niño Polinar
Princess Nicole Algusar
Rinalyn Etor
Sebastian Sumunod