SIMPLE INTEREST Simple interest (I) is defined as the

product of the principal (P), rate (r)

In Depositing:
and time (t).
DEPOSITOR- person who deposited the
Formula:
money
Interest = Principal x rate x time
INTEREST- the amount the depositor
gets in return I=Pxrxt
PRINCIPAL- the sum of money invested where:
in the bank
I - simple interest
In Lending/Borrowing:
P - principal amount
LENDER- person, agency or institution
R - rate in percent
who lends money
t - time in year
DEBTOR OR MAKER- person who
borrows money
INTEREST- sum of money paid in
return for the use of the money
-calculated based on the
interest rate and the term of the loan
PRINCIPAL- capital or sum of money
lend or invested
In computing the simple interest, we
RATE OF INTEREST- fractional part of always arrive at a final amount (F).
principal that is paid on the loan The final amount is the sum of the
In Lending/Borrowing: principal and the interest.

TERM OF THE LOAN- specific time or In formula:

duration (years, months, days) for
Final Amount (F )=Principal(P)+ Interest (I )
which the money is borrowed.
F=P+ I ;
MATURITY VALUE- also called the final
amount. Then from the original formula, we
derive other formulas:
- sum of the principal and
the interest. I =F−P ,∧¿
MATURITY DATE- the date to which the P=F−I
term of the loan ends.
TERM OF THE LOAN
PRESENT VALUE OR PROCEED OF THE
LOAN - amount received by the debtor The period during which the borrower
or maker after deducting the had used the money.
legitimate fees (such as processing The term or time may be expressed in
fee, insurance, and other legitimate days, months or years.
fees) from the principal loan.
In computing the simple interest, the Example: A money is invested at a
time (t) should always be expressed in rate of 6%.
years. If the time is expressed in days
Convert 6% into fraction which is
or months, convert it into years.
6/100.
HOW TO CONVERT?
To change it into decimal, simply
A. Time in Day remove the percent (%) sign and move
two places to the left. Therefore, 6%
Divide the number of days by 360
changed into decimal is 0.06.
Example:
Computation Of Simple Interest
When t = 120 days
Example 1:
Time in years = 120÷360
Find the interest and amount on
= 0.333 year P55,500 at 5% simple interest for 4
years.
B. Time in Month
Solution:
Divide the number of months by 360
Given: P = P55,500
Example:
r= 5% (0.05)
When t = 7 months
t= 4 years
Time in years = 7 months÷12
Find:
= 0.583 year
a. Interest (I)
C. Time in Month and Days
b. Amount (F)
Convert both months and days in
years by dividing the number of a. Find the interest
months by 12, and the number of days
I=Pxrxt
by 360.
= P55,500 x .05 x 4
Example:
= P11,100- the interest for 4 years
When t = 9 months and 23 days
b. Final Amount
Time in years = (9 months÷12) + (23
days÷360) F=P+I
= 0.75 + 0.064 = P55,500 + 11,100
= 0.814 year = P66,600
In business, the interest rate is The invested amount will become
expressed in percent (%). In P66,600 after 4 years.
computing the interest, it is necessary
Example 2:
to convert the rate into fraction or
decimal equivalent.  Find the final amount and
interest on P150,000 invested at
 6 1/2% simple interest for 4 Interest (I) = PHP 3,000
years and 10 months.
Principal (P) = PHP 15,000
Find:
Rate (R) = 5% per year (or 0.05)
a. Interest (I)
t = Interest ÷ (Principal × Rate)
b. Amount (F)
t = 3,000 ÷ (15,000 × 0.05)
Solution:
t = 3,000 ÷ 750 = 4 years
Given: P = P150,000
r = 6 1/2% (.065) It will take 4 years for Fyang's interest
t = 4 years and 10 months. to amount to PHP 3,000.
1.First, convert the time into years:  JM borrowed PHP 15,000 from a
bank for a business venture.
Since time = 4 years and 10 months,
After 5 years,he had to pay PHP
then
3,750 in interest. What is the
t = 4 years + (10 months÷12) annual interest rate charged by
the bank?
= 4+ 0.833
Solution:
=4.833 years
P = PHP 15,000
2. Solve for the interest:
I = PHP 3,750
I=Pxrxt
t = 5 years
=P150,000 x .065 x 4.833
r = Interest ÷ (Principal × Time)
= P47,121.75
r = PHP 3,750 ÷ (PHP 15,000 × 5)
3. Solve the Final Amount:
r = PHP 3,750 ÷ PHP 75,000
F=P+I
r = 0.05 or 5%
= P150,000 + P47,121.75
So, the annual interest rate charged
= 197,121.75
by the bank is 5%.
The investor will get back a total of
 JMFyang invested some money
P197,121.75 for investing his/her
in a savings account that
money for a period of 4 years and 10
earned 5% simple interest
months.
annually. After 3 years, he
 Fyang invested PHP 15,000 in a earned PHP 1,500 in interest.
savings account with a simple How much did JMFyang initially
interest rate of 5% per year. invest?
After how many years will her
Solution:
interest amount to PHP 3,000?
I = PHP 1,500
Solution:
r = 5% per year (0.05)
Given:
t = 3 years Find the ordinary interest on P15,500
for 130 days, at 5 3/4% simple
Principal = Interest ÷ (Rate × Time)
interest.
P = PHP 1,500 ÷ (0.05 × 3)
Solution:
P = PHP 1,500 ÷ 0.15
Given: P= P15,500
P = PHP 10,000
r= 5 3/4% (.0575)
So, JMFyang initially invested PHP
t= 130 days
10,000.
Find: Ordinary Interest ( I o)

t
ORDINARY INTEREST Io = P r ( )
360
ORDINARY INTEREST – a term used to
= P15,500 x 0.0575 x (130 ÷ 360)
describe simple interest, which is a
method of calculating interest on a = P321.740
loan or investment.
The ordinary interest of the
To find the ordinary interest, use the money invested/borrowed for 130
formula for simple interest. days is P321.74
In this case, the time expressed EXACT INTEREST
in days is divided by 360. This is
because each month of the year is EXACT INTEREST - a process of
assumed to have 30 days. calculating the interest on a debt
based on a 365 days year. To find the
We use the symbol ( I o) to denote exact interest, use the formula for
ordinary interest. Then we have the simple interest, dividing the time
formula for ordinary interest as: expressed in days by 365.
I o = Ordinary Interest To calculate the exact interest, the
following formula is used:
P = Principal
Exact Interest ( I e) = Principal (P) x
r = Rate
rate (r) x time (t), where t is divided by
t = Time 365 days.

Ordinary Interest ( I o) = Principal (P) x t

Ie = P r
rate (r) x time (t), where t is divided by 365
360 days.
Example.
In formula:
1. Find the exact interest on
t P15,500 for 130 days, at 5 3/4%
Io = P r
360 simple interest.

Example: Solution:
Given: P= P15,500
r= 5 3/4% (.0575) Computing the Simple Interest
using Actual and Approximate
t= 130 days.
Time
Find: Exact Interest ( I e)
(Interest between Dates)
t Actual time – exact or actual number
Ie = P r ( )
365 of days in any given month
= P15,500 x 0.0575 x (130 ÷ 365) Approximate time – all months
= P317.285 within a year contains 30 days

Using exact time, the interest on *if year is divisible by 4 it is leap year
P15,500 invested/borrowed for (29 days in February)
130 days is P317.285. Example:
2. Grace borrowed PHP 25,000 at Find the actual time and approximate
an annual interest rate of 9%. time from March 23 to June 16 2020.
She repaid the loan after 210
days.  In actual time March has 31
days so;
a. Calculate the ordinary interest.
31
b. Calculate the exact interest.
-23
Solution:
8
a. Ordinary Interest:
 In approximate days all the
Io = Principal × Rate × (Time ÷ 360) months contains 30 days so;
Io = 25,000 × 0.09 × (210 ÷ 360) 30
Io = PHP 1,312.50 -23
b. Exact Interest: 7
Ie = Principal × Rate × (Time ÷ 365)
Ie = 25,000 × 0.09 × (210 ÷ 365) Month Actual days Approxim
ate days
Ie≈ PHP 1,294.52
March 8 7
Remember:
April 30 30
a. Ordinary interest is always larger
than the exact interest. May 31 30
b. In computing the simple interest, June 16 16
when there is no type of interest is
specified, always compute it using Total 85 83
ordinary interest.
 Four Methods of =₱318.75
Computation
Ie – Actual =Prt
 Ordinary Interest for
Actual Time (Io – =(30,000)(4.5%)(85/365)
Actual)
 Ordinary Interest for =₱314.38
Approximate Time (Io – Io – Approx =Prt
Approx)
 Exact Interest for =(30,000)(4.5%)(83/360)
Actual Time (Ie –
=₱311.25
Actual)
 Exact Interest for Ie – Approx =Prt
Approximate Time (Ie –
Approx) =(30,000)(4.5%)(83/365)
=₱306.99
 Banker’s Rule (Used by banks in
computing the interest on
savings deposit) To summarize the computed interest
 T0= # of days/360 using the four methods:
 Te= # of days/365
Find the Interest using four
methods on ₱30,000 at 4.5% from Actual Approxima
March 23 to June 16 2020. Time te Interest

Ordinary ₱318.75 ₱311.25

Month Actual days Approxim Interest
ate days
Exact ₱314.38 ₱306.99
March 8 7 Interest

April 30 30

May 31 30

June 16 16

Total 85 83

Exact interest = # of days divided

by 365
Ordinary Interest = # of days
divided by 360
Io – Actual = Prt
= (30,000)(4.5%)(85/360)