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Engineering Economy Simple Interest

This document defines key concepts related to simple interest calculations. It defines principal, interest rate, amount, and time period. It provides the simple interest formula: Interest = Principal x Rate x Time. It also gives formulas for calculating total amount owing and examples of simple interest word problems, such as calculating interest on loans over different time periods at various rates.

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Noreen Guiyab Tannagan

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0% found this document useful (0 votes)

2K views1 page

Engineering Economy Simple Interest

Uploaded by

Noreen Guiyab Tannagan

We take content rights seriously. If you suspect this is your content, claim it here.

Available Formats

Download as PDF, TXT or read online on Scribd

EDUCATION

Engineering Economy Simple

Interest
The capital originally invested in a transaction is
called the principal P. At any time after the
investment of the principal , the sum of the principal
and the interest due is called the amount F.

Interest- the amount paid for the use of money called

the capital for a certain period of time

Simple interest- the interest to be paid which is

proportional to the length of time the principal is
used.

Principal- the amount of money used on which

interest is charge.

Rate of interest – the amount earned by one unit of

principal during a unit of time.

Ordinary Interest- an interest based on the exact no.

of 1 bankers tears is equal to 12 months

1 month=30 days

1 year=350 days

Exact Interest based on the exact no. of days, 365

days for ordinary year and 366 days for leap year.

I=Prt

F=P+I

F=P+Prt

F=P(1+rt)

I=Interest

P=Principal

I= rate of interest in decimal

N= number of interest periods

F= total amount

Discount- is the difference between the future

worth and its present worth.

Rate of discount- the discount on one unit of

principal per unit of time

D=F-P
D=1-[1/(1+i)]

D=i/(1+i)

Equivalent rate of interest

D=i/(1+i)

i=d/(1-d) rate of interest

A man borrowed P2000 from a bank and promise to

pay the amount for one year. He received only the
amount of P1920 after the bank collected an advance
interest of P80. What was the rate of discoun and the
rate of interest that the bank collected in advance?

Solution:

rate of discount= (80/2000 )100=0.04=4%

rate of interest=(80/1920)100=0.0417=4.17%

If you borrowed money from your classmate with a

simple interest of 12%, find the present worth of
P50000; which is due at the end of 7 months.

SOLUTION:

F=P+I

F=P+Prt

50000=P+P(0.12)(7/12)

P=46728

A price tag of a T-shirt is P1200 is payable in 60 days

but if paid with in 30 days it will have a 3% discount.
Find the rate of interest.

SOLUTION:

Discount = 0.03(1200)=36

Amount to be paid on 30 days = 1200 – 36=1164

I=Prt

36=1164r(30/360)

r=37%

A loan shark charges 12% simple interest on a P300

loan. How much will be repaid if the load is paid back
in one lump sum after three years?

SOLUTION:

A=P+Prt

A=300+300(0.12)(3)

A=P408

A bank charges 12% simple interest on a P300 loan.

How much will be repaid if the load is paid in one
lump sum after three years?

Solution:

A=P+Prt

A=300+300(0.12)(3)

A=P408

Assignment/seatwork
P5000 is borrowed for 75 days at 16% per annum
simple interest. How much will be due at the end of
75 days?

Ans. 5166

If you borrow money from your friend with simple

interest of 12%, find the present worth of P20000,
which is due at the end of nine months.

P=18348

A bank loan of P2000 was made at 8% simple interest.

How long would it take in years for the amount of the
loan and interest to equal P 3280.

Ans: 8 years

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Engineering Economy Simple Interest

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EDUCATION

Engineering Economy Simple

Interest- the amount paid for the use of money called

Simple interest- the interest to be paid which is

Principal- the amount of money used on which

Rate of interest – the amount earned by one unit of

Ordinary Interest- an interest based on the exact no.

Exact Interest based on the exact no. of days, 365

I= rate of interest in decimal

N= number of interest periods

Discount- is the difference between the future

Rate of discount- the discount on one unit of

Equivalent rate of interest

i=d/(1-d) rate of interest

A man borrowed P2000 from a bank and promise to

rate of discount= (80/2000 )100=0.04=4%

If you borrowed money from your classmate with a

A price tag of a T-shirt is P1200 is payable in 60 days

Amount to be paid on 30 days = 1200 – 36=1164

A loan shark charges 12% simple interest on a P300

A bank charges 12% simple interest on a P300 loan.

If you borrow money from your friend with simple

A bank loan of P2000 was made at 8% simple interest.

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