Module 1. Math Investment

Mathematics of Investment
Module 1. Simple Interest
Manuel C. Francisco ,LPT

Instructor
Learning Objectives
At the end of this module, the students should be able to:
a. Understand the basic definitions of simple interest, simple
discount, and promissory notes.
b. Solve for simple interest, simple discount, the time money was
used, the principal, the proceeds, and the maturity value.
c. Determine the actual and approximate time between dates.
d. Compute for exact interest and ordinary interest.
e. Accumulate a given principal and discount a given amount.
f. Compare simple interest rate with discount interest rate.
g. Differentiate a simple interest note from a bank discount note.
h. Discount a promissory note.
Introduction
Simple Interest
⚫ Interest (I) – the sum of money paid for

the use of money
⚫ Principal (P) – is the money that is
either deposited or borrowed
⚫ Rate of Interest (r) – percentage charge
or earned from the principal
⚫ Length of time (t) – period that money
was deposited or lent.
Simple Interest
This relationship is illustrated in the given

formula.
Simple Interest Formula: I=Prt

Simple Interest
Problem 1 Solution
Venus deposited P5,

000 in a bank at 6.5%
simple interest for 2
years. How much will
she earn after 2
years, assuming that
no withdrawals were
made.
Simple Interest
Problem 2 Solution
Christian invested
P30, 000 in the stock
market which
guaranteed an
interest of P5, 600
after 3 years. At what
rate would her
investment earn?
Simple Interest
Solution
Problem 3
Lina borrowed P10, 000
from a bank charging 12%
simple interest with a
promise that she would pay
the principal and interest at
the end of the agreed term.
If she paid P4,500 at the
end of the specified term,
how long did she use the
money?
Simple Interest
Solution
Problem 4
Rachel paid P7,400 interest
at 14.5% for a four – year
loan. What was the original
loan?
Simple Interest
When interest is added to the principal at

the end of the stipulated length of time, the
total sum is called the amount (F), or,
simply,
F = P+ I
Simple Interest
Solution
Problem 5
Vincent borrowed P35, 000
from a bank at 12.5%
simple interest for 5 years.
How much will she pay the
bank after 5 years?
Simple Interest
Solution
Problem 6
If Rose borrowed P42, 000
from a bank at 10.5%
simple interest, how much
will she pay at the end of
15 months?
Simple Interest
Solution
Problem 7
The total amount paid on a
loan is P84, 000. if the loan
was for 2 years at 9%
simple interest, what was
the original loan?
Time Between Dates
Solution
Problem 8
Determine the
number of days
from September 16,
2007 to November
25, 2007. Use
actual time and
approximate time.
Time Between Dates
Solution
Problem 9
Determine the
number of days
from January 22,
2008 to May 8,2008.
Use actual time and
approximate time.
Exact Interest and Ordinary
Interest
Exact Interest
𝐴𝑐𝑡𝑢𝑎𝑙 𝑇𝑖𝑚𝑒
❑ 365
𝐴𝑝𝑝𝑟𝑜𝑥𝑖𝑚𝑎𝑡𝑒 𝑡𝑖𝑚𝑒
❑ 365
Ordinary Interest
𝐴𝑐𝑡𝑢𝑎𝑙 𝑇𝑖𝑚𝑒
❑ 360
𝐴𝑝𝑝𝑟𝑜𝑥𝑖𝑚𝑎𝑡𝑒 𝑡𝑖𝑚𝑒
❑
360
Interest
Problem 10
On March 23, 2007, Mary Ann applied for a
₱48,000 loan at 9.5% simple interest. She
promised to pay on July 12, 2007. Compute for
the interest of the loan using:
a. Actual time, exact interest
b. Approximate time, exact interest
c. Actual time, ordinary interest
d. Approximate time, ordinary interest
Interest
Problem 10 Solution
a. Actual time,
exact interest
Interest
Problem 10 Solution
b. Approximate
time, exact
interest
Interest
Problem 10 Solution
c. Actual time,
ordinary interest
Interest
Problem 10 Solution
d. Approximate
time, ordinary
interest
Interest
Problem 11
Find the ordinary and exact interest on a
₱230,000 loan at 16% from April 12, 2007 to
August 8, 2007. Use the following:
a. Actual time, exact interest
b. Approximate time, exact interest
c. Actual time, ordinary interest
d. Approximate time, ordinary interest
Interest
Problem 11 Solution
a. Actual time,
exact interest
Interest
Problem 10 Solution
b. Approximate
time, exact
interest
Interest
Problem 11 Solution
c. Actual time,
ordinary interest
Interest
Problem 11 Solution
d. Approximate
time, ordinary
interest
Interest
In a certain cases, remember the following:
⚫ If the day of the origin date and the day when the
loan is due are the same, count the number of
months between them.
⚫ If the month and day are the same for both origin
date and maturity , count the number of years
between the given dates/
⚫ If the origin date is given and we are asked to get the
due date of the loan or deposited in days, months,
and years, count the exact number of days, exact
number of months, and exact number of years.
Interest
Examples:
1. A three – month loan made on
September 16, 2008 is due on
December 16, 2008.
2. A five – year loan made on March 12,
2008 is due on March 12, 2013.
3. A five year, 3 month loan made on July
6, 2010 is due on October 6, 2015.
Accumulating and Discounting
⚫To “accumulate” is to find the

amount, F.
⚫To “discount” is to find the
present value, P.
Solution
Problem 12
Accumulate ₱75,
000 at 8%
simple interest
for 15 years.
Solution
Problem 13
Compute for the
amount if
₱24,000 is
invested at 9.5%
for 5 years.
Solution
Problem 14
If money is worth
12% simple
interest, what
must be invested
now to have
₱69, 000 at the
end of 4.5
years?
Solution
Problem 15
What is the
present value of
₱45, 000 at
11.25% simple
interest at the
end of 240
days?
Solution
Problem 16
How much must
be invested now
to have ₱98, 000
at the end of 10
years if money is
worth 8% simple
interest?
The Simple Discount Formula
Simple Discount Formula: I = Fdt

𝑃
Maturity Value Formula: 𝐹=
1 − 𝑟𝑡
Proceeds Formula: 𝑃 = 𝐹(1 − 𝑑𝑡)

Problem 17
Discount ₱25, 000

for three years and 6
months at 10%
simple discount.
Problem 18
If ₱12, 300 due at the end of five years at

8% simple discount, find the proceeds and
simple discount.
Problem 19
On April 2, Mr. Crisostomo received ₱65,000
from a credit union and promised to pay ₱68,000
on October 2 on the same year. If interest was
deducted in advance, what was the discount?
Problem 20
Mr. Rodriguez wishes to have ₱100, 000

payable in 5 years. What sum should be
borrowed now if the discount rate is 18%?
Equivalent Rates
𝑑
𝑟=
1 − 𝑑𝑡
𝑟
𝑑=
1 + 𝑑𝑡
Problem 21
A bank discounts a ₱160, 000 loan due in

3 years at 10% simple discount. Find the
equivalent simple interest rate.
Problem 22
Find the simple discount rate equivalent to

15% simple interest for 240 days.
Table 1. Comparison of Simple Interest and
Simple Discount Formulas
Simple Interest Formulas Simple Discount Formulas

Simple Interest 𝐼 = 𝑃𝑟𝑡 Simple 𝐼 = 𝐹𝑑𝑡
Discount
Principal 𝐹 Proceeds 𝑃 = 𝐹(1 − 𝑑𝑡)
𝑃=
1 + 𝑟𝑡
Amount 𝐹 = 𝑃(1 + 𝑟𝑡) Maturity Value 𝑃
𝐹=
1 − 𝑑𝑡

Module 1. Math Investment

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Module 1. Math Investment

Uploaded by

Mathematics of Investment

Module 1. Simple Interest

Manuel C. Francisco ,LPT

⚫ Interest (I) – the sum of money paid for

This relationship is illustrated in the given

Simple Interest Formula: I=Prt

Venus deposited P5,

When interest is added to the principal at

⚫To “accumulate” is to find the

Simple Discount Formula: I = Fdt

Proceeds Formula: 𝑃 = 𝐹(1 − 𝑑𝑡)

Discount ₱25, 000

If ₱12, 300 due at the end of five years at

Mr. Rodriguez wishes to have ₱100, 000

A bank discounts a ₱160, 000 loan due in

Find the simple discount rate equivalent to

Simple Interest Formulas Simple Discount Formulas

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