5.1 Simple Interest
I - Amount of interest paid or received.
INTEREST( I ):
F - Maturity value of the loan or investment

It is the cost of the use of money.
Simple Interest Formula:

It is defined as the charge for using the
borrowed money.
1.) I=Prt
4.) F=P(1+rt)

It is an expense for the person who borrows
money and an income for the person who lends
money.
Determining the Time Period:


It is the fee or rent that lenders charge to
borrowers for the temporary use of the
borrowed money.
2.) P=I/rt
3.) F=P+I

To find the due date, we must determine the
number of days in each month. Then, we simply
compute month by month, the number of days
from one date to another.

If the loan date and maturity date are known,
the number of days of the loan can be
calculated by using the days in each month.
There are two types of interest the simple
interest and the compound interest.
Definition of Terms:
Steps in Solving the Number of Days of a Loan:
Principal amount(P) - the amount borrowed or saved.
1. Identify the number of days remaining in the first
month by subtracting the loan date from the number of
days in a month.
Rate of Interest ( R ) - the percentage of the principal
that will be charged for a specified period ( daily,
weekly, monthly, yearly, etc.)
2. Write the number of days in each month.
Loan Date - the first day of a loan.
3. Write the number of days in the last month.
Due Date ( or maturity date ) - the last day of the loan.
4. Add the days from the first month to the last month.
Maturity Value ( F ) - the total amount to be paid or
received after a given period of time.
Note: The time t should be determined using the
number of days involved. There are two ways of
determining the time period. It may be approximate or
actual time.
Approximate Time - uses 30 days in every month.
Actual Time - uses the exact number of days in every
specific month.
SIMPLE INTEREST:


This is calculated only on the original principal
amount and is paid at the end of the loan
period.
The unit of time is usually expressed as annual
interest rates. This means that we will assume
the interest rate to be annual unless specified.
The following variables will be in the mathematical
treatment of simple interest:
5.1.1 Exact and Ordinary Interest
EXACT AND ORDINARY INTEREST:
Exact Interest - is computed in 365 days in a year as the
time factor denominator.
Ordinary Interest - is computed in 360 days in a year as
the time factor denominator.
Note:

Banks and most other institutions still use
ordinary interest because it yields somewhat
higher interest as compared to exact interest.

If the time of interest is not specified in any
problem, use the Banker's Rule or the Ordinary
Interest in Actual Time.
P - Principal amount of the loan or investment.
r - Annual rate of simple interest.
t - Time period ( term ) of the loan or investment.

Rate must be converted to a decimal or fraction
before substituting any formula.

The time period is computed in terms of the
year.
Remember:
1. Rate must be converted to a decimal or fraction
before substituting any formula.
2. The time period is computed in terms of years. This
means that the time period expresses in months or days
must be converted to a fraction of a year before being
substituted into the formula for t unless stated
otherwise.
3. Assume ordinary interest in actual time or banker's
rule interest ( 360 days per year ) unless stated
otherwise