Ch 9 Simple Interest
Basics of Simple Interest
Simple Interest

Used for:



Billing purposes
Short-term (< 1 year) or Informal loans
Amortization Schedules (Interest Owed each month)
Amortization Schedule
Loan
Invoice
$85,000
at
6.35%
Bill
loansborrowed
his
sister
$500
Balances
unpaid
after
30at for 30 years.
4%
for 8 months.
daysinterest
are subject
to a 12%
Monthly Payment = $528.90
(1% monthly) finance
1st Month’s Interest = $449.79
charge.
Simple Interest Formula

I = PRT

Interest ($) amt. earned or owed
I is the _______________________________

(amt invested or borrowed)
P is the Principle
_______________________________

R is the Rate
_______________________________
(interest rate - %)

T is the Time
_______________________________
(years)
Ch 9 Simple Interest
Computing Interest with I = PRT
The Basics…
Using the Simple Interest Formula

What is the interest owed on a $580 loan at
3% simple interest for 4 years?
I = PRT
I = $580(3%)(4)
$580(0.03)(4)
I = $69.60
Ch 9 Simple Interest
Computing Interest with I = PRT
Dealing with time other than years.
Using the Formula Time

What is the interest owed on a $4,600 loan
at 4.1% simple interest for 5 months?
Maturity Value is principle and interest
combined:
I = PRT
M = Principle + Interest
I=
5
$4,600(0.041)( 12
5)
M = $4,600 + $78.58
M = $4,678.58
I = $78.58
Using the Formula Time

What is the interest earned if $1,200 is invested
at 3.7% simple interest for 13 weeks?
Maturity Value is principle and interest
combined:
I = PRT
M = Principle + Interest
I=
13
$1,200(0.037)( 52 )
M = $1,200 + $11.10
M = $1,211.10
I = $11.10
Application: Compute Penalty Charges
$208.20(0.22)(
I == PRT
$2.89
23
365
Invoice Date: Dec. 05, 2010
Acme Repair Inc.
Parts
$36.95
Labor
4.5 hr x $32.50/hr = $146.25
Trip Charge
$25.00
Total
$208.20*
*Payment is due within 30 days of receipt of this invoice.
Payments made after 30 days of receipt are assessed a penalty of 22% annual interest rate.
)
Amount
Borrowed:
Application: Amortization
Schedule
Length of Loan:
Interest Rate:
Monthly Payment:
Payment Number
1
2
3
4
5
6
7
8
9
10
11
12
$35000.00
7.00 years
6.00%
$511.30
Beginning
Balance
35000.00
34663.70
34325.72
33986.05
33644.68
33301.60
32956.81
32610.30
32262.05
31912.06
31560.32
31206.82
Interest
175.00
173.32
171.63
169.93
168.22
166.51
164.78
163.05
161.31
159.56
157.80
156.03
Interest
>0
I = 35,000 x 6% x 1
12
I = 175
Principal
336.30
337.98
339.67
341.37
343.08
344.79
346.52
348.25
349.99
351.74
353.50
355.27
Ending Balance
34663.70
34325.72
33986.05
33644.68
33301.60
32956.81
32610.30
32262.05
31912.06
31560.32
31206.82
30851.56
Practice

Ch 9, Section 1 – Basics of Simple Interest
Textbook Exercise 9.1 (pages 353 – 355)
_____ #2 – 4
Ch 9 Simple Interest
Exact and Ordinary Interest
Simple Interest Exact Interest & Ordinary Interest
What is the interest owed on a $2,400 loan at
4.5% simple interest for 120 days?
I = PRT
I=
120
$2,400(0.045)( 360
365 )
Ordinary
Interest
Exact Interest
I = $35.51
I = $36.00
Exact Interest
Ordinary Interest
Ordinary Interest


Referring to the middle of page 351
“Use ordinary or banker’s interest throughout
the remainder of this book unless stated
otherwise.”
Practice

Ch 8, Section 1 – Basics of Simple Interest
Textbook Exercise 9.1 (pages 353 – 355)
_____ #10 – 12
_____ # 22 – 24 (maturity value portion only, skip the “Date Loan is
Due” for now.)
Ch 9 Section 1
Compute the number of days…
Determine the number of days

How much interest is due on a $2,500 loan at
3.0% simple interest that began on March 10
and is due on August 20?
I = PRT
?
I = $2,500(0.03)
360
Reference: Textbook, page 349
Number of Days 1 of 3
How long is a loan that
goes from Mar. 10 to
Aug. 20?
Aug. 20 – Mar. 10
232 – 69 = 163 days
Day of Month Jan.
1
1
2
2
3
3
4
4
5
5
6
6
7
7
8
8
9
9
10
10
11
11
12
12
13
13
14
14
15
15
16
16
17
17
18
18
19
19
20
20
21
21
22
22
23
23
Feb.
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
Mar
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
Apr
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
May
121
122
123
124
125
126
127
128
129
130
131
132
133
134
135
136
137
138
139
140
141
142
143
Jun
152
153
154
155
156
157
158
159
160
161
162
163
164
165
166
167
168
169
170
171
172
173
174
Jul
182
183
184
185
186
187
188
189
190
191
192
193
194
195
196
197
198
199
200
201
202
203
204
Aug
213
214
215
216
217
218
219
220
221
222
223
224
225
226
227
228
229
230
231
232
233
234
235
Determine the number of days

How much interest is due on a $2,500 loan at
3.0% simple interest that began on March 10
and is due on August 20?
I = PRT
I = $2,500(0.03)
I = $33.96
163
?
360
Number of Days 2 of 3
How long is a loan that
goes from Jan. 5 to
July 23?
July 23 – Jan. 5
204 – 5 = 199 days
Day of Month Jan.
1
1
2
2
3
3
4
4
5
5
6
6
7
7
8
8
9
9
10
10
11
11
12
12
13
13
14
14
15
15
16
16
17
17
18
18
19
19
20
20
21
21
22
22
23
23
Feb.
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
Mar
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
Apr
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
May
121
122
123
124
125
126
127
128
129
130
131
132
133
134
135
136
137
138
139
140
141
142
143
Jun
152
153
154
155
156
157
158
159
160
161
162
163
164
165
166
167
168
169
170
171
172
173
174
Jul
182
183
184
185
186
187
188
189
190
191
192
193
194
195
196
197
198
199
200
201
202
203
204
Aug
213
214
215
216
217
218
219
220
221
222
223
224
225
226
227
228
229
230
231
232
233
234
235
Number of Days 3 of 3
Number of days from
Sept. 15 to Feb. 20 of
the following year.
Number of days until
the end of the year:
365 – 258 =
107 days
107 days + 51 days =
158 days
Day of Month Jan.
1
1
2
2
3
3
4
4
5
5
6
6
7
7
8
8
9
9
10
10
11
11
12
12
13
13
14
14
15
15
16
16
17
17
18
18
19
19
20
20
21
21
22
22
23
23
24
24
25
25
26
26
27
27
28
28
29
29
30
30
31
31
Feb.
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
Mar
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
Apr
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
May
121
122
123
124
125
126
127
128
129
130
131
132
133
134
135
136
137
138
139
140
141
142
143
144
145
146
147
148
149
150
151
Jun
152
153
154
155
156
157
158
159
160
161
162
163
164
165
166
167
168
169
170
171
172
173
174
175
176
177
178
179
180
181
Jul
182
183
184
185
186
187
188
189
190
191
192
193
194
195
196
197
198
199
200
201
202
203
204
205
206
207
208
209
210
211
212
Aug
213
214
215
216
217
218
219
220
221
222
223
224
225
226
227
228
229
230
231
232
233
234
235
236
237
238
239
240
241
242
243
Sep
244
245
246
247
248
249
250
251
252
253
254
255
256
257
258
259
260
261
262
263
264
265
266
267
268
269
270
271
272
273
Oct
274
275
276
277
278
279
280
281
282
283
284
285
286
287
288
289
290
291
292
293
294
295
296
297
298
299
300
301
302
303
304
Nov
305
306
307
308
309
310
311
312
313
314
315
316
317
318
319
320
321
322
323
324
325
326
327
328
329
330
331
332
333
334
Dec
335
336
337
338
339
340
341
342
343
344
345
346
347
348
349
350
351
352
353
354
355
356
357
358
359
360
361
362
363
364
365
Review Problem




Loan Amount: $45,000
354 – 196 = 158 days
8% simple interest rate
Borrowed on July 15 and due on December 20.
Determine the amount due under
I = PRT

Exact Interest
I = $45,000  0.08  158 = $1,558.36

Ordinary Interest
365
I = $45,000  0.08  158 = $1,580
360
Practice

Ch 9, Section 1 – Basics of Simple Interest
Textbook Exercise 9.1 (pages 353 – 355)
_____ #6 – 8
_____ #22- 24 (Date Loan is Due portion)
Ch 9 Section 1
Define the basic terms used with notes.
Terminology – Promissory Note
Promissory Note: a legal document in which one person or
firm agrees to pay a certain amount of money, on a specific
day in the future, to another person or firm.
Promissory Note
Charlotte, North Carolina ___________
March 6
Ninety days after date, ________
____________
promise to pay to the order of
I
/
Charles D. Miller
$2,500.00
______________________________________________________
12% per year
Two _________________________
thousand, five hundred and 00/100 Dollars with interest at __________
Wells Fargo Bank Country Club Center Office
______________, payable at ______________________________
June 4
Due _____________
Madeline
Sullivan
____________________
Terminology – Promissory Note
Payee:
The
person
loaned
the
money
and
who
Term:
The
length
ofwho
time
until
the
note
isthe
due.
Makervalue
or
payer:
The
person
money.
Face
or
principle:
Theborrowing
amount
being
borrowed.
will receive the payment.
Promissory Note
Charlotte, North Carolina ___________
March 6
Ninety days after date, ________
____________
promise to pay to the order of
I
/
Charles D. Miller
$2,500.00
______________________________________________________
12% per year
Two _________________________
thousand, five hundred and 00/100 Dollars with interest at __________
Wells Fargo Bank Country Club Center Office
______________, payable at ______________________________
June 4
Due _____________
Madeline
Sullivan
____________________
Terminology – Promissory Note
Maturity Value
$2,500
+value
$2,500
x 0.12
x 90/360
Value:=the
face
interest.
$75
=plus
$2575
Face
Value
+ Interest
Promissory Note
Charlotte, North Carolina ___________
March 6
Ninety days after date, ________
____________
promise to pay to the order of
I
/
Charles D. Miller
$2,500.00
______________________________________________________
12% per year
Two _________________________
thousand, five hundred and 00/100 Dollars with interest at __________
Wells Fargo Bank Country Club Center Office
______________, payable at ______________________________
June 4
Due _____________
Madeline
Sullivan
____________________
Terminology – Promissory Note
Maturity Date or due date: The date the loan must be paid off
with interest.
Promissory Note
Charlotte, North Carolina ___________
March 6
Ninety days after date, ________
____________
promise to pay to the order of
I
/
Charles D. Miller
$2,500.00
______________________________________________________
12% per year
Two _________________________
thousand, five hundred and 00/100 Dollars with interest at __________
Wells Fargo Bank Country Club Center Office
______________, payable at ______________________________
June 4
Due _____________
Madeline
Sullivan
____________________
Practice

Ch 9, Section 1 – Basics of Simple Interest
Textbook Exercise 9.1 (pages 353 – 355)
_____ #13 – 20
_____ #30, 33, 35 (application problems)
Practice

Ch 9, Section 1 – Basics of Simple Interest
Textbook Exercise 9.1 (pages 353 – 355)
_____ #2 – 4, 6 – 8, 10 – 12, 13 – 20, 22 – 24, 30, 33, 35