CHAPTER 4 :

SIMPLE INTEREST
SOLVE PROBLEMS INVOLVING SIMPLE
INTEREST & DISCOUNT

What is interest?

Definition 1 Money earned when invested. EX: You deposited RM1,000 in a

A bank for a year and at the end of 1 year you have RM1,050. RM50 is the
Interest you earned when invested RM1,000.
Definition 2 Interest incurred when loan/credit obtain. EX: You borrowed
RM1,000 from the bank for a year and paid back RM1,080 at the end of the year.
Additional amount of RM80 is the charge of the interest that need to pay
when you borrow RM1,000

Simple Interest Formula

To find simple interest we use the following
formula:

I = prt
Interest
Principal

Interest rate
written as a
decimal

The amount of
time the money
is invested or
borrowed
(years)

Find The Interest Paid

Cory borrows RM1,200 from the bank for a
riding lawn mower. The interest rate is 8% per
year. How much simple interest will he pay if he
takes 2 years to repay the loan?
I = prt , P = RM1,200 , r = 0.08 (8%) , t = 2
I = RM1,200 X 0.08 X =RM192
*Corry will pay RM192 interest in 2 years.

Find The Interest Earned

Kates bank offered 4% simple interest on her
deposit. She has RM1,500 to invest. How
much interest will she earn in 30 months?
30 months is how many years? 30/12 = 2.5 years
I = prt , P = RM1,500 , r = 0.04 (4%) , t = 2.5
I = RM1,500 x 4% x 2.5
=RM150
Kate will earn RM150 interest in 30 months

Exact and Ordinary interest

Bank/lending institutions use two method
to calculate the due date which are:
Exact Time
Ordinary Time

Exact Time
Exact time: time that is based on counting
the exact number of days in a time period.
Use 365 days for 1 year and use 366 days if
leap year is specified just add 1.
If loan includes the February of a leap year
(29 days)
If not specified the leap year then its 28 days

A loan was made on January 4 for 90 days.

Find the due date using exact time.
1st Divide 90 days with 30 to get 3 months
2nd - Find the numbers of days left in January (31-4=27)
3rd Make a list as shown:
January
27 days
February
28 days
March
31 days
April
?
90 days
27+28+31=86
90-86= 4, The loan is due on 4 April

Ordinary Time
Ordinary time: time that assume each month
has 30 days and each year has 360 days.
EX: 90-day loan dated March 12 will be due
on June 12.
By using ordinary time simply count the
month using 30 days as 1 month and use the
same day number on which the loan is due.

Ordinary/Exact time method to

calculate interest
A loan of RM9270 was made on April 6 and
repaid on June 10. Find the interest if the rate is
12% and exact time is used.
1st - 30-6=24 days
April 24 days
May 31 days
June 30 days
65 days

2nd Use I=prt , 1yr=365

=9270 x 0.12 x 65/365
=RM198.09

Ordinary/Exact time method to

calculate interest
Find the interest on an RM800 loan at 9% for
28 days using ordinary time.
I=prt , 1 year = 360 days
=800 x 0.09 x 28/360
=5.6

Face Value

Promissory Notes

Term

Payee
Interest Rate

Date of Note

Promissory Notes
Face Value: Amount of money has been
borrow
Term: Time period of the note
Payee: Person , company that loaned the
money
Maturity value: The date the money is to be
repaid.

Promissory Notes
Legal document promising to pay back at future
date with a sum of money that has been borrow.
Promissory Notes Basic Formula:
1)Interest= Face Value (FV) x Rate (r) x Time
(T) , I = frt
2)Maturity Value (MV)= FV + I , MV = FV + I

Loan of RM9000 was made to Mary on 27 June

for 90 days. Promissory notes specified the
interest is 12%. Using ordinary time, find
maturity value of the note
I = FRT , to find the interest
= 9000x0.12x90/360
= 270
Maturity Value, MV= FV + I
= 9000 + 270
= RM9270

Promissory Notes & Discount

The amount of time that the bank holds the
promissory note is called the discount period.
Formulas for discounting notes:
Discount Amount (DA) = MV X R X T
Proceeds (P) = MV - DA

A maturity value of note was RM9270, length

discount period was 62 days. Using ordinary
time, find discount amount and the proceeds
when discount rate is 9%.
DA = MV x r x t
= 9270x0.09x62/360
= RM143.69
P = MV DA
= 9270 143.69
= RM9126.31

THE END