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SIMPLE DISCOUNT
Concepts: Simple Interest, Simple Discount,
Ordinary and Exact Simple Interest, Interest on
Actual and Approximate Time, Promissory Note
OVERVIEW
For every amount borrowed or invested a
corresponding portion of the amount is paid or
earned and this is called interest.
Simple interest is an interest that is
paid/earned at the end of a loan/investment
period.
OVERVIEW (CONTINUED)
When interest is paid in advance, interest deducted
from the principal is called simple discount.
When a borrower is not ready to pay his debt, he can
write a note stipulating his promise to pay an amount at
a specified time with a specified interest rate.
DEFINITION OF TERMS
Debtor/Maker
an individual or institution that borrows money for any
purpose
Lender
an individual or institution who loans the money
Interest I
payment for the use of borrowed money or the amount
earned on an invested money
SIMPLE INTEREST
interest computed based on the principal and is paid at the
end of the specified period of time
Formula:
I Pr t
where
P = principal invested
r = rate of interest in decimals
t = time in years
SIMPLE INTEREST
Final Amount or Maturity Value F
F P I
F P Pr t P 1 rt
EXAMPLES
1. Find the interest paid by Ms. April on
P25,000 that she borrowed for three years at
4% simple interest.
2. Determine the simple interest to be paid by
Lorna if she borrowed P1,200 at 6 % for 8
months?
3. At what rate of interest did Mary invest the
amount of P27,500 for it to earn a simple
interest of P3, 245 for three years?
EXAMPLES (CONTINUED)
4. How much was borrowed by Ms. Michelle if the interest
she paid after 3 months at 10.5% simple interest is P3,000?
5. How long should Dan invest the amount of P80,000 to
earn an interest of P4,500 at 6.5% simple interest?
6. How much is the final amount would Ms. Nessa receive if
she invested P75,000 for 4 years at 5 % simple interest?
NUMBER OF DAYS
January
31 days
February
28 days, 29 in leap
years
March
31 days
April
30 days
May
31 days
June
30 days
July
31 days
August
31 days
September
30 days
October
31 days
November
30 days
December
31 days
EXAMPLES
360
approximate time
Oi app = Pr
360
actual time
Ei act = Pr
365
approximate time
Ei app = Pr
365
Note:
If the type of interest is not specified
in any problem, the problem will be
solved using the Bankers Rule or
ordinary interest in actual time.
EXAMPLES
7. For 209 days, what would be the interest if
Gretel invested Php 43 500.00 at
(a) 5 % ordinary simple interest?
(b) 5 % exact simple interest?
(c) How much is the difference between these
two investments?
DO IT ON YOUR OWN
1. What final amount should Carol
pay for a loan of P8,200 at 14 %
simple interest she borrowed on
March 10, 2000 if she promised to
pay on November 25, 2000.
ANS: P9,043.92
PRESENT VALUE
where
F
P
1 rt
F = accumulated amount
r = simple interest rate in decimals
t = term of loan or investment
PRESENT VALUE
EXAMPLES
10. How much must Ivy invest today in order to have
P32,500 available in 4 years if money is worth 12% simple
interest
11. Find the present value of P19,200 for 120 days at 4 5/8
% simple interest.
12. Determine the present value of a 7-month 12.3% simple
interest loan if its final amount is P19, 345?
PRESENT VALUE
EXAMPLES
13. Find the present value of Dorys loan, which amounted
to P45,650.75 from January 5, 2008 to April 25, 2008 if the
money is worth 8.5% simple interest.
SIMPLE DISCOUNT
where
I a Fdt
F = amount of loan
d = simple discount rate in decimals
t = term of discount
SIMPLE DISCOUNT
Amount of loan is equal to the maturity
value of the loan.
Let proceeds P be the amount received
by the borrower after removing the
interest on the loan
To solve for the proceeds, we use the formula
P F Ia
P F 1 dt
SIMPLE DISCOUNT
Borrower must
pay back P2125
Maturity
Value
on the
maturity date
of the loan.
Proceeds
Borrower receives P1875.
Discount
Interest is P125.
Borrower must
pay back P2000
on theMaturity
maturity
Value
date of the loan.
SIMPLE DISCOUNT
EXAMPLES
14. George borrowed P160,000 from the DLSU Credit
Cooperative for a term of one year and 3 months. The
interest charged is 10% simple discount rate. Find the
proceeds of the loan.
15. Ms. Zamora needs P18,800 today. How much should she
borrow from MsD bank charging 16 % interest-in-advance
payable in 2 years?
16. How long should P25,000 be discounted to have proceeds
of P22,000 at 14% simple discount rate?
SIMPLE DISCOUNT
EXAMPLES
17. Determine the discount rate if P25,000 is the proceeds of
a loan of P35,000 due in 14 months?
18. At a simple discount rate of 12%, find the discount on
P6,550 borrowed on January 13, 2009 if the debt is repaid on
July 13, 2009.
To discount an amount is the same as finding the present
value (proceeds) of an amount at a given simple discount
rate.
18. Discount P18,000 from August 3, 2010 to May 4, 2011 with
a simple discount rate of 6.2%.
Exercises
1. Sam is saving up to buy the new PlayStation that will be
released in 2 years. It is expected to cost P35,000. How much
does Sam need to deposit in a savings account today that is
earning 6.45% per annum for him to have enough money in
order to purchase the PlayStation in 2 years?
2. Sam has P60,000 and cant decide which of the
following 2 offers are better. Bank ABC Ltd is currently
offering customers 6.50% simple interest for 7 months
and bank XYZ Ltd is offering 6.95% simple interest for 4
months. Which bank should Sam bank at?
3. Discount P18,000 from August 3, 2010 to May 4, 2011
with a simple discount rate of 6.2%.
I = Prt
I = 3000 x .07 x 10/12
I = P175
Borrower gets
3000
$__________.
I = Fdt
I = 3000 x .07 x 10/12
I = P175
Borrower gets
2825
$__________.