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Money – Time Relationships (Simple Interest)Interest (for the borrower)-The amount of money paid for the use of borrowed capitalInterest (for the lender)-the income produced by the money which he/she has lentSimple Interest-the interest to be paid is directly proportional to the length of time the amount or principal is borrowed-calculated using the principal only ignoring any interest that had been accrued in preceding periodsPRINCIPAL –the amount of money borrowed and on which interest is chargedRATE OF INTEREST – amount of money earned by one unit of principal during a unit time or one interest periodcenter8255I = Pin00I = PinI = total interest earned by the principalP = amount of the principali = rate of interest expressed in decimal formn = no. of interest periodsTotal amount to be paid (F) after n interest periods:F = P + I = P + Pincenter123825F = P (1 + in)F = P (1 + in)Ordinary Simple Interest-computed on the basis of one banker’s year(1 banker’s year = 12 months, each month consisting of 30 days = 360 days)Exact Simple Interest-based on the exact no. of days in a year (365 – ordinary year, 366 – leap year)-leap years are those which are exactly divisible by 4, but excluding the century years (e.g. 1800, 1900, 2000)Ex: Determine the ordinary simple interest on P10,000 for 9 months and 10 days if the rate of interest is 12%.Solution:Total no. of days = 9(30) + 10 = 280 daysI = ?; P = 10,000, i = 12%I = PinI = (10,000)(0.12)(280/360) = P933.33 (answer)Ex. Determine the a. ordinary simple interest & b. exact simple interest on P5,000 for the period from Jan 15 to Jun 20, 2011, if the rate of simple interest is 14 %.Solution:2011 is not a leap year.Jan 15 – 31 = 16 days (excluding Jan 15) Feb = 28 days Mar = 31 daysApr = 30 daysMay = 31 daysJun (1 – 20) = 20 days (including June 20) Total = 156 daysOrdinary simple interest: I = Pin = (5,000)(0.14)(156/360) = P303.33 (answer) b. Exact simple interest: I = (5000)(0.14)(156/365) = P299.18 (answer) Exercise Problem: Determine the exact & ordinary simple interest on P1200 for the period from Jan 16 to Nov. 26 2012 if the rate of interest is 24%.Answer: exact simple interest = P247.87; ordinary simple interest = P252.00 ................
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