(MATH 01)
CHAPTER 5 MODULE
Definition
Computation of Simple Interest
Exact & Ordinary Interest and Maturity Value
Computation of Principal, Interest Rate and Time
Future Value, and Present Value in Simple Interest and
Compound Interest Environment.
Annual Percentage Yield - Applications
Definition
Interest is the amount paid or earned for the use of
money. Simple interest means that the interest is calculated only
once for the entire rate of the loan. At the end of the time period,
the borrower repays the principal plus the interest.
Simple interest means “the investment of money at the rate of r
in t years”
Stated as a Stated in
Percent Years
Let F be the final amount resulting from the investment of P for t years at the rate r, and I be the
interest at the end of t years ; F= P + I
= P + Prt
= P ( 1+ rt)
• A loan was made on April 4 and had a due date of July 18.
What was the number of days of the loan?
• Ryan McPherson borrowed $3,500 on June 15 at 11%
interest. If the loan was due on October 9, what was the
amount of interest on Ryan’s loan using the exact interest
method?
Definition
Compound interest means that the interest is calculated
more than once during the time period of the loan. When
compound interest is applied to a loan, each succeeding time
period accumulates interest on the previous interest in addition to
interest on the principal. Compound interest loans are generally
for time periods of a year or longer.
Simple versus
Compound
Interest
−𝑛𝑡
𝐹 𝑖
𝑃𝑉 = 𝑛𝑡 =𝐹 1+
𝑖 𝑛
1+
𝑛
𝑖𝑡
𝐹 = 𝑃𝑒
• Suppose you invested Php 20,000 at 3%
compounded continuously. How much will you have
from this investment after 6 years?
72𝐼
APR =
3𝑃 𝑛+1 +𝐼(𝑛−1)