Simple interest and simple discount dif

To differentiate simple interest and simple discount

1. Topic: Simple Interest and Simple Discount

2. Contents Learning Outcome 1. Differentiate simple interest for simple discount 2. Compute simple interest using actual or appropriate time

3. Enter title Definition of Terrns: I nterest. It is the payment for the use of a given sum of money over a period of time. Thus, at simple interest rate, the interest is computed on the original principal during the whole time at the stated interest rate.

4. Enter title Prophase investigation Discount. It is a deduction from the maturity value of an obligation when the obligation is sold before its due date of maturity. It is a percentage of the amount or maturity value and not a percentage of the principal.

5. Formulas

Simple Interest

1 = Prt Notations

I = Simple Interest

6. Derived formulas from Simple Interest formula P = I / r t r = I / p t t = I / p r

7. Design goals P Principal, Face Value, Present Value or Proceeds r rate of interest t = time (expressed in years or Fractional parts of a year) F = Final Amount I o = Ordinary Interest l e = Exact Interest D = Simple Discount d = discount rate

8. Final Amount

FP+1

F = P(1+rt)

Simple Interest based on F and P

1-F-P

Simple Interest formulas when t is expressed in days

Io= Pr no.of days /360

le= Pr no. of days /365

9. Simple Interest formulas when t is expressed between dates

lo = Pr Actual no. of days/360 (Known as the Banker's Rule)

lo = Pr Approximate no. of days/360

le = Pr Actual no. of days/365

Ie= Pr Approximate no. of days/365

10. Effect map Simple Discount

D=Fdt. d=d/Ft. F=D/dt
D=F-P. t=D/Fd

Present Value or Proceeds
P=F-D
or
P=F(1-dt)

11. Enter title Simple Interest rate equivalent to a given Simple Discount rate
r= d/1-dt

Simple Discount rate equivalent to a given Simple Interest rate
d=r/ 1+rt

12. Enter title To discount F for t years at simple discount rate d, use D=Fdt then P=F-D At simple interest rate r, use P=F/1+rt

13. Enter subtitle Illustrative Problems

1. Mary Grace borrowed P5,000 from Pearl on March 23, 1995 and promised to pay the principal and simple interest at 9% to discharge the dept on December 18, 1995. What amount should be paid on the maturity date?

Solution:

14. In this workbook, use the Bankers Rule in finding simple interest between dates unless otherwise directed.

Actual no. Of days (use table 1)

15. 12/18 = 352

3/23 = 82/270 days

Simple Interest by the Banker's Rule

Io= pr Actual no. of days /360

= (P5,000) (.09)270/ 360

= P337.50

Amount to be paid on maturity date
F=P+1 = P5,000+ P337.50 = P5,377.50

16. Activity 1

Mr. Tan borrowed P6,000 from Tony on February 28, 2019 and promised to pay the principal and simple interest at 10% to discharge the dept on December 13, 2019. What amount should be paid on the maturity date?