Topic 1:
Simple Interest and Discount
a. Simple Interest
b. Approximate & Actual Number of days
c. Ordinary & Exact Interest
d. Compound Interest
Module 2: 2hours and 30 minutes
Accumulation and Discount at Simple Interest
Learning Outcomes:
At the end of the module, students are expected to:
solve for simple discount;
understand the concept of simple discount
perform operations on simple discount related to simple interest
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Teaching – Learning Activity (Lesson Proper):
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** A video recording will be uploaded by the teacher.
A. Simple Discount
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In the Simple discount situation, there is an amount of money (Future Value) due
on a certain future date, usually within a year; the debtor can ask for paying in
advance and, if the creditor agrees with him, the money to be paid today Present
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Value) is less than the due capital; in fact the future value is subtracted by the Discount
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calculated in proportion to time and rate of discount.
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Lets start with a statement 1:
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If P57 is the discount on a loan of P1000 which is due at the end of one year, then
the discount rate is 57/1000 or d = 0.057. You will be receiving P1000 – P57= P943 which
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will be your principal amount.
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F (Amount to be paid)= P1000
Discount : Amount Deducted Right Away
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D(Discount)= P57
P(Amount to be received) = P943
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d (discount rate) = discount per year / F
What is the interest rate(r) and discount rate(d)?
Although Interest is Equal to the Discount, solving for the interest rate and discount rate
is different.
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a. As shown in the statement 1:
discount rate = Discount / Future Value or d=D per year/F
d = 57/(1000)(1year)
d = 0.57 per year
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List of Formulas You can use:
D= F-P or F=P+D or P=F-D
D= Fdt
F= D/dt, d=D/Ft, t=D/Fd
P = F(1-dt)
Ex. 1
You borrowed P15000 at 5% discount rate for 2years. What is the principal
amount that you are going to receive?
Step 1: Given
P=?
F=P15000
D=?
d=5%(in simple interest or discount the rate is always per year)
t=2 years
Step 2:
Substitute the given in the correct formula.
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(You need to analyze, what formula are you going to use.)
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Since I am looking for P i need to solve for D first.
D=Fdt
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D=P15000*.05*2
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D=P1,500
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Solve for P:
P=F-D
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P=P15,000-P1,500
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P=P13,500
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Or we can also use the formula: P=F(1-dt)
P=P15000(1-(.05*2)
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P=P13,500
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Ex. 2
Find the amount due at the end of 15 months whose present value is P2000 at 5%
simple discount.
Given:
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F=?
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P=P2000
d=5%
t=15months time must be per year
15months is 15/12 or 5/4 per year.
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P = F(1-dt)
P2000 = F (1-(.05)(15/12)
P2000 = F (1-(.0625)
P2000 = F (.9375)
P2000/.9375= F(.9375)/.9375
P2133.33 = F
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Simple interest and Simple Discount
Ex. 3
Given F=P1000 discounted for 9 months.
a. Find P given 8% simple interest rate.
b. Find P given 8% simple discount rate.
Solve for a. given 8% simple interest
At simple interest, with F=P10,000 , r=8%, t=9months or 9/12 per year
Use the equation: F=P(1+rt)
P1000= P(1+(.08)(9/12)
P943.40=P
Solve for b. given 8% simple discount
At simple discount, with F=P10,000 , d=8%, t=9months or 9/12 per year
Use the equation: P=F(1-dt)
P=P10,000(1-(.08)(9/12)
P=P940
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Enhancement activity
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Try to solve the following problem:
Given F=P1250 discounted for 2years.
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a. Find P given 12% simple interest rate.
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b. Find P given 12% simple discount rate.
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Answer a. =P1,008.65
Answer b. =P950
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Assessment
1. At 8% simple discount, find the present value(P) of P4000 which is due at the end of 4
months. What is the dicount?
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Given F=P1000 discounted for 9 months.
2. Find P given 8% simple interest rate.
3. Find P given 8% simple discount rate.
4. In having a discounted loan provided that you were given same rate for
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simple discount and simple interest, what will you prefer? Why?
Reference:
Mathematics of Investment (Heart, 1975)
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