Chapter 1

Simple Interest
Learning Outcome
At the end of this chapter, students should be able to
 state the basic concept of simple interest
 calculate the simple interest, interest rate, interest period, principal, and dates of
investment/loan.
 calculate the present and future values of some investments/loan.
 use four concepts of calculating interest: exact simple interest, ordinary simple interest,
exact time and approximate time
 apply Banker’s Rule to some investments and loan problems.

1.0 Introduction
Interest can be defined in two ways:
1. Money earned when money is invested (ie: saving money in ASB, Unit trust ect)
2. Charge incurred when a loan or credit is obtained (ie: personal loan, car loan, housing
loan etc)
There are 2 types of interests, namely simple interest rate (flat rate) and compound interest. In
this chapter, we will focus on simple interest problems.

1.1 Simple Interest (I) Formula

Simple interest ( I ) is calculated based on the original principal (P) for the entire period of
investment or loan (t). The formula for a simple interest is
I =Pr t

where P = principal (original amount borrowed or invested)

r = rate of interest
t = term or time or period (in year)

Example 1.1
A business woman deposited RM10,000 in an account and a simple interest rate offered was
4.5%. Calculate the simple interest earned after 4 years.
Solution
4.5
Given P=RM 10 , 000 , r=4 .5 %= =0 . 045 and t=4 years.
100
I=Pr t=10000 ( 0 .045 )( 4 )
=RM 1800 . 00

Example 1.2
Eighteen months ago, Mr Davidson borrowed RM50 000 from Bank A which charged him 4%
simple interest. Calculate the amount of interest that he has to pay today.

Solution
18 3
Given P=RM 50 000 , r=0 . 04 and t= = .
12 2
I=Pr t=50000 ( 0 .04 ) (32 )
=RM 3000 . 00

1.2 Simple amount (S) Formula

Simple amount ( S ) is the sum of principal ( P ) and the interest earned ( I ) .
S=P+ I
Substitute I =Pr t ,
S=P+Pr t
S=P ( 1+rt )
Other terms used for simple amount are future value, accumulated amount or maturity value.

Example 1.3
RM20 000 is invested for 5 years and 8 months in a bank that offers a simple interest of 5% per
annum. Calculate the accumulated amount at the end of the investment period.

Solution
 8 17
Given P=20 , 000 , r=0. 05 and t=5 = .
12 3

[
S=P (1+rt )=20000 1+(0 .05 ) ( )]
17
3
=RM 25666 . 67

1.3 Present Value Formula ( P )

The present value is the value investment or loan before the maturity date. In simple interest, the
present value formula, P is

S
P= or S=P ( 1+rt )−1
(1+rt )

Example 1.4
Suzi took a personal loan with a simple interest rate of 8.5%. After 4 years and 9 months she has
to pay back RM35 809.66. Find the amount of the loan and the interest.

Solution
Let P= the amount of the loan
8 .5 9 19
r= =0 .085 , t=4 = and S=35809 .66
Given 100 12 4
S=P (1+rt )

(
35809 . 66=P 1+0. 085 ( ))
19
4
35809 . 66
P= =RM 25510 . 00
1 . 40375
Therefore, the interest, I is
I=S−P=35809 .66−25510 . 00
=RM 10 299 . 66
Example 1.5
Mary deposited RM1 900 into an account that earns r % simple interest. After 10 months, the
balance in her account was RM1947.50. Calculate the simple interest rate.

Solution
10 5
Given P=1 900 , t= = and S=1947 . 50 .
12 6
S=P (r +rt )

( 6 ))
1947 . 50=1900 1+r ( 5

5 1947 .50
1+ r=
6 1900
r =0 .03×100 %
= 3%
1.5 Concepts of Time in Computing Simple Interest
There are two concepts of time in calculating simple interest:
1) Exact Time: the exact or actual number of days between the two given dates.
2) Approximate time: the approximate number of days between the two dates by assuming
each month has 30 days.

Example 1.6
Find a) the exact number of days b) the approximate number of days from 15 March 2020 to
29 July 2020

Solution

a) Date Exact Time b) Date Approximate Time

15/3 – 31 31−15=16 15/3 – 30 30−15=15
1 /4 – 30/4 30 1 /4 – 30/4 30
1 /5 – 31/5 31 1 /5 – 30/5 30
1 / 6 – 30/6 30 1 / 6 – 30/6 30
1/7 – 29/7 29 1/7 – 29/7 29
Total days 136 Total days 134
The exact number of days and the approximate number of days between the two dates given are
136 days and 134 days respectively.

To convert the term in days to the term in years, the following are applied:
1) Ordinary simple interest: in calculating ordinary simple interest, we use 360 days per
year. In this case, the number of days is divided by 360.
2) Exact simple interest: use 365 or 366 days per year for interest calculation. In this case,
divide the number of days by 366 for leap year or divide by 365 for other years.

Four concepts of time ( t ) to calculate simple interest are:

1) Exact time and Exact simple interest:

I =Pr ( exact number of days
365 or 366 )
2) Exact time and Ordinary simple interest:
I =Pr ( exact
360
number of days
)
(also known as Banker’s Rule)

3) Approximate time and Exact simple interest:

I =Pr ( approximate number of days
365 or 366 )
4) Approximate time and Ordinary simple interest:
I=Pr ( approximate number of days
360 )
Example 1.7
RM1 000 was invested on 15 March 2020. If the simple interest rate offered was 10% per
annum, find the interest received on 29 July 2020 using:
a) exact time and exact simple interest
b) exact time and ordinary simple interest (Banker’s Rule)
c) approximate time and exact simple interest
d) approximate time and ordinary simple interest

Solution
The exact number of days and the approximate number of days calculated in Example 1.6 are
136 days and 134 days respectively.

Concept used Interest calculation

a) exact time and exact simple interest
I =1000 ( 0 .1 )( 136
366 )
=RM 37 . 16

I =1000 ( 0 .1 )(
360 )
b) exact time and ordinary simple interest 136
=RM 37 . 77

I =1000 ( 0 .1 )(
366 )
c) approximate time and exact simple 134
=RM 36. 61
interest

I =1000 ( 0 .1 )(
360 )
d) approximate time and ordinary simple 134
=RM 37. 22
interest

Example 1.8
A loan of RM 3 000 was made on 20 March 2018 at a simple interest rate of 6% per annum. Find
the simple amount on 14th June 2018 using Banker’s Rule.
Solution
6 exact number of days
P=3000 ,r = =0. 06 , t=
Given 100 366

Date Exact number of days

20 March - 31 March 31−20=11
1 April - 30 April 30
1 May - 31 May 31
1 June - 14 June 14
Total 86

S=P ( 1+rt )

(
=3000 1+0 .06 (86360 ))
=RM 3043 . 00
Example 1.9
On 27 July 2021, Sahar puts RM 2000 in a saving account that offers a simple interest rate of
2.5% per annum. Find the amount in her account on 1 November 2021 using Banker’s Rule.

Solution
2. 5
P=2000 ,r = =0. 025
Given 100
Date Exact number of days
27 July - 31 July 31−27=4
1 Aug - 31 Aug 31
1 Sept - 30 Sept 30
1 Oct - 31 Oct 31
1 Nov 1
Total 97

S=P ( 1+rt )

(
=2000 1+0 .025 (97360 ))=RM 2013 . 47
Example 1.10
On 12 February 2012, Anna invested RM 2000 in a bank and received an amount of RM 2040 on
23 June 2012. Calculate the simple interest rate that offered by the bank (use Banker’s Rule).

Solution

Given P=2000 , S=2040

Date Exact number of days
12 Feb – 29 Feb 17
1 Mar – 31 Mar 31
1 April – 31 Apr 30
1 May – 31 May 31
1 June – 23 June 23
Total 132
 S=P ( 1+rt )

2040=2000 1+ r
( ( )) 132
360

1+r (132 ) =
360 2000
2040

r(
360 ) 2000
132 2040
= −1
r =0 .054545
=5 . 45 %
Example 1.11
A sum of money was deposited on 3rd March 2014 in an investment fund which offered 7%
simple interest. On 12 June 2018, RM2 800 was withdrawn from the fund and the balance was
RM3827.65. Find the initial deposit using Banker’s Rule.

Solution
Date Exact number of days
3 Mar - 31 Mar 28
1 April - 31 April 30
1 May - 31 May 31
1 June - 12 June 12
Total 101

S=P ( 1+rt )

(
=P 1+0. 07
360 ))
(101 =1. 019638889 P

After the withdrawal, the balance is RM3827 .65

1 .019638889 P−2800=3827 . 65
P=RM 6500. 00
Example 1.12
Calculate the exact and ordinary number of days
a. From 12 February 2019 to 26 August 2019
b. From 8 February 2020 to 21 November 2020
c. From 19 November 2017 to 1 Mac 2017
d. From 20 April 2023 to 1 January 2023
Solution
a)
Month Exact number of days Ordinary number of days
Feb 28 – 12=14 30 –12=18
March 31 30
April 30 30
May 31 30
June 30 30
July 31 30
August 26 26
Total 193 194

b)
Month Exact number of days Ordinary number of days
Feb 28 – 12=14 30 – 12=18
March 31 30
April 30 30
May 31 30
June 30 30
July 31 30
August 26 26
Total 193 194

c)
Month Exact number of days Ordinary number of days
Nov 30-19=11 30 -19=11
 Dec 31 30
Jan 31 30
Feb 28 30
March 1 1
Total 102 102

d)
Month Exact number of days Ordinary number of days
April 30-20=10 30
May 31 30
June 30 30
July 31 30
August 31 30
Sept 30 30
Oct 31 30
Nov 30 30
Dec 31 30
Jan 1 1
Total 278 271

Example 1.13
Mr. Chong invests RM5000 in an investment fund for 2 years. At the end of the investment
period, his investment is worth RM 7245. Find the simple interest rate that is offered. [Sept
2014]
Solution
S=P ( 1+rt )
7245 =5 000 ( 1+r ( 2 ) )
7245
1+2 r=
5000
r =0 .2245×100 %
=22 . 45 %
Example 1.14
On 25 September 2020, Shana paid RM3 100 for her loan of RM3 000 made on a certain date.
The simple interest rate charged was 10%. Using exact time and exact simple interest, find
a. the term of the loan.
b. the date of the loan.

Solution
10
P=3000, S=3100, r= =0 . 01
a) 100
S=P ( 1+rt )

( ( ))
3100 =3000 1+0 .1
t
366
0 . 1 3100
t= −1
366 300
t=122 days
b)
Month Exact number of days
26 - 31 May 31-26
1-30 June 30
1-31 July 31
1-31 Aug 31
1-25 Sept 25
Total 122

The loan was made on 26 May 2020.

Example 1.15
On 15 January 2021, Hanny took a personal loan of RM8000 from a bank that charges a simple
interest rate of 11% per annum. Find the interest charged if she decides to settle the loan on 31
March 2021 using Banker’s Rule.
Solution
11
P=8000 ,r = =0 .11
100

Month Exact number of days

15 – 31 Jan 16
1 – 28 Feb 28
1 – 31 March 31
Total 75

I=Pr t
=8000 ( 0 . 11) (75360 )
=RM 183 . 33

Example 1.16
Harry plans to make a loan ABB Bank on 15 January 2011 that charges a simple interest of 12%
per annum. Find the amount of the loan if he decides to pay RM10 437.26 on 28 May 2011 using
approximate time and ordinary simple interest. (Mar 2012)

Solution
Month Approximate number of days
15 – 30 Jan 16
1 – 30 Feb 30
1 – 30 Mar 30
1 – 30 Apr 30
1 – 28 May 28
Total 134

Given S=10437. 26 , r =0 .12

 S=P ( 1+rt )

10437 .26 =P 1+0 . 12

( ( ))
134
360
10437 . 26
P=

( 1+0 . 12
360 ))
(134
=R M9 991. 00

Example 1.17
Suzy took a loan with a simple interest of 8.5%. After 4 years and 9 months she has to pay back
RM35 809.66. Find the amount of the loan. (March 2013)

Solution
9 15
Given S=35809 . 66 , r=0 . 085 , t=4 =
12 4
S=P ( 1+rt )

35809 .66 =P 1+0 . 085

( (154 ))
35809 . 66
P=

( 15
1+0 . 085
4 ( ))
=RM27 154 .24

Example 1.18
Yuna deposited RM10 000 at XYZ Bank with a simple interest rate of 7%. After 6 years she
added another RM5 500 into the same bank. Find the balance in the account and the interest
earned after 10 years from the first saving.
(March 2013)
Solution

0 6 10 t
10,000 RM5500 S
 S1
S2
S=S 1 +S2
= 10000 ( 1+0 . 07 ( 10 ) ) +5500 ( 1+0 . 07 ( 4 ) )
=RM24 040 . 00

I= S−P
=24040−( 10000+5500 )
=RM8540 . 00

EXERCISE
1. James took a personal loan of RM22,000 to pay his education fee. The bank charges him a
simple interest rate of 9.2%. if he has to pay back RM37,180, find the term of the loan.
(Oct 2012)

2. Emil has deposited a sum of money in Bank Rakyat and the balance in the account on 29 th
May 2011 was RM6,556.55. He was charged with a 5.8% simple interest. If he has kept the
money in the bank for 54 days, find the date he deposited the money and the original
amount he deposited in the bank using Banker’s Rule.
(Oct 2012)

3. On 15 January 2010, Hanim took a personal loan of RM8,000 from a bank that charges a
simple interest of 11% per annum. Find the interest charged if she decides to settle the loan
on 31 March 2010 using Banker’s Rule.
(March 2012)

4. Aisy plans to make a loan on the 15 January 2011 from Bank ACB that charges a simple
interest of 12% per annum. Find the amount of the loan if she decides to pay RM10437.26
on 28 May 2011 using ordinary time and exact simple interest.
(March 2012)
5. On 4 June 2010, Suhaimi saved RM2,000 in an account that offered simple interest rate
10% per annum. Find the amount in the account on 1 December 2010 using exact time and
exact simple interest.
(Oct 2010)
6. On 19 March 2010 Emma saved RM5,000 in an account that offered r% simple interest per
annum. If the interest obtained on 7 June 2010 was RM50, find

a) the exact time of the investment.

b) the value of r% using Banker's Rule.
 (Oct 2010)
7. Randy had saved RM5000 in an account that offered r% simple interest per annum on 20 th
March 2008. If the interest on 6 June 2008 was RM40, find the

a) exact time of the investment.

b) value of r using Banker's Rule.
(Apr 2010)
8. Four years ago, RM X was invested at a simple interest rate of 5% per annum. Today
RM2540 is withdrawn and the balance in the account is RM2600. Calculate the value of X.
(Apr 2010)
9. Two years after the first deposit, Amni's account had earned RM755.35 simple interest at a
rate of 8.5% per annum. What is the accumulated amount if she leaves the money in the
account for 5 more years?
(Oct 2010)
10. On 23 May 2009 Syamil took a loan of RM3500 from a local bank that charged r % simple
interest. Using the Banker's Rule, he settled the loan in 120 days at a total of RM3900. Find

a) the date he settled his loan.

b) the interest rate r.
(Oct 2010)
11. Five years ago, a sum of money was deposited in a savings account which gave a 10%
simple interest. The accumulated amount today is RM7,500.

a) How much is the initial saving?

b) How many years from today will the savings amount to RM9,000?
(Apr 2009)
12. Azhar invests RM2500 at 11.5% simple interest in a bank. He withdraws RM1000 from the
account 6 months later. How much is left in the account?
(Apr 2009)
13. On 15 May 2008, Aisyah saved RM4000 in an account which offered a simple interest rate
of 10% per annum. Find the amount in her account on 1st December 2008. (Use
approximate time, exact interest).
(Oct 2008)

14. On 30th June 2008, Faisal paid RM8200 for his loan of RM8000 made on a certain date. If
the simple interest rate was 5%, determine the term of the loan and the date of the loan
using Banker's Rule.
(Oc t2008)
15. A sum of money was deposited on 2 January 2017 in an investment fund which offered
10% simple interest. On 30 June 2017, RM12 499 was withdrawn from the fund. Find the
initial deposit using Banker's rule if the balance in the account was RM9 000 after the
withdrawal.
(Apr 2008)
16. Syamila saved RM2000 in an account for 2 years. The simple interest rate for the first year
was 8.5% per annum. However, after one year, the simple interest was changed to 4% per
annum. Calculate

a) the amount in the account at the end of the first year.

b) the total interest earned at the end of two years
(Apr 2008)
17. En. Hazman invested RM1040 into an account when he was 21 years old. The simple
interest rate was 9%. Find

a) the amount in the account when he is 30 years old.

b) his age when the money in the account amounted to RM2444.
(Oct 2007)

18. On 25th June 2007, Mawar paid RM5075 for her loan made on 14 th April 2007. If the loan
was charged a simple interest rate of 7.5% per annum, find the original loan.
(Oct 2007)
19. A loan was given out on 20 August 2018 at 9% simple interest. It was paid up on 31
December 2018 with a payment of RM9240.75. Find the loan amount using Banker's Rule.
(Apr 2007)
20. Saliza saved RM1000 in an account at 8.5% simple interest for a year. After 6 months the
interest rate was reduced to 7%.
a) Find the amount in the account at the end of the first six months.
b) What is the total interest earned at the end of the year?
(Apr 2007)
21. On 21 January 2005, Sam Shoppe invested RM 18000 into an investment scheme at r% per
annum interest rate. After 260 days, the investment amounted to RM18377. Find
a) the maturity date
b) the simple interest rate r% by using the Banker's Rule.
(Oct 2006)
22. On 10th February 2002, RM Y was invested at a simple interest rate of 6% per annum.
RM1350 was withdrawn on 10th February 2006 and the balance in the account was RM
5538.20. Calculate the value of Y.
 (Oct 2006)
Answer
1. 7.5 years 2. 5 April 2011; P = RM6500
3. RM183.33 4. RM10000
5. RM2098.63
6. a) 80 days
7. a) 78 days b) 4.5%
b) 3.69% 8. RM4283.33
9. RM7086.96
10. a) 20th September 2009
11. a) RM5000
b) (34.29%)
b) 3 years
12. RM1643.75
13. RM4214.21
14. 180 days, 2nd January 2008
15. RM20480.66
17. a) RM1882.40 16. i) RM2170

b) 36 ii) RM250

19. RM9000 18. RM5000

20. a) RM1042.50
21. a) 8th October 2005 b) RM77.50
b) 2.9% 22. RM5555