NOTRE DAME OF DADIANGAS UNIVERSITY ENGINEERING ECONOMY
COLLEGE OF ENGINEERING ARCHITECTURE AND TECHNOLOGY
MODULE 3: Simple Interest F=P+I
This module introduces the Time Value of Money F=P(1+rt)
(TVM) using Simple Interest as the foundational concept.
Students will learn why money changes value over time, how 3. Present Value
simple interest is computed, and how it applies to real financial 𝐹
P=
and engineering decisions such as loans, savings, and short- 1+𝑟𝑡
term investments.
Objectives: Sample Problems:
1. Define simple interest and explain its significance in 1. What is the annual rate of interest if P265 is earned in
economic decision-making. four months on an investment of P15, 000? 5.3%
2. Solve problems involving simple interest. 2. A loan of P2, 000 is made from January 1 to January
3. Analyze the impact of simple interest in real-world 31 the following year, at a simple interest of 20%. What
economic scenarios. is the future amount is due at the end of the loan
Key Definitions and Terms period? P2,433.33
3. If you borrow money from your friend with simple
Time Value of Money (TVM) - The principle that interest of 12%, find the present worth of P20,000,
money available today is worth more than the same which is due at the end of nine months. P18,348.62
amount in the future due to its earning potential. 4. Determine the exact simple interest on P5, 000 for the
Simple Interest - Interest calculated only on the period from Jan.15 to Nov.28, 1992, if the rate of
original principal, not on accumulated interest. interest is 22%. P955.74
Principal (P) - The original amount of money invested 5. Bogs is evaluating products from his business. He
or borrowed. wants to invest P1,000. Product “A” pays 1.835%
Interest (I) - The additional amount earned or paid for interest at the end of 24 months. Product “B” pays
the use of money. 0.925% interest at the end of 12 months. How much
Interest Rate (r) - The percentage of the principal more interest will he earn with Product “A”? P27.45
charged or earned per time period.
Time (t) - The length of time the money is borrowed or
invested, usually in years. Seatwork:
o t = 360 days (banker’s rule)
o t = 365 or 366 (leap year) 1. Find the simple interest when P500 is invested at 6%
Future Value (F) - The total amount of money for 3 years
accumulated after interest is added. 2. Find the simple interest when P200 is invested at 7%
for 4 years
Why do banks rarely use simple interest for long-term 3. Find the simple interest when P100 is invested at 9%
loans? for 4 years
4. Find the simple interest when P600 is invested at 9%
Significance of Simple Interest in Economic Decision- for 4 years
Making 5. Find the final amount when P9500 is invested at 10%
Simple interest is commonly used in: simple interest for 5 years
6. Find the final amount when P11500 is invested at 9%
Short-term loans simple interest for 3 years
Promissory notes 7. Find the final amount when P3500 is invested at 9%
Trade credits simple interest for 2 years
Informal lending agreements 8. Find the final amount when P28500 is invested at 9%
Some government penalties and delayed payments simple interest for 2 years
9. Find the final amount when P34000 is invested at 7.8%
Simple Interest Formulas simple interest (p.a.) for 16 months
10. Find the final amount when P9000 is invested at 5.3%
1. Interest Earned
simple interest (p.a.) for 17 months
I=Prt
2. Future Value (Maturity Value)