Download presentation

Presentation is loading. Please wait.

Published byElizabeth Tuley Modified over 3 years ago

1
McGraw-Hill/Irwin ©2011 The McGraw-Hill Companies, All Rights Reserved Chapter 10 Simple Interest

2
10-2 1. Calculate simple interest and maturity value for months and years 2. Calculate simple interest and maturity value by (a) exact interest and (b) ordinary interest Simple Interest #10 Learning Unit Objectives Calculation of Simple Interest and Maturity Value LU10.1

3
10-3 1. Using the interest formula, calculate the unknown when the other two (principal, rate, or time) are given Simple Interest #10 Learning Unit Objectives Finding Unknown in Simple Interest Formula LU10.2

4
10-4 1. List the steps to complete the U.S. Rule 2. Complete the proper interest credits under the U.S. Rule Simple Interest #10 Learning Unit Objectives U.S. Rule -- Making Partial Note Payments before Due Date LU10.3

5
10-5 Maturity Value Maturity Value (MV) = Principal (P) + Interest (I) The amount of the loan (Face value) Cost of borrowing money

6
10-6 Simple Interest Formula Simple Interest (I) = Principal (P) x Rate (R) x Time (T) Stated as a Percent Stated in years Jan Carley borrowed $30,000 for office furniture. The loan was for 6 months at an annual interest rate of 8%. What are Jan’s interest and maturity value? SI = $30,000 x.08 x 6 = $1,200 12 MV = $30,000 + $1,200 = $31,200

7
10-7 Simple Interest Formula Simple Interest (I) = Principal (P) x Rate (R) x Time (T) Stated as a Percent Stated in years Jan borrowed $30,000. The loan was for 1 year at a rate of 8%. What is interest and maturity value? SI = $30,000 x.08 x 1 = $2,400 MV = $30,000 + $2,400 = $32,400

8
10-8 Two Methods of Calculating Simple Interest and Maturity Value Exact Interest (365 Days) Time = Exact number of days 365 Method 1 – Exact Interest Used by Federal Reserve banks and the federal government I = P X R X T $40,000 x.08 x 124 365 $1,087.12 MV = P + I $40,000 + $1,087.12 $41,087.12 Exact Interest (365 Days) On March 4, Peg Carry borrowed $40,000 at 8%. Interest and principal are due on July 6.

9
10-9 Two Methods of Calculating Simple Interest and Maturity Value Ordinary Interest (360 Days) Bankers Rule Time = Exact number of days 360 I = P X R X T $40,000 x.08 x 124 360 $1,102.22 MV = P + I $40,000 + $1102.22 $41,102.22 Ordinary Interest (360 Days) On March 4, Peg Carry borrowed $40,000 at 8%. Interest and principal are due on July 6. Method 2 – Ordinary Interest Bankers Rule

10
10-10 Two Methods of Calculating Simple Interest and Maturity Value Exact Interest (365 Days) I = P X R X T $15,000 x.08 x 98 365 $322.19 MV = P + I $15,000 + $322.19 $15,322.19 Ordinary Interest (360 Days) On May 4, Dawn Kristal borrowed $15,000 at 8%. Interest and principal are due on August 10. I = P X R X T $15,000 x.08 x 98 360 $326.67 MV = P + I $15,000 + $326.67 $15,326.67

11
10-11 Finding Unknown in Simple Interest Formula - PRINCIPAL Principal = Interest Rate x Time Tim Jarvis paid the bank $19.48 interest at 9.5% for 90 days. How much did Tim borrow using ordinary interest method? $19.48. P =.095 x (90/360) = $820.21.095 times 90 divided by 360. Do not round answer Interest (I) = Principal (P) x Rate (R) x Time (T) Check: 19.48 = 820.21 x.095 x 90/360

12
10-12 Finding Unknown in Simple Interest Formula - RATE Interest (I) = Principal (P) x Rate (R) x Time (T) Check: 19.48 = 820.21 x.095 x 90/360 Rate = Interest Principal x Time Tim Jarvis borrowed $820.21 from a bank. Tim’s interest is $19.48 for 90 days. What rate of interest did Tim pay using ordinary interest method? $19.48. R = $820.21 x (90/360) = 9.5%

13
10-13 Finding Unknown in Simple Interest Formula - TIME Interest (I) = Principal (P) x Rate (R) x Time (T) Check: 19.48 = 820.21 x.095 x 90/360 Time (yrs) = Interest Principle x Rate Tim Jarvis borrowed $820.21 from a bank. Tim’s interest is $19.48 for 90 days. What rate of interest did Tim pay using ordinary interest method? $19.48. T = $820.21 x.095 =.25.25 x 360 = 90 days Convert years to days ( assume 360 days)

14
10-14 U.S. Rule - Making Partial Note Payments before Due Date Any partial loan payment first covers any interest that has built up. The remainder of the partial payment reduces the loan principal. Allows the borrower to receive proper interest credits

15
10-15 U.S. Rule - Example Step 1. Calculate interest on principal from date of loan to date of first principal payment Step 2. Apply partial payment to interest due. Subtract remainder of payment from principal Joe Mill owes $5,000 on an 11%, 90-day note. On day 50, Joe pays $600 on the note. On day 80, Joe makes an $800 additional payment. Assume a 360- day year. What is Joe’s adjusted balance after day 50 and after day 80? What is the ending balance due? $5,000 x.11 x 50 = $76.39 360 $600 - 76.39 = $523.61 $5,000 – 523.61 = $4,476.39

16
10-16 U.S. Rule - Example Step 3. Calculate interest on adjusted balance that starts from previous payment date and goes to new payment date. Then apply Step 2. Step 4. At maturity, calculate interest from last partial payment. Add this interest to adjusted balance. Joe Mill owes $5,000 on an 11%, 90-day note. On day 50, Joe pays $600 on the note. On day 80, Joe makes an $800 additional payment. Assume a 360- day year. What is Joe’s adjusted balance after day 50 and after day 80? What is the ending balance due? $4,476.39 x.11 x 30 = $41.03 360 $800 - 41.03 = $758.97 $4,476.39 – 758.97 = $3717.42 $3,717.42 x.11 x 10 = $11.36 360 $3,717.42 + $11.36 = $3,728.78

Similar presentations

OK

Chapter 11 Promissory Notes, Simple Discount Notes, and the Discount Process Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin.

Chapter 11 Promissory Notes, Simple Discount Notes, and the Discount Process Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin.

© 2018 SlidePlayer.com Inc.

All rights reserved.

To ensure the functioning of the site, we use **cookies**. We share information about your activities on the site with our partners and Google partners: social networks and companies engaged in advertising and web analytics. For more information, see the Privacy Policy and Google Privacy & Terms.
Your consent to our cookies if you continue to use this website.

Ads by Google

Ppt on classification of resources and conservation Ppt on project spark Ppt on conservation of wildlife and natural vegetation cell Ppt on levels of organization in biology Ppt on business etiquettes training day cast Ppt on global marketing Ppt on acid-base titration problems Ppt on surface area and volume for class 9th Download ppt on caste system in india Ppt on personality development presentations