4 objectives At the end of this topic, students should be able to: Find the simple interest and amountFind exact and ordinary interestSolve problems involving finding time, simple interest rate and principal
5 Definition SIMPLE INTEREST COMPOUND INTEREST Interest (I ) – the fee charged for having the use of money. when you get a loan from a bank, the bank charges you interest for using its money. If you invest your money in a bank, the bank pays you interest for using your money.SIMPLE INTERESTCOMPOUND INTEREST
6 Simple interest (I) Principal (P) interest that is paid solely on the principal.With simple interest, the interest is not reinvested, so the interest earned each period only on the original principal.Principal (P)the total amount of money borrowed or invested.
7 FormulaeThe simple interest, I for a principal, P for t years at an annual rate , r is given by the formula:I = PrtI = simple interest (amount)r = simple interest rate per yeart = time or term in yearsP = principal (present value)
8 Therefore, the amount, S can be calculated by using the formula S = P + I(principal + interest)S = P(1 + rt)
9 Example 1Ahmad deposited RM1000 in a bank at 8% per annum for three years period. Find the amount of simple interest that will be obtained by Ahmad.
10 Solution year Principal (P) Interest (I) Future amount S = P + I 1 1000802108031160
14 Example 3 How long will it take for a sum of money to double at a simple interestrate of 5% per year?
15 Ordinary interest (approximate time) Exact interestInterest is calculated based on 365 days per year or 366 days for the leap yearOrdinary interest (approximate time)Interest is calculated based on 360 days per year. It is considered that there are 30 days for a month.
16 Example 4 Compute a) exact interest and b) ordinary interest on RM 2000 at 8% for 175 days
18 Example 5On 1st January 2008, Hidayat saved RM1200 in an account that pays 8.6% per annum simple interest. Three years later, he added another RM500 into the account. Find the amount in his account on 1st January 2013.
20 Example 6A certain sum of money is invested now. This investment will be worth RM5500 after 15 months and RM5800 after 24 months. Find the original principal and the simple interest rate that was offered.
26 Example 9Zamri needs RM6000 in three years time. Now, he saves RM3000 in an account that pays 7% per annum simple interest. Find the amount that he must save two years from now so that he can accumulate the RM6000.