2. Copyright © 2008 Pearson Education Canada7-1 Chapter 7 Simple Interest Contemporary Business Mathematics With Canadian Applications Eighth Edition S. A. Hummelbrunner/K. Suzanne Coombs PowerPoint: D. Johnston

3. Copyright © 2008 Pearson Education Canada7-2 Objectives After completing chapter seven, the student will be able to: Calculate simple interest. Compute principal, interest rate, and time. Find the future value using simple interest. Find the present value using simple interest. Compute equivalent or dated values for specified focal dates.

4. Copyright © 2008 Pearson Education Canada7-3 Transactions Involving Simple Interest Term deposits and other short-term investments Canada savings bonds Line of credit Credit card transactions Purchases on credit from vendors Short-term loans

5. Copyright © 2008 Pearson Education Canada7-4 Interest Rent charged for use of money

6. Copyright © 2008 Pearson Education Canada7-5 Calculation of Simple Interest

7. Copyright © 2008 Pearson Education Canada7-6 Simple Interest Is Related to

8. Copyright © 2008 Pearson Education Canada7-7 Can You Calculate Simple Interest?

9. Copyright © 2008 Pearson Education Canada7-8 Calculating P, r, t Using I = Prt

10. Copyright © 2008 Pearson Education Canada7-9 Tool for Remembering Various Forms of I = Prt

11. Copyright © 2008 Pearson Education Canada7-10 Computing Future Value S = Future Value or Maturity Value S = Principal + Interest S = P + Prt S = P(1 + rt) S = 10,000(1 +.065 x3) = 11950

12. Copyright © 2008 Pearson Education Canada7-11 Future Value at Simple Interest

13. Copyright © 2008 Pearson Education Canada7-12 Computing Present Value

14. Copyright © 2008 Pearson Education Canada7-13 Can You Calculate Present Value?

15. Copyright © 2008 Pearson Education Canada7-14 Equivalent or Dated Values

16. Copyright © 2008 Pearson Education Canada7-15 Choosing Between Finding S and P Select a focal date or comparison date. If the due date falls before the focal date, find the future value by using S = P(1+rt). If the due date falls after the focal date, find the present value P = S/(1+rt).

17. Copyright © 2008 Pearson Education Canada7-16 Equations of Values at Focal Date

18. Copyright © 2008 Pearson Education Canada7-17 Can You Calculate the Equivalent Value Today of the Following Two Scheduled Payments?

19. Copyright © 2008 Pearson Education Canada7-18 Equivalent Value Solution

20. Copyright © 2008 Pearson Education Canada7-19 Finding Equivalent Payment

21. Copyright © 2008 Pearson Education Canada7-20 Solution for Equivalent Payment

22. Copyright © 2008 Pearson Education Canada7-21 Loan Repayments Loans by financial institutions to individuals are usually repaid by blended payments i.e. payments that include principal and interest. To repay the loan the sum of the present values of the periodic payments must equal the original principal. This is called the Valuation Principle.

23. Copyright © 2008 Pearson Education Canada7-22 Summary Simple interest--The interest is always calculated on the original principal.