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Simple Interest 2023-1

This document discusses engineering economics and introduces concepts related to interest and the time value of money, including simple interest, interest rates, principal, discounts, and formulas. It provides examples of simple interest rate calculations for loans with different terms and interest rates.

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Kim jhoros Briones
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31 views14 pages

Simple Interest 2023-1

This document discusses engineering economics and introduces concepts related to interest and the time value of money, including simple interest, interest rates, principal, discounts, and formulas. It provides examples of simple interest rate calculations for loans with different terms and interest rates.

Uploaded by

Kim jhoros Briones
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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CE 213 – ENGINEERING

ECONOMICS
INTRODUCTION

Engineering economy is the analysis and evaluation of


the factors that will affect the economic success of
engineering projects to the end that a recommendation
can be made which will insure the best use of capital.
I. INTEREST AND MONEY-TIME
RELATIONSHIP

Interest
• is the amount of money paid for the use of borrowed capital or the
income produced by money that has been loaned.
• The amount of money paid for the use of money is called the capital
for a certain period of time.
SIMPLE INTEREST

• the interest to be paid which is proportional to the length of time


the principal is used.
• In practice, simple interest is paid on short-term loans in which the
time of the loan is measured in days.
• Principal – the amount of money used on which interest is charge.
• Rate of Interest – the amount earned by one unit of principal
during a unit of time.
• Ordinary Simple Interest – computed on the basis of 12 months
0f 30 days each or 360 days a year.
• 1 interest period = 360 days
SIMPLE INTEREST

• Exact Simple Interest – based on the exact number of days in a year,


365 days for ordinary year and 366 days for a leap year.
• 1 interest period = 365 or 366 days.
Other terms:
• Discount – is the difference between the future worth and its present
worth.
• Rate of Discount – the discount on one unit of principal per unit of
time.
SIMPLE INTEREST
• FORMULAS FOR SIMPLE INTEREST
• 𝐼 = 𝑃𝑟𝑡
• 𝐹 =𝑃+𝐼
• 𝐹 = 𝑃 + 𝑃𝑟𝑡
• 𝑤ℎ𝑒𝑛 𝑡 = 1 𝑎𝑓𝑡𝑒𝑟 𝑜𝑛𝑒 𝑦𝑒𝑎𝑟 , 𝐹 = 𝑃 (1 + 𝑟)
• Where: 𝐼 = interest
• 𝑃 = principal
• 𝑛 = number of interest periods
• 𝑖 = rate of interest in decimal
• 𝐹 = total amount
SAMPLE PROBLEMS

1. A man borrowed 𝑃2,000 from a bank and promise to pay the amount in
one year. He received only the amount of 𝑃1,920 after the bank collected
an advance interest of 𝑃80.00. What was the rate of discount and the
rate of interest that the bank collected in advance?
2. A bank charges 12% simple interest on a 𝑃300.00 loan. How much will
be repaired if the load is paid back in one lump sum after three years?
3. A deposit of 𝑃110,000 was made for 31 days. The net interest after
deducting 20% withholding tax is 𝑃890.36. Find the rate of return
annually.
4. 𝑃5,000 is borrowed for 75 days at 16% per annum simple interest. How
much will be due at the end of 75 days?
SAMPLE PROBLEMS

1. A man borrowed 𝑃2,000 from a bank and promise to pay the amount in
one year. He received only the amount of 𝑃1,920 after the bank collected
an advance interest of 𝑃80.00. What was the rate of discount and the
rate of interest that the bank collected in advance?
• Rate of interest (i)
• A bank charges 12% simple interest on a
𝑃300.00 loan. How much will be repaired if the load is
paid back in one lump sum after three years?
• A deposit of 𝑃110,000 was made for 31 days.
The net interest after deducting 20%
withholding tax is 𝑃890.36. Find the rate of
return annually.
• 𝑃5,000 is borrowed for 75 days at 16% per annum
simple interest. How much will be due at the end of 75
days?

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