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Math of Investment - Interest methods

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Math of Investment - Interest methods
S21
Lleva, Aldwin G.
BSACCTY-1B

SAQR #4

Interest
Method

Definition/Background/
Applicability
Who Uses them
Related Formulas & Equivalent Meaning of Symbols
Sample Problem + Solution
Sources of Reference, Info or Book used

Principal/
Proceeds +
Present Value
Interest
Amount =
Sum/Maturity Value
Future Value

A. Simple Interest Method

A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate by the principal by the number of periods.

P =Principal
I =Interest
R =Rate
T =Time(in years)

I =Interest Amount
P =Principal
R =Rate
T =Time

M =Maturity Value
P =Principal
I =Interest
R =Rate
T =Time

₱8700.00 at 3.25% for 3 years

I =PRT
I =(8700)
(0.0325)(3)
I = ₱848.25

http://www.investopedia.com/terms/s/simple_interest.asp

Math Of Investment (Calculator-Based) by Zorilla, Partible, Esller, Mendoza, Bansa, Apuyan

B. Discount Interest Method

The interest rate charged to commercial banks and other depository institutions for loans received from the Federal Reserve Bank’s discount window.

Pr = Proceeds
M = Maturity Value
B = Bank Discount

B = Bank Discount
D = Discount Rate
T = Time (in years)

M = Maturity Value
Pr = Proceeds
B = Bank Discount
D = Discount Rate
T = Time

M = ₱32000
D= 10%
T= 1.5 years

B=MDT
B = (32000)(0.10)(1.5)
=₱4800

http://www.investopedia.com/terms/d/discountrate.asp

Math Of Investment (Calculator-Based) by Zorilla, Partible, Esller, Mendoza, Bansa, Apuyan

C. Add-on Interest Method

The interest rate charged to commercial banks and other depository institutions for loans received from the Federal Reserve Bank’s discount window.

P =Principal
I =Interest
R =Rate
T =Time(in years)

I =Interest Amount
P =Principal
R =Rate
T =Time

M =Maturity Value
P =Principal
I =Interest
R =Rate
T =Time
₱5000 at
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