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Bsce-2A Engr. Jaydee N. Lucero

This document discusses the concepts of simple interest, time value of money, and interest. It defines simple interest as interest calculated every period based solely on the principal. Compound interest is calculated every period based on principal plus interest from the previous period. The formula for simple interest is defined as I = Prt, where I is interest, P is principal, r is interest rate, and t is time period. It also discusses the differences between a banker's year and an exact year in calculating interest over time.

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Joshua Vino
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47 views

Bsce-2A Engr. Jaydee N. Lucero

This document discusses the concepts of simple interest, time value of money, and interest. It defines simple interest as interest calculated every period based solely on the principal. Compound interest is calculated every period based on principal plus interest from the previous period. The formula for simple interest is defined as I = Prt, where I is interest, P is principal, r is interest rate, and t is time period. It also discusses the differences between a banker's year and an exact year in calculating interest over time.

Uploaded by

Joshua Vino
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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Simple interest

BSCE-2A
Engr. Jaydee N. Lucero
Time value of money.
cash
The conjecture that there is greater benefit to flows
receiving a sum of money now rather than an
identical sum later.

now 1 year from now


measure Time
of interest
economic value of rate
worth money

deposit now withdraw after 1 year

time

Time value of money


Interest.
Interest is the manifestation of the time value of money. It is the amount to be paid from
borrowing capital. It is also the amount gained from lending capital.

gives money requests money receives money returns money

lender borrower lender borrower

principal interest

cash outflow cash inflow cash inflow cash outflow

Interest
Simple interest. Compound interest.
Interest is calculated every period based Interest is calculated every period based
solely on the principal. based on principal + interest of the
primarily used in short or informal previous period
transactions primarily used in long or formal
transactions

Types of interest
principal

interest
𝐼 = 𝑃𝑟𝑡 time period

interest rate

future value.
the value of money 𝐹 =𝑃+𝐼 present value.
the value of money
at a certain time in
at a certain time in
the future
the present

𝐹 = 𝑃(1 + 𝑟𝑡)
Interest rate 𝑟 and time period 𝑡 must be consistent to each other in time.

Simple interest
Banker’s year.
A year consisting of 360 days (12 months of 30 days each).
Exact year.
A year consisting of 365 days (non-leap year) or 366 days (leap year).

Determining leap years.


• If the year is not divisible by 4, then it is not a leap year.
• If the year is divisible by 4, and not divisible by 100, then it is a leap year.
• If the year is divisible by 100, and not divisible by 400, then it is not a leap year.
• If the year is divisible by 400, then it is a leap year.

Types of years
Thank you!

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