SImple Interest
Summary
TLDRThe video script discusses financial management, focusing on calculating simple and compound interest, sinking funds, and amortization. It defines key terms like interest rate, principal, and present value. The formula for simple interest (P * R * T) and future value (P * (1 + R * T)) is explained, with examples provided. The script guides viewers through step-by-step calculations for each concept, emphasizing the importance of understanding financial calculations in managing finances.
Takeaways
- 📚 The discussion is about financial management, focusing on understanding and calculating simple and compound interest, sinking funds, and amortization.
- 💼 Interest is the additional amount that a borrower must pay, calculated as a percentage of the principal amount borrowed.
- 💵 The principal or present value is the initial amount borrowed from a bank or another individual.
- 🔢 The formula for simple interest is I = P * R * T, where I is interest, P is principal, R is the annual interest rate, and T is the time in years.
- 📅 Time can be expressed in days, months, or years, with adjustments made to the formula accordingly.
- 🌐 The future value or maturity value of a loan includes both the principal amount and the interest accrued.
- 💻 To calculate the total amount to be paid back, you can either add the interest to the principal or use the formula FV = P * (1 + R * T).
- 💼 The example provided involves an employee borrowing $60,000 at a 12% annual interest rate for seven months, requiring calculation of both interest earned and total amount to be paid.
- 💻 Another example involves calculating the total repayment amount for a loan of $3,000 at a 9% interest rate over four years.
- 📝 Assignments are given to apply these concepts, with deadlines for submission outlined for the next discussion.
Q & A
What is the main topic discussed in the transcript?
-The main topic discussed is the nature of financial management, specifically focusing on calculating simple interest, compound interest, sinking funds, and amortization.
What is the definition of 'interest' in the context of the transcript?
-In the transcript, 'interest' is defined as the additional amount that a borrower needs to pay for the money borrowed.
What is the difference between 'interest' and 'interest rate' as per the transcript?
-The 'interest' is the actual amount to be paid on a loan, while the 'interest rate' is the percentage rate at which interest is calculated, not the interest itself.
How is the principal or present value defined in the transcript?
-The principal or present value is the amount of money borrowed from the bank or another individual, such as the PHP100,000 mentioned in the example.
What is the formula for calculating simple interest according to the transcript?
-The formula for simple interest is I = P * R * T, where I is the interest, P is the principal value, R is the interest rate per year, and T is the total number of years.
How does the transcript suggest calculating interest if the time period is given in days?
-If the time period is given in days, the transcript suggests adjusting the calculation by dividing the number of days by 365 for ordinary simple interest or by 366 for exact simple interest.
What is the formula to calculate the future value or maturity value of a loan according to the transcript?
-The formula to calculate the future value or maturity value is FV = P * (1 + R * T), where FV is the future value, P is the principal amount, R is the interest rate, and T is the time.
In the example provided, how much interest would an employee earn if they borrowed $60,000 for seven months at an interest rate of 12% per year?
-The employee would earn an interest of $4,200, calculated as $60,000 * 12% * (7/12).
What is the total amount the employee has to pay after 7 months in the example from the transcript?
-The total amount the employee has to pay after 7 months is $64,200, which includes the principal amount of $60,000 and the interest of $4,200.
What is the future value of the money borrowed by Raquel if she borrowed $3,000 at 9% interest for 4 years, as per the transcript?
-The future value of the money borrowed by Raquel is $3,806, calculated using the formula P * (1 + R * T), which is $3,000 * (1 + 0.09 * 4).
What are sinking funds and how are they mentioned in the transcript?
-Sinking funds are a type of financial arrangement where money is set aside at regular intervals to repay debt or to replace assets at the end of their useful life. The transcript mentions that they will be discussed in a future session.
Outlines
📚 Introduction to Financial Management
The script introduces the topic of financial management, emphasizing the importance of understanding key financial terms and concepts. It outlines the objectives of the discussion, which include learning how to calculate simple interest, compound interest, sinking funds, and amortization. The paragraph begins by defining 'interest' as the additional amount a borrower must pay, and 'principal' or 'present value' as the amount borrowed. It then moves on to explain the formula for calculating simple interest, which is the product of the principal, the annual interest rate, and the number of years. The script also discusses how to adjust the formula for different time periods such as days or months, and how to calculate the future value or maturity value of a loan by adding the principal amount and the interest.
💼 Calculating Simple Interest and Future Value
This paragraph delves into the practical application of calculating simple interest and future value using a given formula. It provides an example of an employee who borrows $60,000 at a 12% annual interest rate for seven months. The script guides through the process of converting the annual interest rate to a decimal, adjusting the time period from months to years, and then calculating the interest earned using the formula I = P * R * T. The result is then added to the principal amount to find the total amount the borrower must pay. The paragraph also touches on the concept of future value, explaining how to calculate it using the formula FV = P * (1 + R * T), and applies this to the example given.
💻 Applying Formulas to Calculate Loan Repayments
The final paragraph presents another example to illustrate the application of financial formulas. It discusses a scenario where a person named Raquel borrows $3,000 at a 9% interest rate for 4 years to buy a computer. The focus is on calculating the future value of the loan, which includes both the principal amount and the interest. The script explains the process of converting the interest rate to a decimal and multiplying it by the time in years to find the total amount owed. It also mentions upcoming discussions on compound interest and annuities, suggesting a continuation of the financial management series.
Mindmap
Keywords
💡Financial Management
💡Interest
💡Principal
💡Simple Interest
💡Compound Interest
💡Sinking Funds
💡Amortization
💡Interest Rate
💡Future Value
💡Maturity Value
💡Annuity
Highlights
Introduction to financial management and its objectives
Explanation of the terms 'interest', 'principal', and 'present value'
Formula for calculating simple interest
Adjusting the interest rate from percentage to decimal
Conversion of time periods from days to years for interest calculation
Calculating the future value or maturity value of a loan
Example problem: Calculating interest earned and total amount to be paid for a loan
Step-by-step calculation of simple interest using the formula
Explanation of how to find the total amount to be paid including principal and interest
Using the future value formula to calculate the total amount to be paid
Example of calculating the future value of a loan for purchasing a computer
Conversion of annual interest rates to decimal for calculation purposes
Explanation of how to handle time periods in years for interest calculations
Assignment of a problem to calculate simple interest and total amount to be paid back
Upcoming discussion on compound interest
Upcoming discussion on annuity
Conclusion of the session and announcement of next discussion
Transcripts
Okay Hello Good day sa lahat So ito yung
topic natin about the nature of
financial
management so ito yung mga objectives
natin wherein kailangan nating mauss at
the end of the discussion specifically
we need to calculate or we have to learn
on how to calculate simple interest and
comp interest then also we have to
determine or we have to
an sinking funds and
amortization Okay so before tayo
mag-start Let us have these terms muna
let's identify these terms kasi
kailangan natin ito first we have
interest pag sinabi nating interest ito
yung additional or ito yung amount na
kailangang bayaran ni
borrower um pag sinabi nating amount na
kailangang bayarin nier ito yung kumbaga
tubo nung hiniram ni ni borrower or ni
deor Like for example um nanghiram
si si detor or si borrower sa bank ng
php100,000
with an interest rate of
10% So yung 10% ng
Php1 na that is the interest no the 10%
is not the interest but the interest
rate
Okay then We also have the principal or
present value pag sinabi nating
principal or present value ito yyung
pera na hiniram ni borrower or ni deor
from the bank or From Another individual
doun sa example natin kanina na let's
say um nanghiram si borrower or si deor
sa bank ng php100,000
that php100,000 is the amount
or is the principal or the present value
na hiniram ni borrower from the bank
Okay so let's move on to the very basic
first topic which is ang simple
interest simple interest In order for us
to get the interest or to solve for the
interest we have to follow formula is
interest equ
value or the present value times the
rate per year or the interest rate times
the total number of years which is
P So if yung numbers natin was
represented by days Like for example no
nanghiram ka ng
100,000 sa bank for na kailangan mong
bayaran for um 150 days so kapag sinabi
nating days we need to follow these two
no Kapag It's Over
365 we are looking for this ordinary
simple interest but if we want to follow
366 then we are looking for the exact
simple interest so there There are some
cases
wherein per month naman yung T natin
diyan no if that's the case ang
kailangan ng nating gawin is um we get
the months Like for example for six
months then we have to divide It by 12
because in one year we have 12 months I
hope you got the logic behind that Okay
so How
about if we want to find the future
value or the maturity value Magkano ba
yung babayaran ni borrower or ni detor
in the future no included na ung
principal amount ung amount na hiniram
niya and then yung interest so ito lang
yung formula niya So if you already have
the principal amount in the interest you
can just add those two but if you don't
have it yet you can use the formula p
Tim 1 plus the interest rate times the
time Okay so yun lang follow lang natin
yung mga formulas
here so let's apply these formulas to
some of the word
problems so we have here an example so
an employee borrows $60,000
for seven months at an interest rate of
12% per year so we are asked to find the
interest earned and the total amount the
borrower or the employee has to pay
after 7 months So In order for us to
solve this all we have to do is to
um plug in all
our values
here of course we can say um that or we
need to determine kung ano yung mga
kailangan natin Ano yung given So yung
given natin
first is ang principal
value let's denote that as p which is
equal to php6,000
or dollars then for our interest rate
naman or R is equivalent to
12% we need to convert this into decimal
point how to convert this all you have
to do is to divide 12 by 100 so that is
12 div by 100 so that is equal to
0.1 that is our interest rate next is
how many years or how long na ba
kailangan niyang bayaran yung kanyang
utak so nakalagay dito yung our t is equ
to 7 months Okay 7
months so we need to express this into
years so magiging 7 / 12 okay that's why
we have all of these here so let's plug
in the values in our formula I is equ to
prt or the principal value times the
rate times the time so that our
principal value is $60,000
our interest rate is 12%
or1 times 7 months over 12 months So if
we're going to calculate this now we can
do stepbystep
calculation first things first we can
get the product of
60,000 and 12 12 so that will be
6,000
Tim 12 so 60,000 Tim 122 is Actually
equal
to
7,200 now we got the
7,200 uh what we need to do next is to
multiply It by 7 / 12 So um times 7 / 12
so that is equal
to
4,200 So if you can see the same lang po
yung nakuha natin na value Okay so now
no since we already have our interest We
also have our principal amount which is
$60,000
ang kailangan na lang nating gawin is to
add them so bale um to get the total
amount he has to pay at the end of the
7even months after 7 months all we have
to do is to add
60,000
plus our interest which is
4,200 so that is equal to 64,000
20000 So if you can notice the same lang
po Iyung ating Kuha na value however
dito kasi what we followed was the
formula which is a future value is equ
to p * 1 + rt Okay so sinunod kasi natin
yan that's why But if you already have
your interest and your principal amount
pwede mo namang i-add na lang yung
dalawa but if not yet it would be
convenient to use the formula na future
value times p is equ to p * 1 +
rt
Okay so another example here ha so to
buy a computer orel
borrowed $3,000 at 9% interest for 4
years so The question is how much money
did she have to pay back So if ito yung
question na we are per mean to if if you
try to notice this sentence here or
statement How much money did she have to
pay back okay meaning we are looking we
are not just looking for the interest
but instead we are looking for the
future value of um the money borrowed by
Raquel Okay so we have here now let's
use this formula But if you want to
solve you for the interestes can
Actually use this one okay but let's try
to use the formula for the future value
of the Uh future value Okay so that will
be p or the principal amount times 1 +
rt so we all know that our
p is equal to Php3,000 or our um present
Val present value or principal amount
next um constant na po itong one dito
Don't worry about that constant na po
yan then our interest rate is equal to
um
9% or in decimal that is
0.09 then for our time is equal to 4
years um maybe you would wonder Bakit 4
lang sir not 4 / 12 remember no in years
na po ito gagawin lang po natin na
mag-over 12 or over 366 or 365 if and
only
if um we are looking for like months no
ang given natin is months and ang
days So if we try to solve this one so
we have balik tayo dito we have 3,000
that is our principal amount constant
ang 1 plus 09 * 4 Okay do the math now
since um you have your calculators naman
over there you get an amount of
080 Okay so now let's skip this one so
now let's have this example Now what I
want you to do Everyone is to answer the
following okay if nakaabot ka sa video
na to So I want you to um answer A and B
and and write it on your activity
notebook deadline will be next
week so This is our part
one meron pa tayong part two about
compound interest part 3 about
annuity so Dito lang muna no see you on
Our next discussion bye
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