SImple Interest

Summary

The 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

00:00

📚 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.

05:03

💼 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.

10:03

💻 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.

Keywords

💡Financial Management

Financial management refers to the process of organizing and managing an individual's or organization's finances. In the video, financial management is the overarching theme, with a focus on understanding how to calculate interest and manage funds effectively.

💡Interest

Interest is the additional amount that a borrower pays for the use of money borrowed over a period. It is a cost of borrowing and a return on investment. In the script, interest is explained as the extra amount that needs to be paid by the borrower, such as the 10% interest on a PHP100,000 loan.

💡Principal

The principal is the initial amount of money borrowed or invested. It is the base amount on which interest is calculated. In the script, the principal is exemplified by the PHP100,000 borrowed from the bank.

💡Simple Interest

Simple interest is calculated on the principal amount only and does not take into account the accumulated interest from previous periods. The formula for simple interest is P*R*T, where P is the principal, R is the rate of interest per year, and T is the time in years. The script explains how to calculate simple interest using this formula.

💡Compound Interest

Compound interest is interest calculated on the initial principal, as well as on any accumulated interest from previous periods. It is not directly explained in the script but is mentioned as part of the upcoming discussion, indicating it's a more complex form of interest calculation.

💡Sinking Funds

A sinking fund is a reserve of money set aside for a specific purpose, such as repaying a loan or replacing equipment. The script mentions sinking funds as a concept that needs to be determined or learned, suggesting it's a strategy in financial management.

💡Amortization

Amortization refers to the process of paying off a loan by making regular payments over a set period. It is mentioned in the script as another financial concept to be learned, implying it's a method of managing debt repayment.

💡Interest Rate

The interest rate is the percentage of a loan that is charged as interest to the borrower. It is a critical factor in calculating the cost of borrowing. In the script, the interest rate is used to calculate the interest on a loan, such as the 12% interest rate on a $60,000 loan.

💡Future Value

The future value is the value of an investment or loan at a future date, including the principal and the interest earned. The script uses the formula P*(1+RT) to calculate the future value of a loan, showing how much the borrower will owe after a certain period.

💡Maturity Value

Maturity value is the amount of money that will be owed at the end of the loan term, including both the principal and the interest. The script mentions calculating the maturity value to understand the total repayment required after the loan period.

💡Annuity

An annuity is a financial product that provides a fixed income stream for a specified period or for life. Although not directly explained in the script, annuity is mentioned as part of the upcoming discussion, indicating it's another financial instrument to be covered.

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