Interest, Maturity, Future and Present Values in Simple Interest

Summary

This educational video script explains the concept of simple interest, using the formula IS=PRT to calculate interest, principal, rate, and time. It provides examples to demonstrate how to find each component when others are known. Additionally, it covers how to compute the maturity or future value by adding interest to the principal using the formula F=P(1+RT). The script aims to teach viewers these financial calculations in an accessible manner.

Takeaways

• 📚 The formula for calculating simple interest is IS = P * R * T, where IS is the simple interest, P is the principal amount, R is the interest rate, and T is the time in years.
• 🔍 To find the principal amount when the simple interest is known, use the formula P = IS / (R * T).
• 📈 The formula to determine the interest rate R when IS and P are known is R = IS / (P * T).
• ⏱️ When the time period is unknown, it can be calculated using T = IS / (P * R).
• 💹 The future or maturity value of an investment, where interest is added to the principal, is calculated by F = P * (1 + RT).
• 💡 An alternative way to find the future value is by adding the simple interest directly to the principal: F = P + IS.
• 💼 Example calculation: With a principal of 20,500 and a rate of 5% over 5 years, the simple interest is 5,125.
• 📊 To find the rate, divide the simple interest by the product of the principal and time, as shown in the example with a principal of 20,000, an interest of 5,000, and a time of 4 years, yielding a rate of 6.25%.
• 🕒 For determining time when given principal, interest, and rate, divide the simple interest by the product of the principal and rate, as demonstrated with a principal of 40,000, an interest of 700, and a rate of 7%, resulting in a time of 3 months.
• 🌐 A practical example of calculating the future value is given with a principal of 15,000, a rate of 2%, and a time of 4 months (one third of a year), resulting in a future value of 15,100.

Q & A

What is the formula for calculating simple interest?

The formula for calculating simple interest is I = P * R * T, where I is the simple interest, P is the principal amount, R is the simple interest rate, and T is the time in years.

How can you find the principal amount if you know the simple interest, rate, and time?

To find the principal amount, you can use the formula P = I / (R * T), where I is the simple interest, R is the rate, and T is the time.

What is the formula to determine the simple interest rate if you have the principal, interest, and time?

The formula to determine the simple interest rate is R = I / (P * T), where I is the simple interest, P is the principal, and T is the time.

How do you calculate the time when the principal, rate, and simple interest are known?

The time can be calculated using the formula T = I / (P * R), where I is the simple interest, P is the principal, and R is the rate.

What is the formula for finding the maturity or future value of an investment with simple interest?

The formula for finding the maturity or future value is F = P * (1 + RT), where F is the future value, P is the principal, R is the rate, and T is the time.

In the given example, what is the simple interest on a principal of 20,500 with a rate of 5% over 5 years?

The simple interest is calculated as 20,500 * 0.05 * 5, which equals 5,125 pesos.

How do you find the interest rate if you have the principal, simple interest, and time?

You can find the interest rate using the formula R = I / (P * T), where I is the simple interest, P is the principal, and T is the time.

In the example with a principal of 20,000, simple interest of 5,000, and a time of 4 years, what is the interest rate?

The interest rate is calculated as 5,000 / (20,000 * 4) = 0.0625 or 6.25%.

What is the time period for an investment with a principal of 40,000, simple interest of 700, and a rate of 7%?

The time period is calculated as 700 / (40,000 * 0.07) = 0.25 or one-fourth of a year, which is equivalent to three months.

How do you calculate the future value of an investment with a principal of 15,000, a rate of 2%, and a time of 4 months?

The future value is calculated as 15,000 * (1 + 0.02 * (4/12)) = 15,100 pesos.

What is an alternative method to calculate the future value of an investment?

An alternative method is to calculate the simple interest first, then add it to the principal. For example, with a principal of 15,000, a rate of 2%, and a time of 4 months, the simple interest is 15,000 * 0.02 * (4/12) = 100 pesos, and the future value is 15,000 + 100 = 15,100 pesos.