Bài giảng môn học Quản trị kinh doanh - Chapter ten: Simple interest

Chapter TenSimple InterestCopyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/IrwinLearning unit objectivesLU 10-1: Calculation of Simple Interest and Maturity ValueList the steps to complete the U.S. Rule.Complete the proper interest credits under the U.S. Rule.LU 10-3: U.S. Rule -- Making Partial Note Payments before Due DateLU 10-2: Finding Unknown in Simple Interest FormulaUsing the interest formula, calculate the unknown when the other two (principal, rate, or time) are given.Calculate simple interest and maturity value for months and years.Calculate simple interest and maturity value by (a) exact interest and (b) ordinary interest.Maturity ValueMaturity Value (MV) = Principal (P) + Interest (I)The amount of the loan(face value)Cost of borrowingmoneySimple Interest FormulaSimple Interest (I) = Principal (P) x Rate (R) x Time (T)Stated as aPercentStated in YearsExample: Jan Carley borrowed $30,000 for office furniture. The loan was for 6 months at an annual interest rate of 8%. What are Jan’s interest and maturity value?I = $30,000 x .08 x 6 = $1,200 interest 12MV = $30,000 + $1,200 = $31,200 maturity valueSimple Interest FormulaSimple Interest (I) = Principal (P) x Rate (R) x Time (T)Stated as aPercentStated in yearsExample: Jan borrowed $30,000. The loan was for 1 year at a rate of 8%. What is interest and maturity value?I = $30,000 x .08 x 1 = $2,400 interestMV = $30,000 + $2,400 = $32,400 maturity valueTwo Methods of Calculating Simple Interest and Maturity ValueExact Interest (365 Days)Time = Exact number of days 365Method 1: Exact Interest Used by Federal Reserve banks and the federal governmentMethod 1:Exact InterestExact Interest (365 Days)On March 4, Peg Carry borrowed $40,000 at 8%. Interest and principal are due on July 6.I = P x R x T 124 365$40,000 x .08 x= $1,087.12 interestMV = P + I$40,000 + $1,087.12 = $41,087.12 maturity valueTwo Methods of Calculating Simple Interest and Maturity ValueOrdinary Interest (360 Days)Time = Exact number of days 360Method 2 : Ordinary Interest (Banker’s Rule)Method 2ordinary InterestOrdinary Interest (360 Days)On March 4, Peg Carry borrowed $40,000 at 8%. Interest and principal are due on July 6.MV = P + I$40,000 + $1102.22 = $41,102.22 maturity valueI = P x R x T 124 360$40,000 x .08 x= $1,002.22 interestTwo Methods of Calculating Simple Interest and Maturity ValueExact Interest (365 Days) MV = P + I$15,000 + $322.19 = $15,322.19Ordinary Interest (360 Days) MV = P + I$15,000 + $326.67 = $15,326.67On May 4, Dawn Kristal borrowed $15,000 at 8%. Interest and principal are due on August 10.I = P X R X T 98 365$15,000 x .08 x= $322.19 interestI = P X R X T 98 360$15,000 x .08 x= $326.67 interestFinding Unknown in Simple Interest Formula: PRINCIPALPrincipal = Interest Rate x TimeExample: Tim Jarvis paid the bank $19.48 interest at 9.5% for 90 days. How much did Tim borrow using the ordinary interest method?P = $19.48 . = $820.21 .095 x (90/360).095 times 90 divided by 360. (Do not round answer.)Interest (I) = Principal (P) x Rate (R) x Time (T)Check 19.48 = 820.21 x .095 x 90/360Finding Unknown in Simple Interest Formula: RATEInterest (I) = Principal (P) x Rate (R) x Time (T)Check 19.48 = 820.21 x .095 x 90/360Rate = Interest Principal x TimeExample: Tim Jarvis borrowed $820.21 from a bank. Tim’s interest is $19.48 for 90 days. What rate of interest did Tim pay using the ordinary interest method? $19.48 .R = $820.21 x (90/360) = 9.5%Finding Unknown in Simple Interest Formula: TIMEInterest (I) = Principal (P) x Rate (R) x Time (T)Check 19.48 = 820.21 x .095 x 90/360Time (years) = Interest Principle x RateExample: Tim Jarvis borrowed $820.21 from a bank. Tim’s interest is $19.48 for 90 days. What rate of interest did Tim pay using ordinary interest method? T = $19.48 = .25. $820.21 x .095 .25 x 360 = 90 daysConvert years to days (assume 360 days)U.S. Rule - Making Partial Note Payments before Due DateAny partial loan payment first covers any interest that has built up. The remainder of the partial payment reduces the loan principal.Allows the borrower to receive proper interest credits.U.S. Rule(Example)Step 1. Calculate interest on principal from date of loan to date of first principalpayment.Step 2. Apply partial payment to interest due. Subtract remainder of payment from principal.Joe Mill owes $5,000 on an 11%, 90-day note. On day 50, Joe pays $600 on the note. On day 80, Joe makes an $800 additional payment. Assume a 360-day year. What is Joe’s adjusted balance after day 50 and after day 80? What is the ending balance due?$600 -- 76.39 = $523.61$5,000 – 523.61 = $4,476.39$5,000 x .11 x 50 = $76.39 360U.S. Rule(Example, Continued) Step 3. Calculate interest on adjusted balance that starts from previous payment date and goes to new payment date. Then apply Step 2.Step 4. At maturity, calculate interest from last partial payment. Add this interest to adjusted balance.Joe Mill owes $5,000 on an 11%, 90-day note. On day 50, Joe pays $600 on the note. On day 80, Joe makes an $800 additional payment. Assume a 360-day year. What is Joe’s adjusted balance after day 50 and after day 80? What is the ending balance due?$4,476.39 x .11 x 30 = $41.03 360$800 -- 41.03 = $758.97$4,476.39 – 758.97 = $3717.42$3,717.42 x .11 x 10 = $11.36 360$3,717.42 + $11.36 = $3,728.78