Money and Interest: Understanding Types of Money and Computing Simple Interest, Exercises of Economics

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MONEY AND INTEREST

CHAPTER 1

MONEY

DEFINED AS ANY ARTICLE OR SUBSTANCE

USED AS A MEDIUM OF EXCHANGE,

MEANS OF PAYMENT OR MEANS OF

WEALTH

TYPES OF MONEY

1. FIAT MONEY

2. COMMODITY MONEY

3. REPRESENTATIVE MONEY

4. CREDIT MONEY

METHODS OF COMPUTING INTEREST

A. SIMPLE INTEREST

THIS TYPE OF INTEREST IS CALCULATED USING THE

PRINCIPAL ONLY, IGNORING ANY INTEREST THAT

HAS BEEN ACCRUED IN PRECEEDING INTEREST

PERIOD.

a. Ordinary Simple Interest is computed on the

basis of 12 months of 30 days each or 360 days

a year.

b. Exact Simple Interest is based on the exact

number of days in a year

365 days on ordinary year 366 days on leap year

Note: A year which is exactly divisible by four (4) is a

leap year.

Sample Problem 1

In how much time will the simple interest

on P3,500 at the rate of 9% per annum be

the same as simple interest on P4,000 at

10.5% per annum for 4 years?

Sample Problem 2

Determine the exact simple interest on

P500 for the period from January 10 to

October 28, 2002 at 16% interest. What is

the ordinary simple interest for the same

period?

Determine the exact simple interest on P500 for the period from January 10 to October 28, 2002 at 16% interest. What is the ordinary simple interest for the same period?

Count the no of days covered by the deposit, 2002/4 = 500. hence, 2002 is a not a Leap year 𝐽𝑎𝑛 10 − 31 = 21 "𝑒𝑥𝑐𝑙𝑢𝑑𝑒 𝐽𝑎𝑛 10" 𝐹𝑒𝑏𝑟𝑢𝑎𝑟𝑦 = 28 𝑀𝑎𝑟𝑐ℎ = 31 𝐴𝑝𝑟𝑖𝑙 = 30 𝑀𝑎𝑦 = 31 𝐽𝑢𝑛𝑒 = 30 𝐽𝑢𝑙𝑦 = 31 𝐴𝑢𝑔 = 31 𝑆𝑒𝑝𝑡 = 30 𝑂𝑐𝑡 1 − 28 = 28 "𝑖𝑛𝑐𝑙𝑢𝑑𝑒 𝑂𝑐𝑡 28"

n = 291 days

I   500  (^10016)  365291 

I  P 63. 78