THE ARITHMETIC OF FINANCE

CONTENT

1. Simple Interest (Revision)
2. Compound Interest
3. Depreciation
4. Annuities
5. Amortization
6. Bonds and Debentures
7. Rates
8. Income Tax
9. Value-added Tax (VAT)

Simple Interest (Revision)

The interest is a simple one because it is calculated on the original principal, not the accumulated one. Interest is a fee paid on borrowed assets. It is the price paid for the use of borrowed money (principal). But the sum of the principal and the interest is called the amount.

Thus: \(I = \frac{PRT}{100}\)

Examples:

1. Find the simple Interest on ₦500,000 for 3 months at \(1\frac{1}{2}%\) per annum.

Solution:

\(I = ?\), \(P = ₦500,000\), \(T = 3\) months i.e. \(\frac{3}{12}%\) or \(0.25\) years, \(R = 1\frac{1}{2}%\) or \(\frac{3}{2}%\).

\(I = \frac{PRT}{100} \\ = \frac{500000 × \frac{3}{2} × \frac{3}{12}}{100} \\ = \frac{500000 × 1.5 × 0.25}{100} \\ = \frac{500000 × 0.375}{100} \\ = ₦1875\)

Hence, the interest is \(₦1875\).