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    Simple and Compound Interest

    Uploaded by

    Ashley Anigan
    Here are the solutions to the problems: 1a) Interest = P x R x T = 10,500 x 0.05 x 2 = P1,050 1b) Future Value = Principal + Interest = 10,500 + 1,050 = P11,550 1c) Interest for 10 months = P10,500 x 0.05 x (10/12) = P437.50 Future Value = P10,500 + P437.50 = P10,937.50 2) Future Value = P x (1 + R/m)^(mxt) = P10,000 x (1 + 0.04/2)^

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    © All Rights Reserved
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    Simple and Compound Interest

    Uploaded by

    Ashley Anigan
    111 views31 pages
    Here are the solutions to the problems: 1a) Interest = P x R x T = 10,500 x 0.05 x 2 = P1,050 1b) Future Value = Principal + Interest = 10,500 + 1,050 = P11,550 1c) Interest for 10 months = P10,500 x 0.05 x (10/12) = P437.50 Future Value = P10,500 + P437.50 = P10,937.50 2) Future Value = P x (1 + R/m)^(mxt) = P10,000 x (1 + 0.04/2)^

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    Simple-and-Compound-Interest

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    Here are the solutions to the problems: 1a) Interest = P x R x T = 10,500 x 0.05 x 2 = P1,050 1b) Future Value = Principal + Interest = 10,500 + 1,050 = P11,550 1c) Interest for 10 months = P10,500 x 0.05 x (10/12) = P437.50 Future Value = P10,500 + P437.50 = P10,937.50 2) Future Value = P x (1 + R/m)^(mxt) = P10,000 x (1 + 0.04/2)^

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    111 views31 pages

    Simple and Compound Interest

    Uploaded by

    Ashley Anigan
    Here are the solutions to the problems: 1a) Interest = P x R x T = 10,500 x 0.05 x 2 = P1,050 1b) Future Value = Principal + Interest = 10,500 + 1,050 = P11,550 1c) Interest for 10 months = P10,500 x 0.05 x (10/12) = P437.50 Future Value = P10,500 + P437.50 = P10,937.50 2) Future Value = P x (1 + R/m)^(mxt) = P10,000 x (1 + 0.04/2)^

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    You are on page 1of 31

    Simple Interest

    and
    Compound Interest
    Learning Objectives

    At the end of the lesson, you should be able to:


    Title Lorem
    Ipsum
    1. Illustrate simple and compound interests.
    2. distinguishes between simple and compound interests.
    3. computes interest, maturity value, future value, and present
    value in simple and compound interest environment.
    4. Solve problems involving simple and compound interests.
    Activity 1: Let Us Try.

    1) It refers to the charge for the privilege of borrowing money or income from money
    lent.
    A. interest B. investment C. money D. principal

    2) Original sum of money borrowed in a loan or put into an investment is called ______.

    A. interest B. principal C. value D. lump sum


    3) It refers to the amount charged expressed as a percentage.

    A. balance B. Investment C. rate D. value

    4) It refers as the duration of the loan.

    A. balance B. rate C. time D. Value

    5) It refers to the easy tool or basic formula for calculating interest earned or paid on
    a certain balance in one period.

    A. principal B. rate C. simple interest D. compound interest


    Say something about…

    Savings

    Loan
    Let Us Study: Definition of Terms
    SIMPLE INTEREST
    - refers to the easy tool or basic formula for calculating interest earned or paid on a certain
    balance in one period.
    COMPOUND INTEREST
    - refers to the method of calculating interest periodically. Compounding interest on a loan or
    deposit calculated based on both the initial principal and the accumulated interest from the
    previous periods.
    Loans
    - refers to money given to another party in exchange for repayment of the loan principal
    amount plus interest.
    Investment/Deposit
    - refers to type of financial account where money is locked up for some period of time in
    return for above average interest payments on those amounts.
    Principal
    - is the original sum of money borrowed in a loan or put into an
    investment
    Interest
    - is the charge for the privilege of borrowing money or income from
    money lent
    Rate
    -is the amount charged expressed as a percentage
    Time
    - refers to the duration of the loan
    Activity 2: Compare Us.

    1. Who among the two businessmen will gain more?

    2. Which case is simple and compound interest?


    SIMPLE INTEREST
    Let Us Practice

    Example 1:

    A lending institution released Anna’s loan amounting to P5,


    500. She wants to pay it in 1 year with a simple interest rate
    of 6%.
    1. How much is the interest of her loan?

    Solution:
    a. Given:
    P= 5500, r = 6% or 0.06, t =1 year

    b. Solve for the interest


    I = Prt
    I = 5500(0.06)(1)
    I = Php 330.00 →interest amount in 1 year
    2. How much will she pay after 1 year?

    Solution:
    F=P+I
    F = 5500 + 330
    F = Php 5, 830.00 →total amount to be paid in 1 year
    3. What if Anna decided to pay the loan in 8 months, how much is
    the interest of her loan? What is the future value?

    Solution:
    8
    a. Given: P= 5500, r = 6% or 0.06, t = 12
    →8 months over 12 months
    b. I = Prt
    8
    I = 5500(0.06)( )
    12
    I = Php 220.00 →interest amount in 8 months
    c. F = P + I
    F= 5500 + 220
    F =Php 5, 720.00 →total amount to be paid in 8 months
    Example 2:

    Your mother borrows P15, 000 from a credit cooperative


    that offers 5% interest rate per annum for its members
    deducted in advance. What would be the interest amount
    if she decided to pay it within 1 year? What is the present
    value of her loan?
    Solution:

    a. Given:
    P = 15 000 r = 5% or 0.05 t=1

    b. I = Prt
    I = (15 000) (0.05) (1)
    I = Php 750.00 The principal amount of P15,000 will gain an interest of
    P750.00 in 1 year.

    c. Present Value:
    S=P–I
    S = 15 000 – 750
    S = Php 14, 250.00
    Your mother will receive P14, 250.00 out of the P15, 000 approved loan since
    the interest of P750 will be deducted in advance.
    Example 3:

    Mr. Dalisay lends money to tricycle drivers and earns


    interest of P4,500 in 2 years at non-compounding simple
    interest rate of 6%. How much did he originally invest?
    Solution:
    a. Given:
    I = 4500 P = unknown value r = 6% or 0.06 t = 2 years

    b. Solve:
    I = Prt
    4500 = (P) (0.06) (2)
    4500 = (P)0.12 → dividing both sides of the equation by 0.12
    4500 𝑃 (0.12)
    =
    0.12 0.12
    37,500 = P or P = 37, 500 → Mr. Dalisay invested P37,500.00 and
    earned P4,500 interest in 2 years.
    Example 4:

    Ms. Corpuz invested P60, 000. How long will it take to


    gain an interest amount of P28, 800 at 12% simple
    interest?
    Solution:
    a. Given: P = 60 000; I = 28 800 ; r = 12% or 0.12
    t = unknown value

    b. Solve:
    I = Prt
    28800 = (60000) (0.12) (t)
    28800 = 7200(t) → dividing both sides of the equation by 7 200
    28800 7200 (𝑡)
    =
    7200 7200
    4 = t or t = 4
     It will take 4 years for the 60, 000 to earn 28, 800 interest at 12% .
    COMPOUND INTEREST

    m=1

    m=2

    m=4

    m=12

    m=30
    𝑟 mt
    F = P 1+𝑚

    Ic = compound interest

    𝒓
    S = F 𝟏+𝒎 –mt
    Example 5:

    If Ms. Tan invested P8, 500 at 6% compounded quarterly


    for 1 year. What is the compounded amount or the future
    value of her investment? How much would be the interest
    amount?
    Solution:
    a. Given:
    P = 8500 r = 6% or 0.06 m=4 t=1

    b. Solve
    𝑟 mt
    F=P 1 +𝑚
    0.06
    F = 8500 1 + 4 (4)(1)

    F = P 9, 021.59 The compounded amount for 1 year


    Interest:
    Ic = F – P
    Ic= 9, 021.59 – 8, 500
    Ic = P 521.59 The interest on P8,500 for 1 year compounded quarterly.
    Example 6:

    Find the maturity value and interest if P 50,000 is invested


    at 5% compounded annually for 8 years.
    Solution:
    a. Given:
    P = 50 000 ; r= 0.05 ; t=8 ; m=1
    F=? ; Ic =?
    b. Solve
    𝑟
    F = P 1+𝑚 mt
    0.05 (1)(8)
    F = 50 000 1 +
    1
    F = 50 000 (1.05)8
    F = P 73 872. 77 The maturity value of the money after 8 years.
    c. Compound Interest
    Ic = F – P
    Ic = 73 872. 77 – 50 000
    Ic = P 23 872. 77 The interest on P 50 000 for 8 years compounded annually.
    Example 7:

    When Janice was 20 years old she invested in a small company that
    offers 4% compounded semi-annually. She will receive a
    compounding amount of P15, 000 when she reaches 28 years old.
    How much is her original investment? What would be the interest
    earned?
    Solution:
    a. Given:
    P =? r = 4% or 0.04 m=2 t=8
    b. Solve
    𝑟
    F = P 1 + 𝑚 mt
    0.04
    15, 000 = P 1 + 2 (2)(8)
    15, 000 = P (1.3727857051)
    15000 𝑃 (1.3727857051)
    =
    1.3727857051 1.3727857051
    P 10, 926.69 = P The compounded amount for 1 year.

    Interest:
    Ic = F – P
    Ic = 15, 000 – 10, 926.69
    Ic = P 4, 073.31 The interest on P8,500 for 1 year compounded quarterly.
    Example 8:

    Mr. Penida has an obligation of P20, 000 due in 5 years


    at 4% interest compounded annually and was deducted
    in advance. What was the amount of interest that credit
    cooperative collected in advance? How much did he
    receive from the credit cooperative?
    Solution:
    b. Present Value c. Advance Interest
    a. Given:
    F = 20, 000 𝒓 –mt I=F–S
    S = F 𝟏+
    𝒎
    r = 4% or I = 20 000 – 16 438.54
    0.04 S = 20 000 𝟏 +
    𝟎.𝟎𝟒 – (1) (5) Ic = P 3, 561.46
    𝟏
    m=1 S = P 16, 438.54
    t=5
    a

    Activity 3: You can do it.

    1. A credit cooperative approved Jenny’s loan amounting to P10, 500. She


    wants to pay it in 2 years with a rate of 5%.

    a. How much is the interest of her loan?


    b. What amount will she pay back to the lending company?
    c. What if Jenny decided to pay the loan in 10 months, how much is the
    interest of her loan? What is the future value?

    2. Sylvanna puts an amount of P10, 000 in a money market fund that offer 4%
    interest rate compounded semi-annually for 2 years. What is the future value?
    How much would be the interest amount?

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