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53 views45 pages

1 SC Gen Math q2 - Lesson 1 Simple and Compound Interest

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cedric88itit
Copyright
© © All Rights Reserved
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GRADE 11!

GENERAL

Q2 –WEEK 1
BASIC BUSINESS
MATHEMATICS
i-SAVE
Content Standards: The learner demonstrates understanding of key concepts of simple and compound interests, and simple and general
annuities.

DEPED MEMO 228 s. 2008 Nationwide Expansion/Roll-out of the Child Savings Project Implementation
a.illustrates simple and compound interests. M11GM-IIa-1
b.distinguishes between simple and compound interests.
M11GM-IIa-2
c.computes interest, maturity value, future value, and present
value in simple interest and compound interest environment.
M11GM-IIa-b-1
d.solves problems involving simple and compound interests.
M11GM-IIb-2
In many aspects of modern life,
Mathematics plays an important
role. In the field of business,
mathematics is essential in

• analyzing markets
• predicting stock market prices
• business decision making,
• forecasting production,
• financial analysis,
• business operation in general.
Q2-LESSON 1
SIMPLE AND
COMPOUND INTEREST
Q2-LESSON 1.1:
SIMPLE
INTEREST
• When you saved money in the bank, you will gain an
interest paid by the bank.

• On the other hand, when you borrow money, you are


charged an interest on the amount you borrowed.

• How does gained and charged interests computed?


• A debtor pays the bank an amount which is more than
the amount they borrowed.

• An investor may withdraw from the bank more than the


amount deposited.

• This additional sum is called INTEREST.


DEFINITION OF TERMS

Lender or creditor – person (or institution) who


invests the money or makes the funds available.
Borrower or debtor – person (or institution) who
owes the money or avails of the funds from the
lender.
Origin or loan date – date on which money is
received by the borrower
DEFINITION OF TERMS

Repayment date or maturity date – date on which the


money borrowed or loaned is to be completely repaid.
Time or term (t) – amount of time in years the money
is borrowed or invested; length of time between the
origin and maturity dates.
Principal or present value (P) – amount of money
borrowed or invested on the origin date
DEFINITION OF TERMS
Rate of interest or simply rate (r) – annual rate, usually
in percent, charged by the lender, or rate of increase of
the investment.
Interest (I) – amount paid or earned for the use of
money.
Maturity Value or Future Value (F) – amount after t
years that the lender receives from the borrower on
the maturity date; equal to the sum of principal and
the interest earned.
SIMPLE INTEREST (𝑰𝒔 )
• For every financial transaction, whether you borrowed or
invested a certain amount P, a corresponding percentage
of the principal called interest is being paid.
• Simple Interest (Is) is the interest charged on the principal
alone for the entire duration or period t of the loan or
investment, at a particular rate r.
• After the term of the loan or investment, the maturity
value or future value F is computed by getting the sum of
the principal and the interest due.
FORMULAS
EXAMPLE

P 625,000.00 P 1,125,000.00
P 15,000.00 P 16,500.00

9% P 40,860.00

1.12 years P 251,400.00


P 166.67 P 10,166.67

𝑰𝒔 = 𝑷𝒓𝒕
SOLUTION 1 & 2
SOLUTION 3 & 4
SOLUTION 5
Q2-LESSON 1.2:
COMPOUND
INTEREST
Simple interest is the interest charged on the
principal alone for the entire length of the loan or
investment. Several formulas were introduced to
solve problems involving simple interest.

The second type of interest is the compound


interest. For many long-term financial transactions,
compound interest is used instead of simple interest.
“Suppose you won ₱10,000.00 and you plan
to invest if for 5 years. A cooperative group
offers 2% simple interest rate per year. A bank
offers 2% compounded annually.

Which will you choose and why?


DEFINITION OF TERMS
Compound amount (F) – also called maturity value, it is an
accumulated amount obtained by adding the principal and the
compound interest.

Conversion period (m) – the number of times in a year the interest


will be compounded.
The following are the common conversion periods in a year:
annually : m = 1
semi-annually : m = 2
quarterly : m = 4
monthly : m = 12
DEFINITION OF TERMS
Number of conversion periods (n) – the total number of times
interest is calculated for the entire term of the investment or
loan. (n=mt)
Annual interest rate or nominal rate (r) – the stated rate of
interest per year.
𝒓
Periodic rate (i) – the interest rate per conversion period. (i= )
𝒎
Present value of F (P) – this is the principal P, that will
accumulate to F if there is an interest at periodic rate i for n
conversion periods.
COMPOUND INTEREST (𝑰𝑪 )

• Compound interest (Ic) is usually used by banks in calculating interest


for long-term investments and loans such as savings account and
time deposits.
• In this type of interest, the interest due at stipulated interval is added
to the principal and earns interest thereafter.
• It implies that the principal increases over a period of time, resulting
to an increase in interest earned at every compounding period.
• Thus, compound interest is an interest resulting from the periodic
addition of simple interest to the principal amount or simply the
difference between the compound amount and the original principal.
SAMPLE PROBLEM
₱50,000.00 was loaned for a period of 3 years with 5% interest compounded
annually.
What amount of money will be needed to repay the loan?

The required answer to the problem is ₱57,881.25.


As shown in the table, the amount at
the end of the year is equal to the sum
of the principal and the interest for
that year.
FORMULAS
EXAMPLES
1.) Find the compound amount and interest earned on ₱15,000.00
for 1 year at
(a) 7% compounded semi-annually and
(b) 7% compounded quarterly.
2. Find the present value of ₱𝟏𝟐, 𝟖𝟓𝟎. 𝟎𝟎 due in 3 years if the
interest rate is 6% compounded monthly.
3. At what rate of interest compounded semi-annually will ₱𝟏𝟒,
𝟑𝟎𝟎. 𝟎𝟎 accumulate to ₱𝟏𝟕, 𝟎𝟎𝟎. 𝟎𝟎 in 2 years and 6 months?

4. How many years will it take for ₱𝟏𝟑, 𝟎𝟎𝟎. 𝟎𝟎 to become ₱𝟐𝟎,
𝟎𝟎𝟎. 𝟎𝟎 at 12.5% compounded annually?
1.) Find the compound amount and interest earned on
SOLUTION 1. A ₱15,000.00 for 1 year at
(a) 7% compounded semi-annually and
(b) 7% compounded quarterly.
1.) Find the compound amount and interest earned on
SOLUTION 1. B ₱15,000.00 for 1 year at
(a) 7% compounded semi-annually and
(b) 7% compounded quarterly.
2. Find the present value of ₱𝟏𝟐, 𝟖𝟓𝟎. 𝟎𝟎 due in 3 years if
SOLUTION 2 the interest rate is 6% compounded monthly.
3. At what rate of interest compounded semi-annually
SOLUTION 3 will ₱𝟏𝟒, 𝟑𝟎𝟎. 𝟎𝟎 accumulate to ₱𝟏𝟕, 𝟎𝟎𝟎. 𝟎𝟎 in 2 years
and 6 months?
4. How many years will it take for ₱𝟏𝟑, 𝟎𝟎𝟎. 𝟎𝟎 to
SOLUTION 4 become ₱𝟐𝟎, 𝟎𝟎𝟎. 𝟎𝟎 at 12.5% compounded annually?
“Suppose you won ₱10,000.00 and you plan
to invest if for 5 years. A cooperative group
offers 2% simple interest rate per year. A bank
offers 2% compounded annually.

Which will you choose and why?


1 whole sheet of paper
ACTIVITY #1 Copy and Answer
Part 1:
Direction: Complete the table below by solving the unknown quantities in
each row.

ACTIVITY #1
Part 2: Solve what is asked in each item. Show your solution. Include
appropriate unit in the final answer.

1. A bank offers 1.5% annual simple interest rate for a particular deposit. How
much interest will be earned if 1 million pesos is deposited in this savings
account for 1 year?
2. When invested at an annual interest rate of 7%, the amount earned
₱11,200.00 of simple interest in 2.5 years. How much money was originally
invested?
3. Ricky borrowed ₱25,000.00 and paid ₱1,250.00 interest for 6 months. What
was the rate of interest?
4. How long in years will it take for ₱17,300.00 to amount to ₱20,000.00 at 𝟏𝟏.
𝟐𝟓% simple interest?

ACTIVITY #1
Part 3: Solve what is asked in each item. Show your solution. Include
appropriate unit in the final answer.

ACTIVITY #1
Part 3: Solve what is asked in each item.

6. Joseph borrows ₱𝟓𝟎, 𝟎𝟎𝟎.𝟎𝟎 and promise to pay the principal and interest at
12% compounded monthly. How much must he repay after 6 years?

7. A loan ₱𝟏𝟐𝟓, 𝟎𝟎𝟎. 𝟎𝟎 at 8% compounded quarterly was paid back with an


amount of ₱𝟏𝟕𝟔, 𝟎𝟎𝟎. 𝟎𝟎 at the end of the period. For how long was the
money borrowed?

8. How much must be invested today in a savings account in order to have


₱𝟓𝟎, 𝟖𝟎𝟎. 𝟎𝟎 in 6 years and 9 months if money earns 5.4% compounded semi-
annually?

ACTIVITY #1
SUMMATIVE TEST ON FRIDAY OR MONDAY.

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