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Lesson 3.4

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13 views3 pages

Lesson 3.4

Uploaded by

FS - John Nimar Baral
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Lesson 3.

4: Compound Interest

Learning Objectives
At the end of the lesson, you(student) should be able to:

1. Gain an understanding of compound interest.


2. Compute the interest for borrowed money using compound interest.

Materials and Equipment Needed


1. Lecture Notebook
2. Assessment Notebook
3. Black ballpen
4. Intermediate paper

Learning Activities (Activating Prior Knowledge)


This activity allows you to identify the concept of compound interest. Use your assessment
notebook to answer this part.
 Examine the table below for the loan computation using compound interest for an
amount of Php 15,700 loan at an interest rate of 3% compounded annually for three
years:

Year Loan at Start Interest Loan at End


1 Php 15,700 Php 15,700 x Php 16,
0.03 = 471 171.00
2 Php 16, Php 16,171 x Php 16,656.13
171.00 0.03 = 485.13
3 Php Php Php 17,
16,656.13 16,656.13 x 155.81
0.03 =
499.6839

 How much interest was earned after three years?


Learning Probe (Analysis)
This activity allows you to evaluate further the concept of volume, as presented in the previous
exercise.Use your assessment notebook to answer this part.
 Based on the previous activity, how can you describe a compound interest?

Learning Time (Acquire New Knowledge)


Compound Interest
In compound interest, the interest will become part of the principal. Hence, it is being
compounded annually (once in a year), semi-annually (twice in a year), or quarterly (four times in
a year). Compared to simple interest, money deposited at a compound interest rate earned
more interest than those deposited at simple interest. Likewise, suppose you borrowed an
amount of money at a compound interest rate. In that case, you will have to pay more than
when it is computed using the simple interest rate.
Computing for the Compound Interest
To compute for the compound interest:
𝑟 nt
𝐴=𝑃 1+ 𝑛

And to find the principal:


𝐴
𝑃= 𝑟 𝑛𝑡
(1 + 𝑛
)

Where A = amount; P = principal; r = interest rate(decimal); n =number of times the interest is


compounded per unit ‘t’; t = time
Example 1: Juan borrowed an amount of Php 22,500 for his rice field at an annual interest rate
of 3% compounded monthly. How much will he have to pay after five years?
Solution: The amount initially borrowed is Php 22,500, which is the principal, the rate of interest
is 0.03, the number of times compounded is 12 since it is compounded monthly, and the time is
five. With this given data, we can now compute its compound interest as:
𝑟 nt
𝐴=𝑃 1+ 𝑛
0.03 12 x 5
𝐴 = 22,500 1 + 12
60
𝐴 = 22,500 1 + 0.0025
60
𝐴 = 22,500 1.0025
𝐴 = 𝑃ℎ𝑝 26,136.38
Therefore, after five years, Juan has to pay the amount of Php 26,136.38.
Example 2: Suppose you want to get an amount of Php 150,000 in five years to your investment,
which offers a 5% interest rate compounded semi-annually. How much money would you have
to invest?
Solution: This problem calls for solving the principal.
From the problem, the amount to be earned after five years (t) compounded semi-annually(n) at
a 5% (r) interest rate is Php 150,000(a). Using the formula for finding the principal,
𝐴
𝑃= 𝑟 𝑛𝑡
(1 + 𝑛
)
150,000
𝑃= 0.05 2 𝑥 5
(1 + )
2
150,000
𝑃=
(1 + 0.025 )2 𝑥 5
150,000
𝑃 =
(1.025 )10
𝑃 = 𝑃ℎ𝑝 117,179.76
Therefore, you would have to invest an amount of Php 117, 179.76 to earn an amount of Php
150,000 after five years to an institution that offers a 5% interest rate compounded semi-
annually.

Example 3: If you borrowed an amount of Php 12,600 from a lending institution with an interest
rate of 6% compounded quarterly, how much will you have to pay after three years?
Solution:
Given: P= 12600; n = 4 (quarterly); t = 3, r = 0.06
𝑟 nt
𝐴=𝑃 1+
𝑛
0.06 4 x 3
𝐴 = 12600 1 + 4
12
𝐴 = 12600 1 + 0.015
12
𝐴 = 12600 1.015
𝐴 = 𝑃ℎ𝑝 15, 064.79

Therefore, by the end of three years, you have to pay an amount of Php 15,064.79 to the lending
institution.

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