SIMPLE INTEREST/INTEREST

 the price paid for the use of credit or money

 interest that is computed on the original sum.

RATE OF INTEREST
 the given charged by the bank or by the
lender
Example #1.
Yuan deposited P5000.00 in a
bank paying 9% simple interest
for 3 years. How much interest
he will earn?
Yuan deposited P5000.00 in a bank paying
9% simple interest for 3 years. How much
interest he will earn?
5000 Principal (P)
Interest = ?
9% Interest rate (r)

3 yrs. Time (t)

5000 × 9% × 3
5000 ×0.09 ×3
=450 ×3 =1, 350 Interest
 5, 000 Principa
l
1, 350 Interest

5, 000 +1, 350

From the given scenario = 6, 350
above, how much would
Yuan have in his account The amount of
at the end of 3 years,
money after 3
assuming that no
withdrawals was made? years.
Future Value
 FORMULA of SIMPLE
INTEREST

I =
P r ×t
×

Prin e Time
cip R a t
Interest al
FORMULA of FUTURE VALUE

F =
P +
I
Prin
cip t e re s t
Future al In
value
Example #2.
Brando Maribeles borrowed Php15
000 from a bank charging 7%
simple interest with an agreement
that he would pay the principal and
the interest at the end of the term.
If he paid Php17 100 at the end of
the term, for how long did he used
the money?
Brando Maribeles borrowed Php15 000 from a bank charging 7%
simple interest with an agreement that he would pay the principal
and the interest at the end of the term. If he paid Php17 100 at the
end of the term, for how long did he used the money?

15000 Principal (P)

I = ?
7% Interest rate (r)
t = ?
17 Future value (F)

100I = F - P
I = 17 - 1500
I = 100
2 100 0
 t=?
I
t=
Pr
2 100 t =2
t=
(15 000)(0.7)
Example #3.
Jonathan invested Php75 000 in
the stock market which
guaranteed an interest of Php11
250 after one and a half years. At
what rate would his investment
earn?
Jonathan invested Php75 000 in the stock market which
guaranteed an interest of Php11 250 after one and a
half years. At what rate would his investment earn?

75000 Principal (P)

r=?
1.5 yrs. term (t)

11 Interest (I)

250I
r= t =0.10 =10%
Pt
11 250
r=
(75 000)(1.5)
 COMPOUND
INTEREST
-is a type of interest applied to
both the original principal and the
accumulated interest at the end
of each period. This means that
the amount of interest to be paid
increases every period.
Compound Interest
=F–P
where:
= is compound interest
F = maturity value
P = Principal amount
EXAMPLE #1
Find the maturity value and the
compound interest if ₱10,000
1 0 000 is P
compounded annually at an
interest rate of0.02
2% in 55 years. t
r
 P= 1 0 000
GIVEN: r= 0.02
t= 5
SOLUTION for F:

Therefore, the maturity value is

 P= 1 0 000
GIVEN: r= 0.02
t= 5

SOLUTION for Ic:

𝐼 𝑐 =𝐹 − 𝑃
𝐼 𝑐 =11 040.81 −10 000
𝐼 𝑐 =1 040.81
Therefore, the interest is P1,040.81
What if the Principal
(Present) Amount/Value is
missing in the equation?
How are you going to solve
for this?

P=
 𝒕
(𝟏+𝒓 )
𝒕
(𝟏+𝒓 )
𝑭 −𝒕
P=
(𝟏+ 𝒓 )
𝒕 𝐨𝐫 𝑭 (𝟏+𝒓)
 EXAMPLE #2
What is the present value of
₱50,000 due in 7 years if money
is worth 10% compounded
annually?
GIVEN: F =50 000
r= 10% or 0.1 t = years
GIVEN: F =50 000
r= 10% or 0.1 t=
SOLUTION: P=?

Therefore, the present value is

P25,657.91
GIVEN: F =50 000
r= 10% or 0.1 t=
Other
way: P=?

Therefore, the present value is

P25,657.91
 EXAMPLE #4
How much money should a
student place in a time deposit in
a bank that pays 1.1%
compounded annually so that he
will have P200,000 after 6 years?
Answer:
the student should deposit
187,293.65 in the bank
TRY THIS:
Complete the table below
Principal Rate (r) Time (t) Compou Maturity
(P) nd Value (F)
Interest
(Ic)
5 000 8% 10 a b
c 2% 2 d 50 000
 SEATWORK
Part A.
Find the unknown principal P,
maturity value F, and compound
interest Ic by completing the table.
Use separate sheet/s of paper for
your answer. Show your solutions.
Principal Rate Time Compound Maturity
(P) (r) (t) Interest Value (F)

P10,000 8% 5 a b

c 2% 2 d P100,000
Compounding More
than Once a Year
EXAMPLE #4
Given a principal of ₱10,000, which of
the following options will yield greater
interest after 5 years?
OPTION A: Earn an annual interest rate of
2% at the end of the year, or
OPTION B: Earn an annual interest rate of
2% in two portions-1% after 6 months and
1% after another 6 months?
Option A:Interest is compounded
annually.
Option B:Interest is compounded
semi-annually, or every 6 months.
 The investment scheme in Option B
introduces new concepts because interest is
compounded twice a year, the conversion
period is 6 months, and the frequency of
conversion is 2. As the investment runs for 5
years, the total number of conversion
periods is 10. The nominal rate is 2% and
the rate of interest for each conversion
period is 1%. These terms are defined
generally below.
 DEFINITION OF TERMS:
Frequency of conversion
(m)
 number of conversion periods in
one year
Conversion or interest
period
 time between successive
conversions of interest
 DEFINITION OF TERMS:
Total numbers of conversion
periods(n)
 n = mt = (frequency of conversion)
x (times in years)
Nominal rate ()
 annual rate of interest
 DEFINITION OF TERMS:
Rate (j) of interest for
each conversion period

j i annual
(m)
= rate of interest
= m frequency of
conversion
Note on rate notation: r,
,j
In earlier lessons, r was used to denote
the interest rate. Now that an interest rate
can refer to two rates (either nominal or
rate per conversion period), the symbols
i(m) and j will be used instead.
Examples of nominal rates and the
corresponding frequencies of conversion
and interest rate for each period:
Maturity Value, Compounding m
time a year:

𝒎 𝒎𝒕
𝒊
F = P (𝟏 + )
𝒎
Example:
Find the maturity value and
interest if P10,000 is
deposited in a bank at 2%
compounded quarterly for 5
years.
Example:
Find the maturity value and
interest if P10,000 is
deposited in a bank at 2%
compounded monthly for 5
years.
Example:
Cris borrows P50,000 and
promises to pay the principal
and interest at 12%
compounded monthly. How
much must he repay after 6
years?
Example:

Find the present value of

P50,000 due in 4 years if
money is invested at 12%
compounded semi-annually.
Example:

What is the present value of

P25,000 due in 2 years and
6 months if money is worth
10% compounded
quarterly?