SIMPLE INTEREST

Simple interest is an interest computed on the amount the borrower

received at the time the loan is obtained and is added to that amount when
the loan becomes due.

Formula:
I = PRT
where:
I = Interest
P = Principal
R = Rate
T = Time

Problems:
1. Liza goes to the bank and borrows P150,000 at 6% for 2 years. How
much interest will Liza have to pay?

2. What is the amount of the interest Julia has to pay if she loaned
P500,000 at 12% for 5 years from OCCI Coop?

Answers:
1. I = ?
 P = P150,000
R = 6%
T = 2 years

I = PRT
= 150,000 X 6% X 2
Interest = P18,000

2. I = ?
P = P500,000
R = 12%
T = 5 years

I = PRT
= 500,000 X 5% X 5
Interest = P125,000

COMPOUND INTEREST

Compound interest means that the interest is computed more than once
during the time period of the loan.
Formula:
Compound Interest = Compound Amount Principal
n
A = P (1 +i)
where:
A = Compound Amount
P = Principal
i = Interest rate per period
n = Total compounding periods

Problems:
1. Kathryn invested P23,000 at 6% interest compounded semi-annually,
for 6 years. Find the compound amount and compound interest.

2. On January 1, 2016, Janine borrowed P12,000 at 12% compounded

quarterly for 2 years. How much interest should she pay?

Answers:
1. Compound Interest = ?
A=?
P = P23,000
i = 3%
n = 12

A = P (1 + i)n
 = 23,000 (1 + 0.03)12
= 23,000 (1.425760887)
A = P32,792.50

Compound Interest = Compound Amount Principal

= P32,792.50 P23,000
Compound Interest = P9,792.50

2. Compound Interest = ?
A=?
P = P12,000
i = 3%
n=8

A = P (1 + i)n
= 12,000 (1 + 0.03)8
= 12,000 (1.266770081)
A = P15,201.25

Compound Interest = Compound Amount Principal

= P15,201.25 P12,000
Compound Interest = P3,201.25