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Simple Interest and Compound 1. compute interest, maturity value, and present value of simple
Interest interest and compound interest;
2. solve problems involving simple interest and compound
interest.
III. PROCEDURE
READINGS/DISCUSSIONS
You have learned in module 1 about the concept of interests. You have also
illustrated and distinguished between simple and compound interest. This lesson
will introduce you how to compute interests, present value and future value and
solve real-life problems about simple and compound interest.
Simple Interest • It is the interest paid on the original principal amount only
Compound Interest • It is the interest earned not only on the original principal, but also
on all interests previously earned.
Maturity Value or • The amount received or paid after the maturity date.
Future Value
Present Value • The initial amount or the amount at the beginning of a term.
SIMPLE INTEREST
Lesson outline:
1. Finding simple interest
2. Finding the unknown principal, rate, or time
3. Finding maturity value
4. Solving real-life problems involving simple interest
Simple interest is a type of interest that is applied to the amount borrowed or invested for the whole
duration or term of the loan or investment.
Example 1. Suppose a bank offers 2% annual simple interest for a particular deposit. How much interest
will be earned if P150,000 is deposited for this savings account?
Solution:
Given: P = 150,000 r = 2% = 0.02 t = 1 year
Find Is
Is = Prt
= 150,000 (0.02) (1)
Is = 3,000
Answer: The interest earned is P3,000.
Example 2. How much interest is charged when P50,000 is borrowed for 9 months at an annual simple
interest rate of 10%?
Solution:
9
Given: P = 50,000 r = 10% =0.10 t = 12 = 0.75 year
Find : Is
𝑀
Note: When term is expressed in months (M), it should be converted to years by t =
12
Is = Prt
= 50,000 (0.10)(0.75)
Is = 3,750
Answer: The simple interest charged is P3,750.
In the simple interest formula, one missing value can be found given the other values.
𝐈
❖ If P is unknown: P = 𝐫𝐭
𝑰
❖ If r is unknown: r = 𝑷𝒕
𝑰
❖ If t is missing: t = 𝑷𝒓
Example 3. Complete the given table below by finding the unknown.
Example 4. Find the maturity value if P173,000 is deposited in a bank at an annual simple interest of 8%
after 15 months?
Solution:
15
Given: P =173,000 r = 8%=0.08 t =15months = = 1.25 years
12
Find: maturity value F after 15months
Method 1:
Step 1: Solve the simple interest Is = Prt = (173,000)(0.08)(1.25) = 17,300
Step 2: The maturity or future value is given by F = P + Is = 173,000 + 17,000 = 190,300
COMPOUND INTEREST
Lesson outline:
1. Finding Maturity value
2. Finding present value
Compound interest is interest earned on interest. Unlike simple interest where the interest is
taken from the original principal all throughout the transaction period, in the compound interest, the rate
of interest is taken from the accumulated amount.
Many investments pay compound interest. Compound interest can be earned daily, weekly, The
more frequently interest is compounded, the larger the final amount will be.
Example 1. Find the maturity value and the compound interest if P50,000 is compounded annually at an
interest rate of 3.5% in 4 years.
Solution:
Given: P =50,000 r = 3.5% = 0.035 t=4
Find: (a) maturity value F (b) compound interest
t
(a) F = P (1 + rt) = (50,000)(1 + 0.035)4 = 57,376.15
(b) Ic = F – P = 57,376.15 – 50,000 = 7,376.15
Answers: The maturity value F is P57,376.15 and the compound interest is P7,376.15.
Example 2. A businessman invested P100,000 in a fund that pays 10.5% compounded annually for 5
years. How much was in the fund at the end of the term? (164,744.68)
Solution:
Given: P = 100,000 r = 10.5% = 0.105 t = 5
Find: maturity value F after 5 years
t
F = P (1 + rt) = (100,000)(1 + 0.105)5 = 164,744.68
Answer: After 5 years, the fund is P164,744.68.
To solve for the present value or the principal of the maturity value F, use the formula for computing
maturity value F and solve for P.
F = P (1 + rt)t
P (1 + rt)t = F Re-writing the formula
𝑷(𝟏 + 𝒓𝒕)𝒕 𝑭
=
(𝟏 + 𝒓)𝒕 (𝟏 + 𝒓)𝒕
𝑭
P = (𝟏 + 𝒓)𝒕
or P = F(1 + rt)-t
Example 3. What is the present value of a loan that should pay off P50,000 after 7 years if the money is
worth 10% compounded annually?
Solution:
Given: F = 50,000 r = 10%=0.10 t = 7
Find: the present value P
𝑭 𝟓𝟎,𝟎𝟎𝟎
P= = = 25,657.91
(𝟏 + 𝒓) (𝟏 +𝟎.𝟏𝟎)𝟕
𝒕
Answer: The present value is P25,657.91.
Example 4. How much should an employee place in a time deposit in ABC Bank that pays 1.1%
compounded annually so that the he will have P200,000 after 6 years?
Solution:
Given: F = 200,000 r = 1.1% = 0.011 t = 6 years
Find: P
P = F(1 + rt)-t = (200,000) (1 + (0.011)(6))-6 = 187,293.65
Answer: The employee should deposit P187,293.65.
Lesson Outline:
1. Compounding more than once a year
2. finding maturity value, interest, and present value when compound interest is computed more than
once a year
where:
F = maturity (future) value at the end of the term
P = principal
i(m) = nominal rate of interest
𝒓 (annual rate)
𝒏𝒕
A = P (𝟏 +
t = term or time, in years 𝒏 )
m = frequency of conversion
NOTE:
t
F = P (1 + j)
Has the same structure as
𝒊𝒎 𝒎𝒕
𝑭 = 𝑷 (𝟏 + )
𝒎
𝒎
𝒊
Where j and 𝒎 refer to the interest rate per conversion period, t and mt refer to
the number of times that interest is compounded.
The nominal rate i is the annual interest rate, unless otherwise stated. The frequency of conversion m
tells the number of times the interest is added to the principal in one year. That is,
m if
1 Annually
2 Semi-annually
4 Quarterly
6 Every 2 months
12 monthly
360 daily
Example 1. Find the maturity value and interest if P10,000 is deposited in a bank at 2% compounded
quarterly for 5 years.
Solution:
Given: P = 10,000 i4 = 0.02 t = 5 m = 4
Find : (a) F and (b) P
• Compute for the interest rate in a conversion period by:
𝒊𝒎 𝑖4 𝟎.𝟎𝟐
𝒋= 𝒎
= 𝟒
= 𝟒
= 0.005
• Compute for the total number of conversion periods given by:
n = mt = (4)(5) = 20 conversion periods
• Compute for the maturity value using:
t
F = P (1 + j) = (10,000)(1 + 0.005)20 = 11, 048.96
• Compute for the compound interest
Ic = F – P = 11,048.96 – 10,000 = 1,048.96
Answer: The maturity value is P11,048.96 and the interest is P1,048.96.
Example 2. Find the maturity value and interest if P10,000 is deposited in a bank at 2% compounded
monthly for 5 years.
Solution:
Given: P = 10,000 i12 = 0.02 t = 5 m = 12 (monthly)
Find: (a) F and (b) P
• Compute for the interest rate in a conversion period by:
𝒊𝒎 𝒊𝟏𝟐 𝟎.𝟎𝟐
𝒋= 𝒎
= 𝟏𝟐
= 𝟏𝟐
= 0.0016
• Compute for the total number of conversion periods given by:
n = mt = (12)(5) = 60 conversion periods
• Compute for the maturity value using:
t
F = P (1 + j) = (10,000)(1 + 0.00𝟏𝟔)20 = 11,050.79
• Compute for the compound interest
Ic = F – P = 11,050.79 – 10,000 = 1,050.79
Answer: The maturity value is P11,050.79 and the interest is P1,050.79.
Example 3. Find the present value of P50,000 due in 4 years if money is invested at 12% compounded
semi-annually.
Solution:
Given: P = 40,000 i2 = 0.12 t = 4 m = 2 (semi-annually)
Find: P
• Compute for the interest rate per conversion period by:
𝒊𝒎 𝒊𝟐 𝟎.𝟏𝟐
𝒋= 𝒎
= 𝟐
= 𝟐
= 0.06
• Compute for the total number of conversion periods given by:
n = mt = (2)(4) = 8 conversion periods
• Compute for the maturity value using:
𝑭 50,000 50,000
P= 𝒕 = (1 + 0.06) 8 = (1.06) 8 = P31,370.62
(𝟏 + 𝐣)
Answer: The present value is P31,370.62.
B. EXERCISES FOR SKILLS/ANALYSIS USING HOTS FOR CONTENT SUBJECTS
EXERCISE 1
Directions: Identify the term(s) being referred to in each statement. You can choose from the terms
inside the box below. Write your answers in a separate sheet of paper.
✓ Principal
✓ Interest rate
✓ Interest
✓ Term
✓ Maturity Value
EXERCISE 2
Directions: Copy and complete the given table on your answer sheet. Show your solution to support
your answer. (The first one is done for you.)
EXERCISE 3
Directions: Solve the following given real-life problems. Show your complete solution on your answer
sheets.
1.) What are the amounts of interest and maturity value of a loan for P20,000 at 6% compound
interest for 3 years?
2.) How much should Kaye set aside and invest in a fund earning 2% compound quarterly if she
needs P75,000 in 15months?
C. ASSESSMENT/APPLICATION/OUTPUTS
II. Directions: Choose the letter of the best answer. Write your answer on your answer sheet.
1. How much interest is earned when an amount of P100,000 is invested with an annual interest
rate of 8% for 5 years?
a. P62,000 c. P45,000
b. P40,000 d. P52,000
2. A baker borrowed P17,200 with a 7.1% interest and paid back after 3 years. How much was the
interest paid?
a. P4,543.6 c. P3,663.6
b. P3,243.6 d. P3,512.6
3. Find the present value of P19,300 due in 3 years with an annual interest rate of 10%?
a. P15,252.11 c. P14,843.15
b. P12,411.12 d. P12,312.34
4. What must be invested now in a savings account earning 9% compounded quarterly to
accumulate a total of P21,000 after 4 years?
a. P11,515.21 c. P14,709.78
b. P10,424.55 d. P12, 421.21
5. Find the present value of P30,000 due in 5 years if money is worth 7% compounded semi-
annually.
a. P21,267.56 c. P19,415.81
b. P18, 491.22 d. P22,461.92
6. If money is invested at 11% compounded quarterly, find the present value of P8,700 due at the
end of 2 years.
a. P5,202.21 c. P7,002.69
b. P8,002.11 d. P6,503.12
7. Hanna invested P8,000 in a fixed deposit for 2 years at a compound interest rate of 5% per
annum. How much Hanna will get after two years?
a. P8820 c. P8510
b. P8620 d. P8730
8. What will be the compound interest of P25,000 after 3 years at the rate of 12% per annum?
a. P10,123.40 c. P10,123.30
b. P10,123.20 d. P10,123.50
II. DIRECTIONS: Answer the given question:
References:
Crisologo, L., Hao, L., Palomo, E., Ocampo, S., Tresvalles, R. (2016). General Mathematics Teacher’s
Guide. Department of education-Bureau of Learning Resources, Ground Floor Bonifacio Bldg., DepEd
Complex Meralco Avenue, Pasig City, Philippines 1600. Lexicon Press Inc. blr.lrpd@deped.gov.ph
Flores, M., Gagani, RF., Ypanto, Q., Aunzo, R.(2016). Worktext in General Mathematics. C & E
Publishing, Inc.
Edited by:
Reviewed by:
GUIDE
For the Teacher: Please advise the students to read the discussion carefully to ensure total assimilation
of the topic. In doing so, they will be able to answer the given exercises smoothly.
For the Learner: Read the self-learning home task carefully from the first part to the last part. This will
help you get a clearer understanding of the subject matter.
For the Parent/Home Tutor: Please guide your child as he/she go through with the whole self-learning
home task. Make sure that he/she handles her time properly in order to prevent any deviations of the whole
learning process.
ANSWER KEY
Exercise 1
1. Term
2. Interest
3. Interest rate
4. Principal
5. Maturity Value
Exercise 2
1. P72,000
2. P192,00
3. P68,992
4. P156,992
5. P21.721.69
6. P31,721.69
7. P85,704.04
8. P135,704.04
9. 2
10. 4%
11. P22,433.98
12. P32,433.98
13. P15,149.74
14. 12
15. 120
Exercise 3
1. Fc = P23,820.32; Ic = P3,820.32
2. P73,152.80
ASSESSMENT
Test I
1. 12
2. 0.04 or 4%
3. 0.12 or 12%
4. 7
5. Semi-annually
Test II
1. B
2. C
3. C
4. C
5. A
6. C
7. A
8. B
Test III – answer may vary