SIMPLE and COMPOUND INTEREST

for General Mathematics

Senior High School (CORE)
Quarter 2 / Week 1

1
 LESSON
SIMPLE and COMPOUND INTEREST
1

OBJECTIVES:
K. Define simple and compound interest.
S. Illustrate and distinguish between simple and
compound interest.
A. Show patience and diligent when solving the
problem.

LEARNING COMPETENCIES:

Illustrates simple and compound interest ( M11GMIIa-1)

Distinguishes between simple and compound interest
( M11GMIIa-2)

I. WHAT HAPPENED
PRE-TEST: Complete the table below:
Principal Rate Time Interest Final Amount

34,100 (1) 3 YEARS (2) 38,192

(3) 9% 6 MONTHS 225 (4)

29,500 10% (5) 737.50 (6)

(7) (8) 2 YEARS 5,000 45,000

6,000 (9) 9 MONTHS 540 (10)

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II. WHAT YOU NEED TO KNOW
In this lesson, we will discuss on how to calculate the principal, rate, time
and interest using the three quantities are known and applied for solving the
real problem.

DISCUSSION:

Definition of Terms:
Principal ( P)– the amount that is lent or the amount that you have.
Interest( I) – the amount that is earned or the amount that is needed to be
paid for the use of one`s money.
Rate (r) - annual rate, usually in percent, charge by the lender.
Time or term (t)- amount of time in years the money is borrowed or invested,
length of time between the origin and maturity dates.
Maturity value or accumulated amount – the final amount that you will pay
or the amount after t years, that the lender receives from the borrower on
the maturity date.
Simple Interest – interest that is computed on the principal and then added
to it.

SIMPLE INTEREST
Interest is given by the formula, I = Prt where P is the principal or the
original amount, r is the rate of the annual interest and t is the time or terms of
years. If the interest is due at the end of time, then it is simple interest. Since
interest are made annually, it is logical that other measure of time such as
months or days must be converted into fraction of the years. This can be done
using the following formulas:

X years X years
X months x/12
X days x/360
Note: for getting the exact interest we could also
use (x/365)

➢ 270 days = 270/ 360 = ¾ year

➢ 3 months = 3/12 = ¼ year

4
 The final amount or the maturity value, however, can be computed by
adding the Principal amount plus the total interest or F = P + I.

DERIVED FORMULAS:
a. P= I/rt e. P = F/1+rt
b. r = I/Pt f. P = F - 1
c. t = I/Pt g. I = F - P
d. F = P(1+rt)

Example 1:
Suppose you invest P1,000 at 8% simple interest. How much money will
you have after 6 years?
Solutions:
Given: P =P1,000
r = 8%
t = 6 years

a. I = Prt b. F = P + I
I = P1,000(.08)(6) F = P1,000 + 480
I = P480 F = P1,480 the amount of money after 6 years

Example 2:
How much was borrowed if the interest at 2% after 6 months is P400?
Solutions:
Given: I = P400
r = 2%
t = 6 months

a. 6 months = 6/12 = ½ year

b. P = I / rt
P = P400/.02X ½
P = P400/.01
P = P40,000 amount borrowed

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EXAMPLE 3:
At what rate should P7,500 be invested to have a final amount of P9,300
in 8 months?
Solutions:
Given: P = P7,500
F = P9,300
t = 8 months

a. 8 months = 8/12 = 2/3 year c. r = I / Pt

b. I = F – P r = P1,800/ P7,500 X 2/3
I = P9,300 – P7,500 r = P1,800/ P5,000
I = P1,800 r = 0.36
r = 36% the rate that the money
should be invested.

Example 4:
How many years would it take for P6,000 to grow until P7,900 if it is
invested at a 9% simple interest?
Solutions:
Given: P = P6,000
F = P7,900
r = 9%

a. I = F – P b. t = I / Pr
I = P7,900 – P6,000 t = P1,900/ P6,000 X .09
I = P1,900 t = P1,900 / 540
t = 3.52 years rounded off to the nearest whole
number
t = 4 years
MATURITY VALUE
Suppose the bank granted you a loan worth P5,000,000 for 2 years at 7%
rate of interest. The final amount that you must pay, including the interest and
the principal amount after two years is called maturity value. Meanwhile, the
current worth of cash to be received in the future with one or more payment
is called the present value . The maturity date of the loan is the deadline
agreed by both parties where in the debtor must pay the maturity value of the
money he lend from the bank.

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 To get the maturity value, we add the total sum of interest to the present
value of the money or: M = P+I

Example 1
Neil Zafe`s Bank granted him a P250,000 loan payable for 2 years at 5%
interest. How much money does Neil owe on the maturity date?
Solutions:
Given: P = P250,000
r = 5%
t = 2 years

We need to compute first the interest, I = Prt

I = P250,000 (.05) (2)
I = P25,000

To get the amount that Neil will pay on the maturity date use, M = P + I
M = P250,000 + P25,000
M = P275,000

Example 2:
Find the term of a P75,000 loan whose interest is 24,000 at 11% rate of
interest.
Solutions:
Given: P = P75,000
r = 11%
I = P24,000

t = I/Pr
t = P24,000/ P75,000 X .11
t = P24,000 / P8,250
t = 2.91 years rounded off to the nearest whole number
t = 3 years

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Example 3:
Gina needs P6,000 for her son`s tuition fee after 5 months. One day, her
friend asked her if she could lend her some money. She decided to lend her
friend who needs it so that she can save her money today and also make it
sufficient for her son`s tuition fee. On what rate of increase should she offer her
friend given that her money now is P4,000?
Solutions:
Given: P = P4,000
M = P6,000
t = 5 months

a. 5 months = 5/ 12 r = I / Pt
I=M–P r = P2,000/ P4,000 X 5/12
I = P6,000 – P4,000 r = P2,000/ P1,666.67
I = 2,000 r = 120%

COMPOUND INTEREST
Simple interest computes for the interest which is rooted only from the
principal amount—the compound interest on the other hand, is an interest
from the initial amount and also on the final amount of previous periods of
deposits. Compound interest is a way to earn money because you don`t just
earn using your original money, but also on the interest you earned---but it can
also be against you whenever it is for the use of loans and debts.
Example:
Find the compounded amount on P2,000 for 3 years at 7%.
Solutions:
Given: P = P2,000
t = 3 years
r = 7%

Original amount P2,000

Interest after 1 year on P2,000 at 7%
Amount at the end of first year
Interest on the new principal
Amount at the end of the second year
Interest on the new principal
Amount at the end of the third year
P2,000 x .07 =P2,140
P2,000 + P140 =P2,140
P2,140 x .07 = P149.80
P 2,140 + 149.80 = P2, 289.90
P2,289.90 X .07 = P160.286
P2, 289.90 + P160.286 = P2,450.086

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 To easily compute for the compounded amount, let us use the formula
𝒓
F = P(𝑷 ( 𝟏𝒕 𝒏)nt, where F is the final compounded amount, P is the Principal, r is
the rate of interest, n is the number of times of year the interest is compounded
and t is the time which is converted must be in years or a fraction of a year.
Let us try to answer example number 1 using the formula above.

Example 1:
Find the compounded amount on P2,000 for 3 years at 7%.
Solutions:
Given: P = P2,000
t = 3 years
r = 7%
n=1

F = P2,000(1+. 07/1) 3X1

F = P2,000(1.07)3
F = P2,000 X 1.225043
F = P2,450.086

Example 2:
Accumulate P2,000 for 3 years at 7% compounded monthly.
Solutions:
Given: P = P2,000
t = 3 years
r = 7%
n = 12

F = P2,000( 1 + .07/12)3X12
F = P2,000( 1+ 0.005833)36
F = P2,456.82

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III. WHAT HAVE I LEARNED
EVALUATION/POST TEST:
Solve the following problem. Write it in your activity notebook. Show your
solution.
1. Suppose you invest P5,000 at 10% simple interest. How much money will
you have after 5 years?
2. How much was borrowed if the interest at 4% after 9 months is P800?
3. At what rate should P10,000 be invested in order to have a final amount
of 12,500 in 9 months.
4. How many years would it take for P8,000 to grow until P10,000 if it is
invested at 12% simple interest?
5. ABC bank granted JUAN to loan an amount of P350,000 payable for 4
years at 5% interest. How much does he pay on the due date?

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 COMPUTES INTEREST, MATURITY VALUE, FUTURE
LESSON VALUE, AND PRESENT VALUE IN SIMPLE INTEREST
2 AND COMPOUND INTEREST ENVIRONMENT FOR
GENERAL MATHEMATICS
OBJECTIVES:
K. Illustrate simple and compound interest, maturity
value, present value;
S. Compute interest, maturity value, present value in
simple and compound interest environment.
A. Realize the importance of computing simple and
compound interest, maturity value and present
value in daily activities.

LEARNING COMPETENCY:

Computes interest, maturity value, future value, and

present value in simple interest and compound
interest environment (M11GM-IIa-b-1)

I. WHAT HAPPENED

RECALL
Before you proceed with this lesson, you should be able to recall the
following:

1. Conversion of percent to decimal

➢ Option 1: Convert from percent to decimal, divide the percent by
100, and remove the "%" sign
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Example: 13% = 100 =0.13

➢ Option 2: Move twice to the left from the decimal point

Example: 13% since 13 is a whole number, the point is located at the
right side of the number, then move twice to the left, the result is 0.13.

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 2. Conversion of months to years
➢ There are twelve months in one year. To convert months to years:
1year
Year = number of months x
12 months
Example: Convert 36 months to years.
1 year
36 months x = 3 years
12months

PRE-TEST:

Complete the table below by finding the unknown

Principal (P) Rate (r) Time(t) Interest (I)
(a) 2.5% 4 1500
36,000 (b) 1.5 4860
250,000 0.5% (c) 275
500,000 12.5% 10 (d)

A. Find the compound interest on ₱800 for 3 years at 6% compounded

semiannually.

II. WHAT YOU NEED TO KNOW

DISCUSSION:

The Annual Simple Interest is The following are the variables of

given by simple interest:

Formula P = principal amount (present value)

Is = Prt r = annual rate
Maturity (Future) Value t = time period (term)
F = P + Is I = amount of interest paid or received
or F = P (1 + rt) F = maturity value (future value)

Now, let us know the answer of your pre-test as an example

Example 1: Complete the table below by finding the unknown

Principal(𝑷) Rate(𝒓) Time(𝒕) Interest(𝑰)
(𝒂) 2.5% 4 1500
36,000 ( 𝒃) 1.5 4860
250,000 0.5% ( 𝑐 ) 275
500,000 12.5% 10 (𝒅 )

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Solution:

a. The unknown is the Principal(P)

In this case, you need to derive
Is =Prt
Is Prt Divide both side by rt,
= {
then apply cancellation of similar variable rt
}
rt rt
Is I
=P or P= rts
rt
IsIs 1,500
Therefore: P= P= =
rt rt (0.025)(4)
b. The unknown is rate (r)P = 15,000
In this case apply the derivation
Is =Prt
Is Prt
=
Pt Pt
{Divide both side by Pt, then apply cancellation of similar variable Pt}
Is I
=r or r= Pts ;
Pt
Is
Therefore, r= is the formula
Pt
Is 4,860
r= =
Pt (36,000)(1.5)
Note:To convert decimal to percent,
r = 0.09 or 9% { }
simply move twice to the right from decimal point

c. The unknown is time (𝑡)

Derive Is =Prt
Is Prt Divide both side by Pr,
= { }
Pr Pr then apply cancellation of similar variable Pr
Is
=t or
Pr
Is 275
t= =
Pr (250,000)(0.005)
t = 0.22 years

d. The unknown simple interest is given by

Is = Prt
Is = (500,000)(0.125)(10)
Is = 0.22 years

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Example 2:
Find the maturity value or future value if 1 million pesos is deposited in a
bank at an annual simple interest rate of 0.25% after (𝒂) 1 year and (𝒃) 5 years?

Solution:
Given: P = ₱1,000,000; r = 0.25% or 0.0025
Find: (a) maturity or future value F after 1 year; (b) maturity or future value F
after 5 years

Note: There are two ways to solve problem.

Method 1: Solve the simple interest 𝐼𝑠 first and then add it to 𝑃, that
is, F = P + Is
Method 2: Use the derived formula F = P(1 + rt)

a. When 𝑡 = 1, the simple interest is given by

Method 1:
Is = Prt
Is = (1,000,000)(0.0025)(1)
Is = 2500
The maturity or future value is given by F = P + Is
F = 1,000,000+2,500
F = 1,002,500

Method 2:
F = P(rt)
F = (1,000,000)(1+0.0025(1))
F = 1,002,500 The future or maturity value after 1 year

b. When 𝑡 =5
Method 1:
Is = Prt
Is = (1,000,000)(0.0025)(5)
Is = 12,500
F = P+Is
F = 1,000,000 +12,500
F = 1,012,500

Method 2:
F = P(1+rt)
F = (1,000,000)(1+0.0025(5))
F = 1,012,500

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 Compound Interest The following are the variables of
The compound interest is compound interest:
given by
P = original principal or the present value
Formula: Ic = F - P F = maturity value/ Future value of the loan
or investment (compound amount)
Maturity (Future) Value
t = period/term or the loan or investment
F = P (1 + r)t m =number of conversions per year
n = total number of conversion periods in
or the entire transaction time(t x m)
j =nominal rate or the yearly interest
F = P (1 + i)n j
i= interest rate per conversion(m)
P = F (1 + i)-n

Compounding Frequencies and Periods

Compounding or Number of compounding Compounding or
conversion frequency or conversion per year(m) conversion periods
Annual 1 1year
Semi annually 2 6
Quarterly 4 3 months
Bimonthly 6 2months
Monthly 12 1month

Example 1. Find the compound interest on ₱800 for 3 years at 6% compounded

semiannually.

Solution:

Original Principal ₱800.00

Interest for the 1st months (800 𝑥0.03) +24.00
Principal at the end of the 1st 6months 824.00
Interest for the 2nd 6 months(824𝑥. 03) + 24.72
Principal at the end of the 2nd 6 months 848.72
Interest for the 3rd 6 months (848.72 𝑥0.03) +25.46
Principal at the end of the 3rd 6 months 874.18
Interest for the 4th 6months (874.18𝑥0.03) +26.23
Principal at the end of 4th 6mohts 900.41
Interest for 5th 6 months (900.41𝑥0.03) +27.01
Principal at the end of 5th 6 months 927.42
Interest for the last 6months (927.42𝑥0.03) +27.82
Principal for the last 6 moths 955.24
Less original principal - 800.00
Total compound interest for 3 years ₱155.24

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Example 2: It shows that the amount at the end of each year if principal(𝑃) is
invested at an annual interest rate r compounded annually.
Computations for the example
P = ₱100,000 and r = 5% are also included.

Solution:

Principal= 𝑃 Principal = ₱100,000

Year Interest rate=𝑟, compounded
(𝑡 ) annually
Amount at the end of the year
1 P(1+r) = P(1+r)
2 P(1+r)(1+r) = P(1+r)2
3 P(1+r)2 (1+r) = P(1+r)3
4 P(1+r)3 (1+r) = P(1+r)4
Interest rate = 5%, compounded
annually
Amount at the end of the year
100,000(1.05)=105,000
105,000(1.05)=110,250
110,250(1.05)=121,550.63
121,550.63(1.05)=127,628.16

III. WHAT HAVE I LEARNED

EVALUATION/POST TEST:
A. Instruction: Complete the table below by finding the unknown
Principal (P) Rate (r) Time (t) Interest (I)
10,000 8% 15 (1)
(2) 2% 5 10,000
360,000 (3) 2 3,600
500,000 10.5% (4) 175,500
880,000 9.25% 2.5 (5)

B. Instruction. Find the unknown principal P, rate r, time t, and compound

interest Ic by completing the table.
Compound Maturity
Principal (P) Rate (r) Time (t)
Interest (Ic ) Value (F)
10,000 8% 15 (1) (2)
3,000 5% 6 (3) (4)
50,000 10.5% 10 (5) (6)
(7) 2% 5 (8) 50,000
(9) 9.25% 2.5 (10) 100,000

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LESSON PROBLEM SOLVING INVOLVING SIMPLE and
3 COMPOUND INTEREST

OBJECTIVES:
K. Identify the steps in solving problems involving
simple and compound interest;
S. Solve problems involving simple and compound
interest;
A. Show interest in solving problems in simple and
compound interest.

LEARNING COMPETENCY:

Solves problems involving simple and compound

interest (M11GM-IIb-2)

I. WHAT HAPPENED
RECALL
Before we to proceed the application of solving problems in simple
and compound interest, lets tackle the formulas, characteristics of variables
Simple Interest The following are the
variables of simple interest:
The Annual Simple Interest is
given by P = principal amount
(present value)
Formula
r = annual rate
Is = Prt
t = time period (term)
Maturity (Future) Value
I = amount of interest paid or
F = P + Is
received
or F = P (1 + rt)
F = maturity value (future
value)

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PRE-TEST:
Solve the following problem. Write it in your activity notebook. Show your
solution.
1. A bank offers 0.25% 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%, an amount earned ₱11,200

of simple interest in two years. How much money was originally invested?

3. Find the maturity value and the compound interest if ₱10,000 is

compounded annually at an interest rate of 2% in 5 years.

4. What is the present value of ₱50,000 due in 7 years if money is worth 10%
compounded annually?

II. WHAT YOU NEED TO KNOW

DISCUSSION:

Example 1. A bank offers 0.25% 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?

Solution:
Given: P = 1,000,000
Convert percent to decimal by
r = 0.25% = 0.0025 { }
moving the decimal point twice to the left
t = 1 year
Find Is ?

Is = Prt {Replace the value of P,r,t }

Is = (1,000,000)(0.0025)(1) {Get the product/multiply}
Is = 2500

Note: A savings account in the Philippines is subject to 20% withholding tax. If

20% withholding tax will be applied, then the actual interest earned is (2500)
(0.8) = 2000 or (2500) (.2) = 500 so, (2500- 500) = 2000.

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Example 2: When invested at an annual interest rate of 7%, an amount earned
₱11,200 of simple interest in two years. How much money was originally
invested?
Solution:
Convert percent to decimal by
r =7% = 0.07 { moving twice to the left from the decimal point }
since 7 is an integer, the point is located at the right side
t =2 years
Is =11,200
Find 𝑃?
I
P= rts {Replaced the value of I, r,t}

P= (0.07)(2) {Get first the product of denominator }

11,200
then divide it from numerator
P = 80,000

Compound Interest
The following are the variables of
The compound interest is
compound interest:
given by
P = original principal or the present value
Formula: Ic = F - P
F = maturity value/ Future value of the loan
III.Maturity
WHAT(Future)
HAVEValue
I LEARNED
or investment (compound amount)
t = period/term or the loan or investment
EVALUATION/POST
F = P (1 + r)t TEST: m =number of conversions per year
or n = total number of conversion periods in
the entire transaction time(t x m)
n
F = P (1 + i) j =nominal rate or the yearly interest
j
P = F (1 + i)-n i= interest rate per conversion(m)

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Example 3. Find the maturity value and the compound interest if ₱10,000 is
compounded annually at an interest rate of 2% in 5 years.

Solution:

Given: P =10,000
Convert percent to decimal,
r = 2%=0.02 { }
move twice to the left from decimal point
t = 5 years

Find: a. maturity value F

b. compound interest
Solution:

a. F = P(1+r)t {Replace the value P,r and t}

Simplify the exponent first by
F = (10,000)(1 + 0.02 )5 { by getting the sum inside the parentheses }
then multiply by itself in 5 times
F = (10,000)(1.104080803) {Simplify by getting the product}
F = 11,040.081
b. Ic = F-P {𝑅𝑒𝑝𝑙𝑎𝑐𝑒 𝑡ℎ𝑒 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝐹 𝑎𝑛𝑑 𝑃}
Ic = 11 040.81 – 10 000 {𝑆𝑢𝑏𝑡𝑟𝑎𝑐𝑡}
Ic = 1 040.81

The future value F is ₱ 11 040.81 and the compound interest is ₱ 1 040.81.

Example 4. What is the present value of ₱50,000 due in 7 years if money is worth
10% compounded annually?

Solution:
Given: F = 50,000
Convert percent to decimal,
r = 10% = 0.1 { }
move twice to the left from decimal point
t = 7 years
Find P?

The present value 𝑃 can be obtained by

F
P= (1+r)t
{replace the value of F, t, r}
Simplify the denominator
50,000
P= (1+0.1)7
{(add first the value inside the parentheses then }
repeat multiplying the sum by itself in 7 times
50,000
P= {Divide numerator and denominator}
1.9487171

P = 25,657.91

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III. WHAT HAVE I LEARNED
A. Instruction: Solve the following problems on simple interest.
1. At what simple interest rate per annum will ₱25,000 accumulate to
₱33,000 in 5 years?
2. How long will ₱40,000 amount to ₱51,200 if the simple interest rate is at
12% per annum?
3. In order to have ₱200,000 in 3 years, how much should you invest if the
simple interest is 5.5%?

B. Instruction: Solve the following problems on compound interest.

1. What are the amounts of interest and maturity value of a loan for ₱20,000
at 6% compound interest for 3 years?
2. To have ₱50,000 in 5 years, how much should you invest if the compound
interest is 5%?
3. A savings account in a bank yields 0.25% compound interest annually.
Accumulate (find the future value) of ₱25,000 for 4 years in this savings
account. How much interest will be gained?

25
 BASICS of
SIMPLE and GENERAL ANNUITIES
for General Mathematics
Senior High School (CORE)
Quarter 2 / Week 2

1
 FOREWORD

This self-learning kit will serve as a guide in studying the

subject area General Mathematics. Guided by the Most
Essential Learning Competencies (MELC) it will be used as
an aid in learning Simple and General Annuities. Hence, it
illustrates and distinguishes simple and general annuities.
In this learning kit, students will gain knowledge in
defining and illustrating simple and general annuities.

I. What Happened
This section contains pre-activities like review of the
prior knowledge and a pre-test on what the learners have
learned in their previous discussions.

II. What You Need To Know

This section contains definition of simple and general
annuities, and real-life example problems and the
corresponding solutions that clearly illustrate the
applicability of a mathematical concept.

III. What Have I Learned

The exercises contained in this section are guaranteed
to build mathematical comprehension, skills and
competence. These serve as a diagnostic tool to identify
the learners’ areas of strengths and difficulties.

2
OBJECTIVES:
K. Define simple and general annuities.
S. Illustrate and distinguish between simple and
general annuities.
A. Show patience in illustrating simple and general
annuities through its time interval.

LEARNING COMPETENCIES:

Illustrates simple and general annuities (M11GM-IIc-1)

Distinguishes between simple and general annuities
(M11GM-IIc-2)

I. WHAT HAPPENED
PRE-ACTIVITY: “GET TO KNOW THE TIME INTERVAL”
Match Column A to “How often each type of payment happen per
year?” in column B. Write the letter of your answer in your activity
notebook.
Column A Columnn B
1. Monthly A. 1
2. Semi-annually B. 2
3. Annually C. 4
4. Quarterly D. 12
5. Every 3 months
6. Every 6 months

PRE-TEST
Given the following situations, illustrate and distinguish whether it is simple
annuity or general annuity. Write your answer in your activity notebook.

1. Mrs. Remoto likes to save ₱3,000 every month for 6 years in a fund that
gives 9% compounded monthly.

2. Cris started to deposit ₱1,000 monthly in a fund that pays 6%

compounded quarterly for 15 years.

3. A teacher plans to save ₱5,000 every 6 months for 10 years in a bank

that pays 0.25% compounded monthly.

4. In order to save for her high school graduation, Marie decided to save
₱2,000 at the end of each quarter. The bank pays 0.50% compounded
quarterly.

3
II. WHAT YOU NEED TO KNOW

Annuity – a sequence of payments made at

equal (fixed) intervals or periods of time.
(Verzosa et.al, 2016)
Simple Annuity – an annuity where the
payment interval is the same as the interest
period. (Verzosa et.al, 2016)
General Annuity – an annuity where the
payment interval is not the same as the interest
period. (Verzosa et.al, 2016)

DISCUSSION
To understand the concepts of simple and general annuities, let us have
the following examples.

EXAMPLE 1
Mrs. Remoto likes to save ₱3,000 every month for 6 years in a fund that
gives 9% compounded monthly.
Solution:
The problem above, shows that the payment interval is every month,
while the interest period is compounded monthly. Since the payment interval
and the interest period are the same, example 1 illustrates simple annuity.

EXAMPLE 2
Cris started to deposit ₱1,000 monthly in a fund that pays 6%
compounded quarterly for 15 years.

Solution:

In this problem, the payment period is monthly, and the interest period is
compounded quarterly. If we match the payment period to the interest period,
the two are different. Thus, this is an example of general annuity.

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EXAMPLE 3
A teacher plans to save ₱5,000 every 6 months for 10 years in a bank
that pays 0.25% compounded monthly.

Solution:
The example above, gives that the payment period is at every 6 months,
and the interest period is compounded monthly. Comparing the two periods,
we can say that they are different. Therefore, it is general annuity.
EXAMPLE 4

In order to save for her high school graduation, Marie decided to save
₱2,000 at the end of each quarter. The bank pays 0.50% compounded
quarterly.

Solution:
Example 4, presents that the payment period is quarterly, and the interest
period is compounded quarterly. Since the two periods are the same, this is
simple annuity.

III. WHAT HAVE I LEARNED

SIMPLE ANNUITY
Payment period per year = interest period per year
or in symbol, P/Y = I/Y.

GENERAL ANNUITY
Payment period per year ≠ interest period per year
or in symbol, P/Y ≠ I/Y.

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POST-TEST
Given the following situations, illustrate and distinguish whether it is simple
annuity or general annuity. Write your answer in your activity notebook.

1. Monthly payments of ₱3,000 for 4 years with interest rate of 3%

compounded monthly.

2. Semi-annual payments of ₱150,000 with intrest rate of 8% compounded

annually for 10 years.

3. Annual payments of ₱20,500 with interest rate of 8.5% compounded semi-

annually for 3 years.

4. Quarterly payment of ₱5,000 for 10 years with interest rate of 2%

compounded quarterly.

5. Quarterly payment of ₱15,000 for 10 years with interest rate of 8%

compounded annually.