General Mathematics

SHS
SECOND QUARTER
WEEK 1
WORKSHEET NO. 2

MELC:
Illustrates simple and
Compound Interest
Compound Interest;
Distinguish between
simple and compound
interest.
(M11GM-IIa-1& 2)

Writer: JESRON R. LUMBRE

Illustrator:
Layout Artist:
Evaluator/s:

Department of Education • Schools Division of Marinduque

 Lesson

1 What’s NewCompound Interest

Compound interest (𝑰𝒄) is the interest computed on the principal and also on the
accumulated past interest, so compound interest is a way to earn money because you
don’t just earn using your original money, but also the interest you earned.

To give you a deeper concept of compound interest, reflect the following

questions: Have you ever lent money to someone like a friend, sibling, or relative? If
so, would you let them pay more than or less than or just equal to what you lent to
them? Since you consider to help them, probably you will answer just an equal
amount is ok even though your money has been used for a period of time. But, I’m
sure some will answer that you should receive more than the amount they borrowed
and no one will say that you should receive less than the amount they borrowed. I
know you have your own perspective in life but let us see if compound interest will
change your view in life regarding loans or borrowings, savings, and investment.

Are you familiar with credit cards? We have what we called “Perma-Debt” which
means a continuous outstanding balance of a credit card where they pay the monthly
minimum that fits in their budget to lessen the burden of interest monthly but tries to
add some debt again in the following month so the debts never end. So why did I tell
you this? If you are a debtor compound interest is not good for you. Better yet pay
your debt in full the soonest possible so that the burden of interest will not be on your
shoulder. Conversely, if you are an investor, compound interest is your best buddy
and it is better to invest in a long period of time for you to have a greater return of
your investment through interest earned. So, if you have the means or a way to save
and invest early, you must consider it as soon as possible for you to gain more money
in the future.

The following table shows the amount at the end of each year if principal P is
invested at an annual interest rate r compounded annually. Computations for the
particular example P = 100,000 and r = 5% are also included

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

F = P(1 + r)n
Where: P = principal, original amount, or present value
F = the final amount, accumulated value, or compound event
i = the rate of interest for each conversion period. It is computed using i =
r
m
r = the normal rate of interest or the annual interest rate
m = the frequency of conversion periods in one year

Frequency of conversion Value of m

annually m=1
Semi-annually m=2
quarterly m=4
monthly m = 12

n = the total number conversion periods; it can be computed by using the

formula = m ∙ t
t = the number of years

The compound interest Ic is given by

Ic = F - P

Let us try to solve some problems involving compound interest and its
maturity/future value.

Illustrative Example 1: Find the maturity value and the compound interest if 10,000
is compounded annually at an interest rate of 2% in 5 years?
Step 1:Identify the given and the unknown
P = 10,000
R = 2% = 0.02
T = 5 years
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 a. F = ?
b. Ic = ?

Step 2: Substitute the given to the formula

a. F = P(1 + r)t
b. Ic = F – P

Step 3: Find the solution.

a. F = P(1 + r)t
F = (10,000)(1 + 0.02)5
F = ₱11,040.81
b. Ic = F – P
Ic = 11,040.81 – 10,000
Ic = ₱1,040.81

Step 4: Write your final Answer

The Future value is ₱11,040.81 and the compounded interest is ₱1,040.
Illustrative Example 2: Suppose your father deposited in your bank account ₱10,000
at an annual interest rate of 0.5% compounded yearly when you graduated from
kindergarten and did not get the amount until you finish Grade 12. How much will
you have in your bank account after 12 years?

Step 1:Identify the given and the unknown

P = 10,000
R = 0.5% = 0.005
T = 12 years
F=?

Step 2: Substitute the given to the formula

F = P(1 + r)t

Step 3: Find the solution.

F = P(1 + r)t
F = (10,000)(1 + 0.005)12
F = 10,616.78

Step 4: Write your final Answer

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 The amount will become ₱10,616.78 after 12 years.
Finding the Time in a Compound Interest
To find the time in a compound interest, we use the following formula.

F
n log
t= where n= P
m
log ⁡(1+i)
Illustrative example 3: Rose makes an investment worth ₱15,000 in a savings bank
paying 14% compounded monthly. If she withdraws all her investments and the
interest which amounts to ₱19,450, for how long did she invest her money?

Step 1: Identify the given and the unknown.

P = 15,000 m = 12 n=?
r 0.14 7
F = 19,450 i= = = t=?
m 12 600
r = 14% = 0.14
Step 2: Substitute the given formula

F
log
n= P
log ⁡(1+i)
n
t=
m
Step 3: Find the solution
Find the value of n,
F
log
n= P
log ⁡(1+i)
19 450
log
15 000
n=
7
log ⁡(1+ )
600
n = 22.40

Step 4: Write your final answer

Therefore, Rose invested 1 year and 10 months.

Find the Nominal rate r in a Compound Interest

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To find the nominal rate r in a compound interest, we use the following formulas.

r = i ∙ m where i =
√
n F
P
−1 or i = ¿ – 1
Illustrative Example 5: at what rate compounded quarterly will ₱14,000 become ₱16,500 for three
years?

Step 1: Identify the given and the unknown

P = 14 000 i = 3 years
F = 16 500 n = mt = (4)(3) = 12
m=4 i=?

Step 2: Substitute the given formula

i=
√
n F
P
−1
Step 3: Find the solution
Find the value of i,

√
Fn
Find the value of r,
i= −1
P r=i∙m
i=
√
12 16 500

14 000
i = 0.0138
−1 r = (0.0138)(4)
r = 0.0552 or 5.52%

Step 4: Finalize your answer.

Therefore, the rate compounded for three years is 5.52%

What I can do
Directions: Write the word TRUE if the statement is correct, otherwise write FALSE on
a separate answer sheet. If your answer is FALSE, write the word or phrase that will
make the statement correct.

_____1. Perma-debt decreases the amount of money available on hand to spend in the
future.
_____2. Compound interest works well if you save early for retirement or invest early.
_____3. The longer it takes for you to pay a debt the smaller the interest you pay.
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_____4. If borrowers pay at least the minimum payment every month of their debt,
their
credit standing is not good.
_____ 5. If you are planning to invest, compound interest is better than the simple
interest.
Activity 2
Directions: Solve the following problems on compound interest.
1. Christian made a withdrawal of ₱2,000 after 2 years. If no further
withdrawal is made, how much will be in his account after 3 years.
2. How much money must be invested to obtain an amount of ₱30,000 in 4
years if money earns at 8% compounded annually?
3. A businessman invested ₱100,000 in a fund that pays 10.5%
compounded annually for 5 years. How much was in the fund at the end
of the term?
4. What amount must be deposited by a 15-year old student in a bank that
pays 1% compounded annually so that after 10 years he will have
₱20,000?
5. If P = ₱85,500, and r = 1.25% compounded monthly for 1 year, find the
compound interest.

Assessment

1. Compound interest is favorable to the following except?

A. investor of a retirement fund C. investor of stocks
B. person who saves in bank 19 D. borrower of a loan

2. Which of the following will yield a higher interest?

A. Investing in a bank that offers a simple interest rate of 10% annually for 2
years
B. Investing in a cooperative that offers an interest rate of 10% compounding
annually for 2 years
C. Saving money in a piggy bank for 2 years
D. Both a and b
3. What formula can be used to find maturity (future) value of a compound interest?
A. F = P + I B. F = (1 + 𝑟)t

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 C. Both a and b D. None of the choices.

4. What interest is computed on the principal and also on the accumulated past
interests?
A. simple C. annuity due
B. compound D. ordinary Annuity

5. Which of the following can be used to find compound interest?

A. I = F – P F
B. F = 𝑃(1 + 𝑟)t C. P = t
(1+r )
D. I = Pr

Additional Activity

Guide Questions

1. What is compound interest?

2. When do we calculate compound interest?
3. What are some ways to take care of hard-earned money?
4. Cite an example of a successful personalities who have applied good
investment mathematics.
5. Distinguish simple and compound interest based on their illustrations.

Key to Correction

Compound Interest
5. True
Assessment charge
1. D standing since no penalty will be
4. False, the debtor is still in good
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2.B Lead to Excel, Excel to Lead”
the greatest interest you pay
3. False, the longer you pay debt 1,068.75
3. B 2. True 18,105.74
4. B
1. True 164,744.68
A 22,050.90
5. B Activity 1 ₱3, 397.99
Additional Activities
1. Compound interest (𝑰𝒄 ) is the interest computed on the principal and also on the
accumulated past interest, so compound interest is a way to earn money because you
don’t just earn using your original money, but also the interest you earned
2. When calculating compound interest, the number of compounding periods makes a
significant difference.
3. Possible answer: buy only what you need, try to save some money, invest some money,
think of the future money,
4. Let students search on their own. Answer may vary based on their answer.
5. Possible answer: simple interest remains constant throughout the investment term. In
compound interest, the interest from the previous year also earns interest. Thus, the

References
Notes and Bibliography: Sample Citations
ADM General Mathematics SLM Quarter 2: Module 1: Simple and General Annuities,
First Edition, 2020
ADM General Mathematics SLM Quarter 2: Module 3: Future and Present Values of
Simple and General Annuities, First Edition, 2020
Jolo, Ann Michelle M. General Mathematics Quarter 2-Module 1 and 2 for Senior High
School Simple and Compound Interests

Versoza, Debbie Marie B, Ph.D. TEACHING GUIDE FOR SENIOR HIGH SCHOOL General
Mathematics CORE SUBJECT: Commision on Higher Education in Collaboration with the
Philippine Normal University 2016.

Para sa mga katanungan o puna, sumulat o tumawag sa:

Kagawaran ng Edukasyon – Schools Division Marinduque

T. Roque“Deped Marinduque:
St., Malusak, Boac,Heart of the Philippines
Marinduque
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Email: deped_marinduque@yahoo.com or
lrmds_marinduque15@yahoo.com;
Tel. No.: (042) 332-1009 / 332-1611
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Lead to Excel, Excel to Lead”