Professional Documents
Culture Documents
Learning Competencies:
1. Illustrates simple and compound interests(M11GM-IIa-1)
2. Distinguishes between simple and compound interests (M11GM-IIa-2)
3. Computes interest, maturity value, future value, and present value in simple interest and compound interest
environment. (M11GM-IIa-b-1)
4. solves problems involving simple and compound interests. ( M11GM-IIb-2)
INTRODUCTION :
“Suppose you won ₱100,000.00 and you plan to invest if for 10 years. A cooperative group offers 5% simple
interest rate per year. A bank offers 2% compounded annually. Which will you choose and why?”
“When you saved money in the bank, you will gain an interest paid by the bank. On the other hand, when
you borrow money, you are charged an interest on the amount you borrowed. How does gained and charged
interests computed?”
A debtor pays the bank an amount which is more than the amount they borrowed. An investor may
withdraw from the bank more than the amount deposited. This additional sum is called INTEREST.
Definition of terms:
Lender or creditor – person (or institution) who invests the money or makes the funds available.
Borrower or debtor – person (or institution) who owes the money or avails of the funds from the lender.
Repayment date or maturity date – date on which the money borrowed or loaned is to be completely repaid.
Time or term (t) – amount of time in years the money is borrowed or invested; length of time between the origin
and maturity dates.
Principal or present value (P) – amount of money borrowed or invested on the origin date.
Rate of interest or simply rate (r) – annual rate, usually in percent, charged by the lender, or rate of increase of
the investment.
Maturity Value or Future Value (F) – amount after t years that the lender receives from the borrower on the
maturity date; equal to the sum of principal and the interest earned.
DEVELOPMENT :
Let’s Make It Simple!
Simple Interest (Is)
For every financial transaction, whether you borrowed or invested a certain amount P, a
corresponding percentage of the principal called interest is being paid. Simple Interest (Is) is the interest
charged on the principal alone for the entire duration or period t of the loan or investment, at a particular
rate r. After the term of the loan or investment, the maturity value or future value F is computed by
getting the sum of the principal and the interest due.
Page 1 of 13
Formulas:
I s=Prt
Is
P= or P=F−I s
rt
Is
t=
Pr
Is
r=
Pt
Note: If the given time is in months, it can be converted to year(s) by using the formula
number of months
t= .
12
Compound Interest (Ic)
Compound interest (Ic) is usually used by banks in calculating interest for long-term
investments and loans such as savings account and time deposits. In this type of interest, the interest due
at stipulated interval is added to the principal and earns interest thereafter. It implies that the principal
increases over a period of time, resulting to an increase in interest earned at every compounding period.
Thus, compound interest is an interest resulting from the periodic addition of simple interest to the
principal amount or simply the difference between the compound amount and the original principal.
Definition of terms:
Compound amount (F) – also called maturity value, it is an accumulated amount obtained by adding
the principal and the compound interest.
Conversion period (m) – the number of times in a year the interest will be compounded.
The following are the common conversion periods in a year:
annually : m=1
semi-annually : m=2
quarterly : m=4
monthly : m = 12
Number of conversion periods (n) – the total number of times interest is calculated for the entire term
of the investment or loan.
Annual interest rate or nominal rate (r) – the stated rate of interest per year.
Present value of F (P) – this is the principal P, that will accumulate to F if there is an interest at
periodic rate i for n conversion periods.
Formulas:
( )
mt
n r
F=P ( 1+i ) ∨F=P 1+
m
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( )
−mt
−n r
P=F ( 1+i ) ∨P=F 1+
m
I c =F−P or
n
I c =P[ ( 1+ i ) −1]
[( ) ]
1
F n
r =m −1
P
t=
log ( FP )
m [ log ( 1+i ) ]
***where
I c −¿ compound interest
P−¿ present value of F
r −¿ annual interest rate
t−¿ time (per year)
F−¿ compound amount or maturity value
m−¿ conversion period
annually : m=1
semi-annually : m=2
quarterly : m=4
monthly : m = 12
n−¿ total number of conversion periods ( n=mt )
i−¿ periodic rate i= ( )
m
r
ENGAGEMENT :
I. “SIMPLEHAN LANG MUNA!”
Study the given examples about Simple Interest.
Example 1:
Principal Rate Time Simple Interest Future Value
(P) (r) (t) (Is) (F)
1. ₱500,000.00 12.5% 10 years
)
2. 2.5% 4 years ₱1,500.00
)
3. ₱36,000.00 1 year and ₱4,860.00
) 6 months
4. ₱250,000.00 0.5% ₱1,400.00
)
5. ₱10,000.00 4% 5 months
)
Solution:
I s=Prt F=P+ I s
I s=₱ 500,000.00(0.125)(10) F=₱ 500,000.00+ ₱ 625,000.00
I s=₱ 625,000.00 F=₱ 1,125,000.00
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2.) Given: r = 2.5% or 0.025 ; t = 4 years ; I s = ₱1,500.00
Is
P= F=P+ I s
rt
₱ 1,500.00
P= F=₱ 15,000.00+ ₱ 1,500.00
0.025(4)
P=₱ 15,000.00 F=₱ 16,500.00
6
3.) Given: P = ₱36,000.00 ; t=1 years or 1.5 years ; I s = ₱4,860.00
12
Is
r= F=P+ I s
Pt
₱ 4,860.00
r= F=₱ 36,000.00+ ₱ 4,860.00
₱ 36,000.00(1.5)
r =0.09 or 9% F=₱ 40,860.00
Is
t= F=P+ I s
Pr
₱ 1,400.00
t= F=₱ 250,000.00+ ₱ 1,400.00
₱ 250,000.00(0.005)
t=1.12 years F=₱ 251,400.00
5
5.) Given: P = ₱10,000.00 ; r = 4% or 0.04 ; t= year
12
I s=Prt F=P+ I s
I s=₱ 10,000.00(0.04) ( 125 ) F=₱ 10,000.00+ ₱ 166.67
I s=₱ 166.67 F=₱ 10,166.67
Example 2:
1. When invested at an annual interest rate of 7%, the amount earned ₱11,200.00 of simple interest
in 2.5 years. How much money was originally invested?
Solution:
Is
P=
rt
₱ 11,200.00
P=
0.07 (2.5)
P = ₱64,000.00
2. Ricky borrowed ₱25,000.00 and paid ₱1,250.00 interest for 6 months. What was the rate of
interest?
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Solution:
6
Given: P = ₱25,000.00 ; I s = ₱1,250.00 ; t= year or 0.5 year
12
Is
r=
Pt
₱ 1,250.00
r=
₱ 25,000.00 ( 0.5 )
r =¿ 0.1 or 10%
Solution:
(a) Given: P = ₱15,000.00 t = 1 year
r = 7% or 0.07 m=2
r 0.07
i= = =0.035 n=mt=2 ( 1 )=2
m 2
F=P ( 1+i )
n
I c =F−P
F=₱ 15,000.00 ( 1+0.035 )2 I c =₱ 16,068.38−₱ 15,000.00
F=₱ 16,068.38 I c =₱ 1,068.38
Therefore, the compound amount and the interest are ₱ 16,068.38 and ₱ 1,068.38 , respectively.
r 0.07
i= = =0.0175 n=mt=4 ( 1 )=4
m 4
Therefore, the compound amount and the interest are ₱ 16,077.89 and ₱ 1,077.89 , respectively.
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4
I c =₱ 15,000.00[ ( 1+0.0175 ) −1]
I c =₱ 1,077.89
2.) Find the present value of ₱ 12,850.00 due in 3 years if the interest rate is 6% compounded
monthly.
Solution:
r 0.06
i= = =0.005 n=mt=12 ( 3 ) =36
m 12
−n
P=F ( 1+i )
−36
P=₱ 12,850.00 (1+ 0.005 )
P=₱ 10,738.04
3.) At what rate of interest compounded semi-annually will ₱ 14,300.00 accumulate to ₱ 17,000.00
in 2 years and 6 months?
Solution:
[( ) ]
1
F n
r =m −1
P
[( ) ]
1
₱ 17,000.00 5
r =2 −1
₱ 14,300.00
r =0.0704 or 7 .04 %
4.) How many years will it take for ₱ 13,000.00 to become ₱ 20,000.00 at 12.5% compounded
annually?
Solution:
r 0.125
i= = =0.125
m 1
t=
log ( FP )
m [ log ( 1+i ) ]
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t=
log ( ₱₱ 20,000.00
13,000.00 )
1 [ log ( 1+0.125 ) ]
t=¿3.66 years
ASSIMILATION:
YOUR TURN! Activity 1.
I. Complete the table below by solving the unknown quantities in each row. Write your
complete solutions and answers on a 1 whole sheet of paper.
A. Simple Interest
Principal Rate Time Simple Interest Future Value
(P) (r) (t) (Is) (F)
1. ₱40,000.00 2% 3 years
)
2. 10% 5 years ₱2,500.00
)
3. ₱100,000.00 1.5 years ₱3,600.00
)
B. Compound Interest
1. A bank offers 1.5% 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. Joseph borrows ₱50,000.00 and promise to pay the principal and interest at 12% compounded
monthly. How much must he repay after 6 years?
3. How much must be invested today in a savings account to have ₱50,800.00 in 6 years and 9
months if money earns 5.4% compounded semi-annually?
4. A loan ₱125,000.00 at 8% compounded quarterly was paid back with an amount of ₱176,000.00
at the end of the period. For how long was the money borrowed?
Rubric:
Criteria 25 points 20 points 15 points 10 points 5 points
CORRECTNESS 96% TO 100% 75% TO 95% 50% TO 74% 25% TO 49% 0% TO 24% of
of the given of the given of the given of the given the given
solutions are solutions are solutions are solutions are solutions are
correct correct correct correct correct
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LEARNING ACTIVITY SHEETS IN
GENERAL MATHEMATICS WEEK 2
Learning Competencies:
1. Illustrate simple and general annuities (M11GM-IIc-1)
2. Distinguish between simple and general annuities ( M11GM-IIc-2)
3. Computes the future value, present value, and periodic payment of simple annuity (M11GM-IIc-d-1)
INTRODUCTION :
In most cases where house or cars are purchased, a series of payments is needed at certain points in time. Such
transaction is called ANNUITY.
This lesson will tackle first the definition and types of annuities and the difference between simple and
compound annuities. There are types of annuity according to correspondence of payment intervals with interest
periods.
Annuities may be classified in different ways, as follows.
Annuities
According to payment interval Simple Annuity - an annuity General Annuity - an
and interest period where the payment intervals annuity where the payment
is the same as the interest intervals is not the same as
period the interest period
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According to duration Annuity Certain - an annuity Contingent Annuity - an
in which payments begin and annuity in which the
end at definite times payments extend over an
indefinite (or indeterminate)
length of time
The time between the successive payments dates of an annuity is called the payment interval.
The time between the first payment interval and last payment interval is called term of the annuity (t).
The sum of the future values of all the payments to be made during the entire term of the annuity is the future
value or the amount of an annuity (F).
The sum of the present values of all payments to be made during the entire term of the annuity is called the
present value of n annuity (P)
DEVELOPMENT:
SIMPLE ANNUITY
Simple Annuity - the payment interval is also the same as the interest period
Example 1. ₱ 50,000 deposited every year for 5 years at 8% per year compounded annually.
Solution: Notice that ₱ 50,000 was deposited every year and it is compounded
annually. Since the compounding period is similar to the payment interval, then
this is a type of simple annuity.
The cash flow of the given situation can be illustrated in the time diagram below:
Period 0 1 2 3 4 5
The future value of all the payments at the end of term (t=5).
Period 0 1 2 3 4 5
(Year )
₱ 50 ,000
₱ 50 ,000 (1.08)1
₱ 50,000 (1.08) 2
₱ 50,000 (1.08) 3
₱ 50,000 (1.08) 4
Add all the future values obtained from the previous step.
₱ 50,000.00 = ₱ 50,000
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₱ 50,000(1.08)1 = ₱ 54,000
₱ 50,000(1.08)2 = ₱ 58,320
₱ 50,000(1.08)3 = ₱ 62,985.60
₱ 50,000(1.08)4 ₱ 68,024.45
Total ₱ 293,329.45
General annuity refers to an annuity where the length of the payment interval is not the
same as the length of the interest compounding period.
Example : Find the amount of annuity of ₱700 every 6 months (½ year) for 12 years if
interest is 6% compounded monthly. (SOLUTION WILL BE PRESENTED ON THE NEXT
MODULE)
a. Monthly payments of ₱ 3,000 for 4 years with interest rate of 3% compounded monthly.
Type of Annuity: ________________
b. Quarterly payment of ₱ 5,000 for 10 years with interest rate of 2% compounded semi-
annually.
c. Monthly payments of ₱ 2,000 for 5 years with interest rate of 12% compounded annually.
Type of Annuity: ________________
You decided to join a Kabataan Savers Club which aims for financial growth of the youth
nowadays. If you pay ₱1,000.00 at the end of each year for 5 years on account that pays
interest at 5 % compounded annually, how much money will you have after 5 years?
Page 10 of 13
The future value of an annuity is the total accumulation of the payments and interest
earned. The present value of an annuity is the principal that must be invested today to
provide the regular payment of an annuity.
Simple Annuity
1 − (1 + 𝑖)−𝑛 Where
𝑃 =𝑅∗[ ]
𝑖
Where F-Future Value or
P-Present Value Amount R-Periodic
R-periodic payment Payment
m−¿ conversion period m−¿ conversion period
annually : m=1 annually : m=1
semi-annually : m=2 semi-annually : m=2
quarterly : m=4 quarterly : m=4
monthly : m = 12 monthly : m = 12
n−¿ total number of conversion n−¿ total number of conversion
periods ( n=mt ) periods ( n=mt )
( )
i−¿ periodic rate i=
r
m ( )
i−¿ periodic rate i=
r
m
t−¿ time (in years) t−¿ time (in years)
Example 1.
In this case, with the example presented, we can answer the following questions. (1) Since
the interest conversion is equal or the same as the payment interval so we will use simple
annuity.
R = ₱1,000.00 t= 5 r = 0.05 m
=1
0.05
i = =¿ 0.05
1
n = 1(5) =5
Step 2: Since we will find the amount of money after 40 years, we will use the formula:
Example 2.
Contrast in calculating the future value, a present value (PV) tells you how much money
would be required now to produce a series of payments in the future, again assuming a set
interest rate.
Page 11 of 13
0.05
i = =¿ 0.05
1
n = 1(5) =5
Since we are looking for the present value, we use the formula
As you can notice, future value is higher than the present value. This is because of the time
value of money—the concept that any given sum is worth more now than it will be in the
future because it can be invested in the present.
Definition. The cash value or cash price is equal to the down payment (if there is any)
plus the present value of the installment payments.
Example 3.
Mr Angeles paid ₱200,000.00 as a down payment for a car. The remaining amount is to be
settled by paying ₱ 6,200.00 by the end of each month in 5 years. If interest is 10.5%
compounded monthly, what is the cash price of his car?
n= 60
R= ₱16,200.00
Obtain the present value of the car by plugging the given in our formula
To get the cash value, simply add the obtained present value and the down payment made,
so;
Example 4.
Mr. Edgar borrowed from his friend ₱ 200,000.00 He promised to pay the amount plus its
interest by an equal amount of money each year for 3 years. What must be his annual
payment if they agreed on an interest of 10% compounded annually?
This example is different from the examples presented above. This time, you are going to
compute the Regular periodic payment. We will be manipulating the formula of present value
to obtain the formula for the periodic payment.
Page 12 of 13
Given:
P= ₱ 200,000.00
t= 3 m=1
i=0.10
n=3
ASSIMILATION:
YOU CAN DO IT!
A. Complete the sentence below. Write your answers on a separate sheet of paper.
B. Answer the following problems. Show your complete solutions. Have Fun!
1. Find the Present Value (P) and the Future Value (F) of quarterly payments of ₱ 2,000.00 for 5 years with
interest rate of 8% compounded quarterly.
2. In order to save for her high school graduation, Marie decided to save P200 at the end of each month. If
the bank pays 0.250% compounded monthly, how much will her money be at the end of 6 years?
3. A certain fund currently has P100,000 and is invested at 3% interest compounded annually. How much
withdrawal can be made at the end of each year so that the fund will have zero balance at the end of 12
years?
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