General Mathematics

Teaching Guide in Basic Business Mathematics (Simple and Compound

Interest)

Learning Objectives:
At the end of the lesson the students will be able to:
• Compute interest, maturity value, future value, and present value in
simple interest and compound interest environment.
• Solve Problems involving Simple and Compound Interest.

Performance Standard
• The Learner is able to investigate, analyze and solve problems involving
simple and compound interest.

(A)Introduction
Pose the following situation to the students:
Ella and Thelma each invest Php 10 000 for two years but under
different scheme. Ella’s earns 2% of the Php 10 000 for the 1st year, which is
Php 200, then another Php 200 the second year. Thelma earns 2% of the Php
10 000 for the 1st year which is Php 200, same as Ella’s. but during the 2nd
year, she earns 2% of the Php 10 000 and 2% of the Php 200 also.

Ask the students the amount in Ella’s and Thelma’s respective accounts
after 2 years. [Php 10 400 and Php 10 404]. Ask them why there is difference [
Ella just earns 2% of 10 000 but Thelma earns 2% of both the Php 10 000 and
the previous interests].

Although the amounts may be quite close, note that the situation only
includes 2 years with only a 2% interest rate. Mention that the next lesson will
formalize the concepts in the given situation. (TG DepEd Pg. 170)
(B)Motivation
Classroom Game
Group the students into 4 members. For each group, write down a
starting amount of cash (E.G. Php 100 000). Prepare some cards that gives
certain options (E.G. invest in a bank that offers 3% interest, buy clothes for
Php 200, and so forth) and even some possible real life concerns (E.G. pay Php
100 for water, pay Php 5 000 for medical bills).
After each group selects a card, compute the amount of money of that
group. End after four rounds. The point is to set the tone for thinking about
how to prepare for the future.

Try to Save Money

Explain that depositing money in a bank is like lending money to the bank in
return for which the bank pays interest. By contrast, borrowing money from
banks or lending institutions requires payment of interest. Hence, money has
present and future values. You may cite successful personalities who have
applied good investment mathematics like Bo Sanchez, Warren Buffet, ect. (TG
DepEd pg. 159)

(C) Discussion
Lesson Proper
Simple interest is used on short term notes-often on duration less than 1
year. The concept of simple interest, however, forms the basis of much of the
rest of the lessons in the next two sections, for which time periods may be
much longer than a year.
Simple Interest I is given by,
I = Prt,

Where
I = interest
P = principal
 r = annual interest rate (written as decimal)
t = time (in years)
Examlple 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 saving
account for 1 year?
Solution
Given:
P = 1 000 000
r = 0.25 % = 0.0025
t = 1 year
Find: I
I = Prt
I = (1 000 000) (0.0025)(1)
I = 2 500
Answer : The interest earned is 2 500.

Teaching tip
You may also discuss the students that interest in saving account
in the Philippines is subject to 20% withholding tax. If 20% withholding
tax will be applied, then the actual is 2 500(0.8) = 2 000. (TG DepEd pg.
163)
Example 2.

(TG DepEd pg. 166)

Many banks saving accounts pay compound interest. In this case the
interest is added to the account at regular intervals and the sum becomes the
new basis for computing interest. Thus, the interest earned at a certain time
interval is automatically reinvested to yield more interest. The following table
shows the amount at the end of each year if principal (P) is invested at annual
interest rate (r) compounded annually. Computations for the particular
example P = 100 000 and r = 5% is also included.

Principal = P Principal = 100 000

Year (T) Interest Rate = r, compounded Int. rate = 5%, compounded
annually annually
 Amount at the end of the year Amount at the end of the year
1 P(1+r) = P(1+r) 100 000 • 1.05 = 105 000
2 P(1+r) (1+r) = P(1+r)2 105 000 • 1.05 = 110 250
3 P(1+r)2 (1+r) = P(1+r)3 110 250 • 1.05 = 121 550.63
4 P(1+r)3 (1+r) = P(1+r)4 121 550.63 •1.05 = 127 628.16
Observe that the amount at the end of each year is just the amount from the
previous year multiplied by ( 1 + r ), in other words, 1 + r is multiplied each
time the year ends. This results in the following formula for the amount after T
years, given an annual interest rate of r:

Example 3

(TG DepEd pg. 172)

Group activity
Think-group share
Group the student into 7 groups.
Let the members of each group discuss their answers in the table.
Seatwork.
1. Find the unknown Principal P, rate r, time t, and compound interest Ic
by completing the table.
2. Find the Simple Interest rate using the principal, rate, and time in the
table.
3. Find the difference of simple interest and compound interest based
your answer in the table.

Group Activity
Role Playing
Based on your findings from the previous activity, make a role play that
illustrates which Interest is better to use when you open a bank account.
Include the discuss differences of each kind of interest in the role play for
further understanding.
(D) Practice

Individual Activity

Problem Solving

Analyze the problem below find out which is better to use from
compounded annually, semiannually, quarterly, monthly and daily based on
the given situation.

Mang Jose borrowed Php 300 000 at annual rate of interest of 8% and no
payments are made on this loan, what is the amount after 3 years if the
compounding takes place a) annually? b) semiannually? c) quarterly? d)
monthly? e) daily? Show your solutions

Questions:

1. What is the amount in each condition?

2. What are their differences?
3. Which is highest? Lowest?
4. Which is better to use?
5. Why do you need to know these?

(E) Enrichment Activity

Solve the following problems.

1. Bank A offers 5% interest rate compounded monthly while Bank B offers

5.5% interest compounded semiannually? Which bank offers a better
investment opportunity? Explain your answer.
2. A student plans to deposit Php 1 500 in the bank now and another
Php 3 000 2 years later. If 3 years after his last deposit, he plans to
withdraw Php. 5 000 to buy shoes, what will be the amount of money left
in the bank one year after his withdrawal? The effective annual interest
rate is 10%.
3. Gene is planning to buy a living room suite in Store A for Php 85 000.
The agreement is to pay in 5 months at 12% simple interest rate. Store B
offered Gene a living room suite for Php 85 000. The agreement is to pay
in 5 months at 12% compounded interest rate. Help Gene choose which
offer to take. Show your solution. Explain in detail which of the offer is
better.
(F) Evaluation

Answer the following questions.

a. Christian deposited 5 000 in a bank that pays 2% compounded annually.

Complete the table below.
Time Amount at the Rate (r) Compound Interest Amount at the end of
(t) start of year t Ic year t
1 5 000 2% 100 5 100
2 2% (1) Ans:202 (2) Ans: 5 202
5 2% (3) Ans: 520.40
10 (4) Ans: 5 975.46 2% (5) Ans: 6 094.97

b. In problem 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 another 3
years? Answer: 3 397.99
c. How much money must be invested to obtain an amount of 30 000 in 4
years if money earns at 8% compounded annually? Answer: 22 050.90
d. 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?
Answer: 164 744.68
e. 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?
Answer: 18 105.74 (TG DepEd Pg. 175-176)

Prepared By: Group 4

• Lester A. Maglia
• Brent G. Bangibang
• Eilyn P. Ariola
• Frizza A. Tanggana