Simple &

Compound
interest

SUBMITTED
BY:
KATHLEEN R.
BALDEMOR
BSBA-HRDM I
 Topic
1 2 3 4 5

Difference of
Simple Maturity Compound the Two
Examples
Interest Value Interest (Which is
Better?)
Simple Interests
It is an interest that is calculated on the balance owned
but not on previous interest or in other words if interest
is computed on the original principal during the whole life
of the investment, the interest due at the end of the time
is called simple interest. It is computed entirely on the
original principal (P), multiplied by the rate of interest (r),
and the time (t). This leads to simple interest formula.

The Formula : I = (P) * (r)* (t)

t=I/Pr P=I/rt r =I/Pt

Simple
Interests
Definitions of Basic Terms

•Principal (P) – It is the original amount borrowed.

•Rate of Interest (r) – It is the percent that the borrower pays for the use of the money
commonly expressed as annual interest rate.

•Time (t) – It is the length of time usually expressed in years.

•Maturity Date or Due Date – It is the date on which the loan is to be repaid.

•Maturity Value (M) – It is the total amount the borrower would need to pay back.
Maturity Back to Agenda Page

Value
Maturity Value

It is the total amount the borrower would need to pay back and is usually
denoted by M.

To find the maturity value, we simply add interest to the principal.

Maturity Value

M=P+I

M = Maturity Value

P = Principal

I = amount of interest
Examples Back to Agenda Page

Find the interest on a boat Find the interest on a boat

loan of $5,000 at 16% for 8 loan of $5,000 at 16% for 8

months

Solution: Use I = Prt

I =5,000(0.16)(0.6667) 5,000(0.16)(0.6667)
(8 months = (8 months =
8/12 of one year = 8/12 of one year =
0.6667 years) 0.6667 years)
I = $533.36 I = $533.
Examples of
Maturity Value
Example :
Jayr deposits $4,000 at a bank at an interest rate of 4.5 % per
year. How much interest will he earn at the end of 3 years?

Solution:
P = $4,000
r = 4 . 5 % c o n v e r t t o d e c i m a l f orm 4 .5 10 0 =0 .0 4 5 4 .5 / 10 0= 0. 04 5
t=3
I = Prt
I = 4 , 0 0 0 ( 0 . 0 4 5) ( 3)
= $ 540.00
M=I+P
= 540 + 4,000
= $ 4,540.00
Compound interest is when interest is earned
not only on the initial amount invested, but
also on any interest. In other words, interest
is earned on top of interest and thus
“compounds”.
The compound interest formula can be used to
calculate the value of such an investment
after a given amount of time, or to calculate
things like the doubling time of an investment
Where :

A = Accumulated Amount
P = Principal Amount (Initial
amount )
r = Interest Rate ( Decimal Form)
t = Time
N = number of times interest
applied per time period (semi-
annually, quarterly, monthly ,
yearly etc..)
Fin International Ltd makes an initial
investment of $ 10,000 for two years. Find
the value of the investment after the two
years if the investment earns a return of 2
% compounded quarterly.

A = $ 10,000 (1 + 0.02 / 4) 4*2

A = $ 10,000 (1 + 0.02 / 4) 8
A = $ 10,000 (1.005) 8
A = $ 10,000 * 1.0407
A = $ 10,407.07
What is the value of an investment of
$3,500 after 2 years if it earns 1.5%
compounded quarterly?

A=P(1+rm)nt
=3500(1+0.0154)4×2
≈3606.3

Answer: The value after 2 years will be

$3,606.39

Mr. X makes an initial investment of $ 10,000 for five years.

Find the value of the investment after the five years if the
investment earns a return of 3 % compounded monthly.

Solution :

A = $ 10,000 (1 + 0.03 / 12) 12*5

A = $ 10,000 (1 + 0.03 / 12) 60
A = $ 10,000 (1.0025) 60
A = $ 10,000 * 1.161616782
A = $ 11,616.17

Simple Interest Compound Interest

Is earned only in the Difference It is on the Principal as well as

Principal amount
Between simple the interest accrued over
time.
& compound
(which is
The amount of interest
earned is small and leads to Better?) The amount of interest earned is higher
and wealth growth increases as the
lesser wealth growth interest are earned on the accumulated
interest in the previous periods .

The Principal remains the Principal increases as interest

same during the tenure are compounded and are added
to the original Principal.
THANK YOU
😇🙌💖
 Mathematics in the Modern World (GEC 4)

Submitted by : Kathleen R. Baldemor

BSBA-HRDM-I

Submitted to: Mr. Edgardo C. Dela Rosa Jr.