OBJECTIVES:

After going through the module, you are expected to:

1. illustrate and distinguish simple and
compound interests; and
2. Compute simple and compound
interests
SIMPLE INTEREST

- Definitions -
–

–
SIMPLE INTEREST

- Definitions -
Origin or loan date – date on which money is received by the
borrower
Repayment date or maturity date – date on which the money
borrowed or loan 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
SIMPLE INTEREST

- Definitions -
Principal (P) – amount of money borrowed or invested on the
origin date
Rate(r) – annual rate, usually in percent, charged by the
lender, or rate of increase of the investment
SIMPLE INTEREST

- Definitions -
Interest (Is) – amount paid or earned for the use of money

Maturity value or future value (F) –amount after t years that the
lender receives from the borrower on the maturity date.
Illustrating/ Distinguishing Simple and
Compound Interests

Problem: “ Suppose you won Php 10000

and you plan to invest it for 5 years. A
COOPERATIVE GROUP offers 2%
simple interest rate per year. A BANK
offers 2% compounded annually. Which
will you choose and why?
Problem: “ Suppose you won Php 10000 and you plan to invest it for
5 years. A COOPERATIVE GROUP offers 2% simple interest rate per
year. A BANK offers 2% compounded annually. Which will you
choose and why?

Investment 2 : SIMPLE INTEREST

Problem: “ Suppose you won Php 10000 and you plan to invest it for
5 years. A COOPERATIVE GROUP offers 2% simple interest rate per
year. A BANK offers 2% compounded annually. Which will you
choose and why?

Investment 2 : COMPOUND INTEREST

Investment 2 : SIMPLE INTEREST

Investment 2 : COMPOUND INTEREST

SIMPLE INTEREST

- Formula -
SIMPLE INTEREST

I - Formula -

P rt
I
Pr t
SIMPLE INTEREST

- Formula -
SIMPLE INTEREST

- Steps to find the simple interest -

1. Identify the given and the unknown.
2. Substitute the given to the formula.
Note: The variable t is the term time in years. If the given t is
in months, the divisor will be 12. If the given t is in days, the
divisor will be 360 for ordinary interest or 365 if you are
looking for exact interest.
SIMPLE INTEREST

- Example 1 -
Problem: Nicole invested Php
100,000.00 to an account that pays a
simple interest of 3% annually. Find
the interest earned after 2 years.
Problem: Nicole invested Php 100,000.00 to an
account that pays a simple interest of 3%
annually. Find the interest earned after 2 years.
Given:
P = Php 100,000.00, r = 0.03, t = 2 Is = ?
Solution:
Is = Prt
Is = 100,000.00 (0.03)(2)
Is = Php 6,000.00
SIMPLE INTEREST

- Example 2 -
Problem 2: John Lloyd borrowed Php
120,000.00 from his uncle. If John
Lloyd agreed to pay an 8% annual
interest rate, calculate the amount of
interest he must pay if the loan period
is 9 months.
Problem 2: John Lloyd borrowed Php 120,000.00 from his uncle. If
John Lloyd agreed to pay an 8% annual interest rate, calculate
the amount of interest he must pay if the loan period is 9 months.

Given:
P = Php 120,000.00, r = 0.08, t = 9/12 Is = ?
Solution:
Is = Prt
Is = 120,000.00 (0.08)(0.75)
Is = Php 7,200.00
SIMPLE INTEREST

- Example 3 -
Problem 3: To buy the school supplies for the
coming school year, you get a summer job at
a resort. Suppose you save Php 4200.00 of
your salary and deposit it into an account
that earns simple interest. After 9 months,
the balance is Php 4,263.00. What is the
annual interest rate?
Problem 3: To buy the school supplies for the coming school year, you get a
summer job at a resort. Suppose you save Php 4200.00 of your salary and
deposit it into an account that earns simple interest. After 9 months, the
balance is Php 4,263.00. What is the annual interest rate?

Given:
P = Php 4200.00, F = Php 4263.00, t = 9/12 r=?
Solution:
F=P+I
I=F–P
I = Php 4263.00 – Php 4200.00
I = Php 63.00
SIMPLE INTEREST

- Example 4 -
Problem 4: Alden borrowed money on 22%
simple interest for 1 year to buy some
expensive Christmas Presents. When he
paid back the loan a year later, PHP 440
interest was charged. What was the
original Principal amount he borrowed?
Problem 4: Alden borrowed money on 22% simple interest for 1
year to buy some expensive Christmas Presents. When he paid
back the loan a year later, PHP 440 interest was charged. What
was the original Principal amount he borrowed?

Given:
Is = 440, r = 22% or .22 , t = 1 P=?
Solution:
𝟒𝟒𝟎 𝟒𝟒𝟎
𝑷= 𝑷= 𝑷 = 𝐏𝐡𝐩 𝟐𝟎𝟎𝟎
. 𝟐𝟐 𝟏 . 𝟐𝟐
SIMPLE INTEREST

- Example 5 -
Problem: If Php 10,000.00 is invested
at 4.5% simple interest, how long
will it take to grow to Php
11,800.00?
Problem 5: If Php 10,000.00 is invested at 4.5% simple
interest, how long will it take to grow to Php
11,800.00?

Given:
P = Php 10,000.00, F = Php 11,800.00, r = 4.5% t=?
Solution:
F=P+I
I=F–P
I = Php 11,800 – Php 10,000
I = Php 1,800.00
COMPOUND INTEREST

- Definition -
–
COMPOUND INTEREST

- Formula -
–

–
COMPOUND INTEREST
Compounding More Than Once a Year
COMPOUND INTEREST

- Example 1 -
Problem 1: Nicole invested Php
100,000.00 to an account that pays a
compound interest of 3% annually. Find
the interest earned after 2 years.
Problem1: Nicole invested Php 100,000.00 to an account
that pays a compound interest of 3% annually. Find the
interest earned after 2 years.

Given: P = Php 100,000.00, r = 0.03, n = 1, t = 2 Ic = ?

–
–
COMPOUND INTEREST

- Example 2 -
Problem 2: Find the compound
amount on deposit at the end of 1
year if Php 20,000.00 is deposited
at 4% compounded (a) annually and
(b) semi-annually.
Problem 2: Find the compound amount on deposit at
the end of 1 year if Php 20,000.00 is deposited at 4%
compounded annually.

Given: P = Php 20,000.00, r = 0.04, n = 1, t = 1

– 𝟎.𝟎𝟒 𝟏(𝟏)
A = 20000 1 + 𝟏
A = 20000 1 + 𝟎. 𝟎𝟒
A = 20000 (1.04)
𝒕
A=P 1+𝒓
A = Php 20,800.00
Problem 2: Find the compound amount on deposit at
the end of 1 year if Php 20,000.00 is deposited at 4%
compounded semi-annually.

Given: P = Php 20,000.00, r = 0.04, n = 2, t = 1

–
–
COMPOUND INTEREST

- SEATWORK -
Problem 3: What amount must be
invested in order to have Php
128,376.52 after 8 years if money is
worth 6% compounded semi-
annually?
 Problem 3: What amount must be invested in order
to have Php 128,376.52 after 8 years if money is
worth 6% compounded semi-annually?

Given: A = Php 128,376.52, r = 0.06, n = 2, t = 8

𝑨 128,376.52
Solution: P = 𝒓 𝒏𝒕
P=
𝟏+𝒏 1.03 16

128,376.52 128,376.52
P= 𝟎.𝟎𝟔 𝟐(𝟖)
P= 1.6047
𝟏+
𝟐

P = 80,000.32