Simple and

Compound Interests
Objectives:
1. Illustrate simple and compound
interests.
2. Distinguish between simple and
compound interests.
3. Solve problems involving simple
and compound interests.
Conversion of percent (%) to
decimal:
*To convert percent to decimal,
divide the percent by 100, and remove
the % sign.
Example:
Convert 13% to decimal.

Answer: 0.13
Conversion of months to years:
*To convert months to years,
multiply the number of months by
1/12months.
Example:
Convert 36months to years.

Answer: 3 years
Definitions:
Simple interest (IS) – is the computed
return from the present value for a given duration of
a transaction.
Maturity Value (F) – is the total amount
to be received or paid for a certain obligation.
Principal (P) – is the amount being
borrowed or invested.
Variables for simple interest:

P = principal amount
r = simple interest rate
t = term or time in years
Is = simple interest
F = maturity value (future value)
 Annual Simple Interest:
Is = Prt

Maturity (Future) Value:

F = P + Is

Since Is = Prt, then: F = P + Prt or

F = P(1+rt)
Solve the following:
1. Anthony borrowed P150,000 from a
lending company where he needs to
pay an interest rate of 3% annually.
Find the:
a. simple interest for 2 years
b. maturity value of the loan
Solution:
Step 1: Identify what is asked.
a. Simple interest for 2 years;
b. Maturity value of the loan

Step 2: Identify the given.

P = P150,000
r = 3% or .03
t = 2 years
Step 3: Identify which formula is to be used.
Is = Prt
F = P + Is or P (1 + rt)
Step 4: Substitute the given values to the
formula and solve the problem.
Is = P150,000 (0.03)(2)
= P9,000
Therefore, the simple interest is P9,000.
For the future value (maturity value):
F = P + Is or P (1 + rt)
F = P150,000 + P9,000
= P159,000

Therefore, the maturity value after 2 years

is P159,000.
2. How much interest is charged
when P50,000 is borrowed for 9
months at an annual interest rate
of 10%?
Solution:
Step 1: Identify what is asked.
Simple interest for 9 months

Step 2: Identify the given.

P = P50,000
r = 10% = 0.10
t = 9/12 year
Step 3: Identify which formula is to be used.
Is = Prt

Step 4: Substitute the given values to the formula

and solve.
Is = P50,000 (0.10)(9/12)
= P3,750

Therefore, the simple interest charged is P3,750.