Name: CN 2 Date:

Section: 2ND GRADING Score:

SIMPLE AND COMPOUND INTEREST

 Interest is defined as the cost of borrowing money. It can be simple or compounded.
 Principal is the money that is borrowed
 Time is the number of days or months or years for which the money is being borrowed and
interest is calculated.
Simple Interest is when the interest is computed from the original amount ONLY (principal alone). It does not involve any
other factors except the interest rate only.
Simple Interest Principal Rate of Interest Time

𝑰𝒔 = 𝑷𝒓𝒕 𝑰𝒔 𝑰𝒔 𝑰𝒔
𝑷= 𝒓= 𝒕=
𝒓𝒕 𝑷𝒕 𝑷𝒓
Where:
𝐼𝑠 = Simple interest
𝑃 = principal amount/original amount/present value
𝑟 = interest rate (expressed in decimal form)
𝑡 = time
Future value (𝑭𝑽) is the accumulated amount including the principal amount and interest. Maturity value is the total
amount to pay back. To compute for the future value is the same as computing for maturity value.
Present Value (𝑷𝑽) is the value today of the future cash
𝑭𝑽
Future/Maturity Value 𝑭𝑽 = 𝑷 + 𝑰𝒔 Present Value 𝑷𝑽 =
𝟏+𝒓𝒕
where, 𝐹𝑉 = Future Value/ Maturity value
𝑃𝑉 = Present value
𝑃 = Principal amount/ original amount
𝐼𝑠 = Simple Interest

Compound Interest is the interest earned not only on the original principal but also on all interests earned previously. The
interest earned is added to the original amount and the money is reinvested.
Compound interest Present Value 𝑭𝑽
Future/ Maturity Value
𝒓 𝒏𝒕 𝑷𝑽 = 𝒓 𝒏𝒕
𝑰𝒄 = 𝑭𝑽 − 𝑷 (𝟏 +
𝑭𝑽 = 𝑷 (𝟏 + ) )
𝒏 𝒏
Where:
𝐼𝑐 = compound interest
𝐹𝑉 = maturity value/ future value
𝑃𝑉 = present value
𝑃 = principal/original amount
𝑟 = interest rate (expressed in decimal form)
𝑡 = time