Commission on Higher Education

DON HONORIO VENTURA STATE UNIVERSITY

Brgy. Cabambangan, Bacolor, Pampanga 2001

ASSIGNMENT NO. 6
Name: David, Jaeron Valdez Score: _____________
Course/Yr/Sec: BSAR – 2C Date: ______________

Define the following terms briefly and concise:

1. Simple Interest:
 Simple interest is the cost of borrowing money without taking into account the effects of compounding. In other
words, simple interest only applies to the principal amount (Pritchard, 2023).
2. Compound Interest:
 Compound interest is interest that accumulates on both the initial principal and the accumulated interest from
previous periods. It is essentially "interest on interest," and it allows your money to grow faster than simple interest,
which is calculated solely on the principal sum (ABC Finance Ltd, 2022).
3. Interest:
 The monetary charge for borrowing or depositing money is known as interest, and it is usually expressed as a
percentage of the amount borrowed or deposited. Interest is the compensation a lender receives for lending money
(CFI, 2023).
4. Principal/Present Value:
 It is the present value of a future sum of money or stream of cash flows at a given rate of return. The present value
of future cash flows is reduced by the discount rate, and the higher the discount rate, the lower the present value of
future cash flows (Fernando, 2023).
5. Rate:
 An interest rate is the percentage of a sum of money paid overtime for its use. It also refers to the percentage of
amount charged over and above the principal amount by the lender from the borrower (The Economic Times,
2023).
6. Time:
 It refers to the time frame or duration of the transaction, such as lending or investing, for which interest will be
calculated.
7. Maturity Value/Future Value:
 It refers to the assumed value of a current asset based on an assumed rate of growth or interest at a given period
(Chen, 2023).

Give example of at least two problems regarding:

1) Simple Interest:
 Jaeron, a private employee, wishes to loan from Social Security System (SSS), and is offered a P 100,000 five-
year non-compounding loan with a 5% annual interest rate. What is the total interest expense for Jaeron?
 I=PxRxT
 I = (P 100,000) (5%/yr. * 5 years)
 I = (P 100,000) (0.25)
 I = P 25,000
 Jean Patrick intends to subscribe to a P 20,000 certificate of deposit issued by the Banko Sentral ng Pilipinas,
which carries a 10% annual interest rate – with a tenure of six months. How much interest do Jean Patrick earned
on the certificate of deposit?
 I=PxRxT
 I = (P 20,000) (10%/yr. * 6 months)
 I = (P 20,000) (.05)
 I = P 1,000
2) Compound Interest:
 Prince Marphie deposits P 6,000,000 into a savings account with a monthly compound interest rate of 4%. What
will Marphie's savings account balance be after two years?
nt
r
 A=P(1+ )
n
12(2)
0.04
 A=P6,000,000 (1+ )
12
 A=P6,000,000 (1.08)
 A=P6,480,000
 Jerrold Dave Matthew has P 70,000 in his savings account, which he established 2 years ago. His account has a
compounded annual interest rate of 8%. How much money did Dave put into his savings account?
12(2)
0.08
 P 70,000 = P (1+ )
12
 P 70,000 = 1.17P
P 70,000
 =P
1.17
 P = P 59,829.06
3) Rate of Interest:
 What is the interest rate on principal amount P 100,000 in 5 years, if the simple interest is P 25,000?
 Interest Rate = (P25,000 x 100) / (P100,000 x 5 years)
 Interest Rate = 2,500,000 / 500,000
 Interest Rate = 5%
 What is the interest rate on principal amount P6,000,000 in 2 years, if the interest is P 480,000?
 IR = (P480,000 x 100) / (P6,000,000 x 2)
 IR = (48,000,000) / (12,000,000)
 IR = 4%
4) Maturity Interest:
 What is the maturity interest if the principal amount is P20,000, and the simple interest is P1,000?
 Maturity Interest = P + I
 MI = P20,000 + P1,000
 MI = P21,000
 What is the maturity value of Jerrold’s savings account if the principal is P6,000,000 at an interest of P480,000
 MI = P + I
 MI = P6,000,000 + P480,000
 MI = P6,480,000
References:

Pritchard, J. (2023). What is simple interest? The Balance. https://www.thebalancemoney.com/simple-interest-overview-and-

calculations-315578

ABC Finance Ltd. (2022). Compound Interest Definition, example and Formula | ABC Finance. ABC Finance.
https://abcfinance.co.uk/loan/interest/type/compound/

Corporate Finance Institute (2023). Interest. Corporate Finance Institute.

https://corporatefinanceinstitute.com/resources/commercial- lending/interest/

Fernando, J. (2023). What is present value in finance, and how is it calculated? Investopedia.
https://www.investopedia.com/terms/p/presentvalue.asp

Chen, J. (2023). Future Value: Definition, formula, how to calculate, example, and uses. Investopedia.
https://www.investopedia.com/terms/f/futurevalue.asp

Prepared by:

ROD C. RAGUINE, Ph. D.

Math Professor