SIMPLE AND

COMPOUND
INTEREST
GED 104 MATHEMSTCAL OF
THE MODERN WORLD
INTEREST
INTEREST
When we borrow money from, or use somebody else’s
money, we have to often pay a charge to him. This amount
of money is paid back to the lender according to the
original amount borrowed.
Money paid as rental for the use of money.
Income derived from invested capital.
This extra amount is called “INTEREST”.
There are two types of interest they are: SIMPLE INTEREST
AND COMPOUND INTEREST
SIMPLE
INTEREST
 SIMPLE INTEREST
Interest that is computed on the principal and then added
to it.
In simple interest, only the original money invested or
borrowed (called the principal) generates interest over
time.
This is in contrast to compound interest, where the principal
generates interest, then the principal plus the interest
generate more interest and so on.
There are two types of simple interest: Ordinary Simple
Interest and Exact Simple Interest.
 FORMULA
Where.
I = Interest earned per year
I = Prt P = Original amount (invested, load,
deposited, etc.
A=P+I
(total amount including the interest)
r = Rate of interest (expressed in
decimal)
t = time (per loan’s term)
A = Total amount
ORDINARY SIMPLE INTEREST
Is computed on the basis of 12
months of 30 days each year or 360
days a year.

EXACT SIMPLE INTEREST

Is based on the exact number of days TWO TYPES
in a year, 365 days for an ordinary
year and 366 days for a leap year. OF SIMPLE
INTEREST
EXAMPLES
1. Wayne earn 5.3% simple interest for 5 years
on $3,000. How much interest does he earn
and what is the total amount in the amount in
the account?

Given: Formula:
P = $3,000 I = Prt
r = 5.3% (0.053) A=P+I
t = 5 years Solving:
I = 3,000(5.3%)(5) A = 3,000 + 795
I = 3,000(0.053)(5) A = 3,795
I = 795
2. Jodi owes $38,000 in students loans for college.
The interest rate is 7.25% and the loan will be paid off
over 10 years. How much will Jodi pay altogether?
Given: Formula:
P = $38,000 I = Prt
r = 7.25% (0.0725) A=P+I
t = 10 years
Solving:
I = 38,000(0.0725)(10)
I = 27,550

A = 38,000 + 27,550
A = 65,550
 3. Robert invests $11,000 into an account paying
an annual interest rate of 5.6%. How many years
will it take for her to earn $ 5,520 in interest.

Given: Formula:
P = $11,000 I = Prt
r = 5.6% Solving:
(0.056) 5,520 = 11,000 (0.056)(t)
I = $ 5,520 5,520 = 616(t)
5,520/616 = 616 (t)/616
t = 8.96 years
4. A total of $1,200 is invested at a simple interest rate of 6%
for 4 months. How much interest is earned on this
investment?
Given:
Formula:
P = $1,200
I = Prt
r = 6% (0.06)
Solving :
Before we can apply the formula, we will need to write the time of 4 months in terms of
years. Since there are 12 months in a year:
t = 4/12
t = 1/3
With this adjusted to years, we can now apply the formula with P=$ 1,200 and r = 6% or
0.06.
I = 1200(0.06)(1/3)
I = 24
5. When Kevin bought a new office phone,
he borrowed $1,200 at a rate of 18% for 9
months. How much interest did he pay?
Given: Formula:
P = $1,200 I = Prt
r = 18% (0.18)
t = 9 months
Solving:
t = 9 months/12 months
t = 3/4 I = 1,200(0.18)(0.75)
t = 0.75 I = 162
COMPOUND
INTEREST
 COMPOUND INTEREST
Is the interest calculated on the principal and
accumulated over the previous period.
It is the most commonly used concept in our daily
It is different from the simple interest where interest
is not added to the principal while calculating the
interest during the next period.
FORMULA
Where:
A = Accumulated Amount
P = Money borrowed or invested
r = Annual interest rate (decimal
n = Number of times interest is
compounded per year
t = Time (year)
EXAMPLES
 1. If you deposit $4,000 into an account paying 6% annual
interest compounded quarterly, how much money will be in
the account after 5 years?
Given: Formula:
n=4
P = 4,000
t = 5 years
r = 6% (0.06)

Solving:
 2. A teacher wants to invest $30,000 into an
account that compounds annually. The interest
rate at this bank is 1.8%. How much money will be
in the account after 6 years?

Given: Formula:
n = 1 (annually)
P = $30,000
t = 6 years
r = 1.8% (0.018)

Solving:
3. Sean invests $50,000 into an index annuity that
averages 6.5% per year, compounded semi-annually.
After 9 years how much will be in his account?

Given: Formula:
n = 2 (semi-annually)
P = $50,000
t = 9 years
r = 6.5% (0.065)

Solving:
4. Becky invested $19,800 in a CD that pays an annual
interest rate of 5.3%. The CD is set to compound daily (365
times per year). How much is in Becky’s account after 9
years? Note: Ignore the extra day from leap years.
Given: Formula:
n = 365 (daily)
P = $19,800
t = 9 years
r = 5.3% (0.053)

Solving:
5. At 3% annual interest compounded monthly, how long will
it take to double your money?

Given: Formula:
n = 12
P = 100
A = 200
r = 3% (0.03)

Solving:
THANK YOU
for listening
Group 4
Phoebe Kate De Jesus
Jeanella Rei Abiera
Marian Denise Guiang
Cheska Daguimol
Jon Rimthan
Adrian Torres