General Mathematics – Grade 11

Alternative Delivery Mode

Module 6: Simple and Compound Interest
First Edition, 2019

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Published by the Department of Education – Region X – Northern Mindanao

Regional Director: Dr. Arturo B. Bayocot, CESO III
Development Team of the Module:
Development Team of the Module
Authors: Geronimo C. Sacal
Reviewers: Cherry Mae P. Casinillo
Author: Geronimo C. Sacal
Ruby L. Quilala
Syville Niňo U. Dumanon
Reviewers: Cherry Mae P.Jay
Illustrator: Casinillo Ruby L. Quilala
Michael A. Calipusan
Syville Niňo U. Dumanon
Management Team:
Management Team
Chairperson:Dr.
Chairperson: Dr. Arturo
Arturo B. Bayocot, B. Bayocot,
CESO III CESO III
RegionalRegional Director Director
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Asst. Regional
Co-Chairpersons: Dr. Victor G. De Gracia Director
Jr. CESO V
Mala Epra B. Magnaong
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ii
 11
General
Mathematics
Module 6
Simple and Compound
Interest

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encourage teachers and other education stakeholders to email their feedback,
comments, and recommendations to the Department of Education at
action@deped.gov.ph.

We value your feedback and recommendations.

Department of Education • Republic of the Philippines

iii
Overview ……………………………………………………..1
Module Content ……………………………………………………..1
Objectives ……………………………………………………..1
General Instructions ……………………………………………………..1
Pretest ……………………………………………………..3
Definition of terms ……………………………………………………..3
Lessons/Concept
Lesson 1 ……………………………………………………..5
Enrichment activity 1 ……………………………………………………..6
Lesson 2 ……………………………………………………..7
Enrichment activity 1 ……………………………………………………..12
Enrichment activity 2 ……………………………………………………..13
Lesson 3 ……………………………………………………..14
Enrichment activity 1 ……………………………………………………..17
Enrichment activity 2 ……………………………………………………..17
Lesson 4 ……………………………………………………..18
Enrichment activity 1 ……………………………………………………..22
Enrichment activity 2 ……………………………………………………..23
Enrichment activity 3 ……………………………………………………..23
Summary/Generalizations ……………………………………………………..24
Glossary ……………………………………………………..24
References ……………………………………………………..24
Post test ……………………………………………………..25
Answer key ……………………………………………………..26

v
 Overview
This module is about simple and compound interest. It discusses how simple
and compound interest are illustrated and distinguished. You will also learn how to
compute interest, maturity value, future value and present value in simple and
compound interest environment. Such concepts and skills are used to model and solve
real-life problems. You will learn more about these concepts as you study all the
lessons in this module.

Module Content

This module contains the following :

Lesson 1 Illustrating Simple and Compound Interest
Lesson 2 Simple Interest
Lesson 3 Compound Interest
Lesson 4 Compounding more than once a year

What I Need to Know

At the end of each lesson, the learner is able to:

1. illustrate simple and compound interest;
2. compute interest, maturity value, and present value in simple interest
environment, and solve problems involving simple interest;
3. compute interest, maturity value, and present value in compound interest
environment, and solve problem involving compound interest;
4. compute maturity value, interest, and present value, and solve problems
involving compound interest when compound interest is computed more
than once a year.

General Instructions
Guide for the proper procedure of using the module:
1. Read carefully each item in the module.
2. As you read the materials follow the directions given.
3. Answer all the questions that you encounter in the module. You will find
help to answer these questions in all the activities given. Sometimes, the
answer are found at the end of every lesson of this module for instant
feedback.
4. In order to be successful in undertaking this module, you must have
patience in doing all the tasks.
5. Take your time to study and learn all lessons in this module.

1
1
Below is a flowchart that serves as your quick guide in using this module.

Start

Answer the pretest

Check your paper and count

your correct answer

Is your score Go back to

75% or above the items you
missed

Study the lesson

Take the Proceed to the next

post test lesson

Enjoy Learning!
2
 Definition of terms

Borrower or Debtor – person or an institution that owes the money or avails of the
funds from the lender
Compound Interest – interest calculated on the sum of an original principal plus
accrued interest
Conversion or Interest Period – successive conversions of interest between time
Frequency of Conversion – refers to the number of conversion periods in a year
Interest – a paid premium for the use of capital
Lender or Creditor – person (or institution) who invests the money or makes funds
available
Loan date – the date on which money is received by the borrower during loan
Maturity date – a date on which the money borrowed or loan is to be completely
repaid
Maturity Value or Future Value – amount after a number of years that the lender
receive from the borrower on the maturity date
Nominal rate – interest rate annually
Principal – amount of money borrowed or invested on the origin date
Rate – annual rate usually in percent, a premium charged by the lender, or rate of
increase of the investment on loan
Simple Interest – interest calculated on principal
Term or Time – amount of time in years the money is borrowed or invested length of
time between the origin and maturity dates.

What I Know
Directions: Choose the best answer from the four options given. Write the letter of the
best answer on your paper.
1. An amount of money borrowed or invested on the origin dat
A. rate B. interest C. principal D. term
2. What do you call a date on which the money borrowed or loan is to be
completely repaid?
A. loan date B. maturity date C. future date D. none of the above
3. A premium paid for the use of capital.
A. interest B. time C. principal D. rate
4. Mr. Cruz invested a certain amount in a bank at 6% simple interest per year.
The interest he received amounted to Php 105,000 for 7 years. How much
did Mr. Cruz invest?
A. Php 250,000 B. Php 44,100 C. Php 25,000 D. Php 4,100
5. How much should Mrs. Reyes pay of a borrowed amount of Php 12,000 at
4% annual simple interest rate payable for 3 years?
A. Php 1,440 B. Php 13440 C. Php 26,400 D. Php 87,360

3
6. How long will a principal of Php 30,000 that earn an interest of Php 4,500 at
3% simple interest?
A. ½ yr. B. 5 yrs. C. 22.22 yrs. D. None of the above
7. Find the maturity value of Php 40,000 compounded annually at an interest
rate of 2.5% in 4 years.
A. Php 6,002,500 C. Php 44,152.52
B. Php 36,238.03 D. Php 97,656.25
8. How much is the interest of Php 60,000 investment at 1.2% compounded
annually for 10 years?
A. Php 7,601.51 C. Php 126,350.89
B. Php 6,746.75 D. Php 299,536.75
9. Suppose Php 55,000 will due in 9 years at 7% compounded annually. How much
is the capital
A. Php 463.79 C. PHP 29,916,36
B. Php 4,637.9 D. Php 58,563.62
10. What is the frequency of conversion when money compounded monthly?
A. 2 B. 4 C. 12 D. 365
11. Find the interest rate in a conversion period when the annual interest rate is
7.5% compounded quarterly.
A. 0.1875% B. 1.875% C. 18.75% D. 4.25%
12. Find the total number of conversion periods when money is compounded
monthly with 1 year and 6 months term.
A. 3 B. 6 C. 18 D. 19.2
13. Find the maturity value if John deposited Php 35,000 in a bank at 3%
compounded semi-annually for 12 years.
A. Php 41,846.64 B. Php 37,608.88 C. Php 50,033 D. Php 71,147.79
14. If Mr. Santos deposited Php 25,000 in a bank at 4% compounded quarterly.
for 14 years. Compute the interest.
A. Php 1,439.20 C. Php 18,645.25
B. Php 8,032.27 D. Php 105,865.33
15. What is the present value of Php 55,000 that will due in 3 years at 1%
compounded monthly?
A. Php 1,779.21 C. Php 40,844.26
B. Php 38,440.87 D. Php 53,381.57

Answer key on page 26

4
 Read the following lessons very well then find out how much you can remember
and how much you learned by answering the post test.

Lesson Illustrating and distinguishing between

1 simple and compound interest

What is It

These knowledge on simple and compound interest will enable you to compare
the interest gained through the process of illustrating between simple and compound
interest. Thus, this lesson will enable you to distinguish and understand the
aforementioned concepts.

Illustration of simple and compound interest:

Problem: Mr. Cruz plan to invest Php 50,000 to the Bank for 5 years. If Bank
A will offers 3% simple interest rate per year while Bank B also offers the same rate
but compounded annually. Which bank do you think will Mr. Cruz invest and why?

Study the illustration given

Solution: Simple interest versus Compound interest, with annual rate

Simple Interest

Amount after t years

Bank A (Is)
Time (t) Principal (P) (Maturity Value)
Solution Answer
1 (50,000)(0.03)(1) 1,500 50,000 + 1,500 = 51,500
2 (50,000)(0.03)(2) 3,000 50,000 + 3,000 = 53,000
3 Php 50,000 (50,000)(0.03)(3) 4,500 50,000 + 4,500 = 54,500
4 (50,000)(0.03)(4) 6,000 50,000 + 6,000 = 56,000
5 (50,000)(0.03)(5) 7,500 50,000 + 7,500 = 57,500

5
Compound Interest

Amount after t years

Time Bank A (Is)
Principal (P) (Maturity Value)
(t) Solution Answer
1 (50,000)(0.03)(1) 1,500 50,000 + 1,500 = 51,500
2 (51,500)(0.03)(1) 1,545 51,500 + 1,545 = 53,045
53,045 + 1,591.35
3 (53,045)(0.03)(1) 1,591.35
= 54,636.35
Php 50,000
54,636.35 + 1,639.091
4 (54,636.35)(0.03)(1) 1,639.091
= 56,275.441
56,275.441 + 1,688,263
5 (56,275.441)(0.03)(1) 1,688,263
= 57,963.704

Interest gained:

Simple Interest : Php 57,500 - Php 50,000 = Php 7,500

Compound interest : Php 57,963.704 – Php 50,000 = Php 7,963.704

What’s More

Enrichment Activity 1
Suppose you invested Php 20,000 in a Bank for 3 years with 2% interest. Illustrate
it in a simple interest versus compound interest and compare the interest gained.

Answer key on page 26

6
 Lesson
Simple Interest
2

What Is It
In lesson 1 you learned how to illustrate and distinguished simple and
compound interest. In lesson 2, you will get to know three important factors in looking
for annual simple interest namely principal amount, invested or borrowed, time or term
of loan in years, and simple interest rate usually expressed in percent.
Suppose, you deposit money in a bank account or borrow an amount from a
lending institution, in this scenario the amount involved is referred as the principal
amount. Thus, it will also involve interest rate when you borrow or deposit money in a
bank for a saving account or if we borrow money from a lender, then this money is
referred to as the principal. The amount of money that must be paid is computed as a
percentage called interest rate which serves as some sort of money paid or collected
as rent as payment for the lender considering a particular period of time or term in
years.
Annual Simple Interest formula:

Is = P r t
Where
Is – simple interest
P – principal
r – rate
t – term or time, in years

Illustrative example:

1. A cooperative Bank offers 0.50% of annual simple interest rate for a savings
account. How much interest will be earned if Php 500,000 pesos is deposited
for 2 years ?
Solution:
Given: P = 500,000
r = 0.50% = 0.005
t = 2 years
Find: Is
Is = P r t
= (500,000) (0.005) (2)
= 5,000
Answer: Php 5,000 is the interest earned

7
2. If Mr. Santos borrowed Php 100,000 for 8 months at an annual simple interest
rate of 3%. How much interest is charged?

Solution:
Given: P = 100,000
r = 3% = 0.03
t = 8/12 year
Find: Is

Note: Convert first the months to year using this formula t = M/12
t = M / 12
= 8 / 12
= 0.67 year

Is = P r t
= (100,000) (0.03) (0.67)
= 2,010
Answer: Php 2,010 is the simple interest charge

3. How much money will be invested by Mrs. King if she earned an amount of
Php 15,500 at an annual simple interest of 5% in two years?

Solution:
Given: r = 5% = 0.05
t = 2 years
Is = 15,500
Find: P

(from the simple interest Is formula we will derive the formula for principal P
𝐼𝐼𝐼𝐼 𝑃𝑃 𝑟𝑟 𝑡𝑡
Is = P r t = by using the division property of equality divide
𝑟𝑟 𝑡𝑡 𝑟𝑟 𝑡𝑡
both sides of the equation by r and t )
𝐼𝐼𝐼𝐼 𝐼𝐼𝐼𝐼
= 𝑃𝑃 𝑜𝑜𝑜𝑜 𝑃𝑃 =
𝑟𝑟 𝑡𝑡 𝑟𝑟 𝑡𝑡
Is
P= 
r t
15,500
P=
(0.05)(2)
15,500
=
0.1
= 155,000
Answer: The amount invested is Php 155,000

8
4. What interest rate is being charged to a businessman that applies for a loan with
an amount of Php 250,000 in a bank with a simple interest of Php 75,000 for 3
years?
Solution:
Given: P = 250,000
Is = 75,000
t = 3 years
Find: r
(from the simple interest Is formula we will derive the formula for rate r)
𝐼𝐼𝐼𝐼 𝑃𝑃 𝑟𝑟 𝑡𝑡
Is = P r t = by using the division property of equality,
𝑝𝑝 𝑡𝑡 𝑝𝑝 𝑡𝑡
divide both sides of the equation by p and t )
𝐼𝐼𝐼𝐼 𝐼𝐼𝐼𝐼
= 𝑟𝑟 𝑜𝑜𝑜𝑜 𝑟𝑟 = 𝑥𝑥100
𝑝𝑝 𝑡𝑡 𝑝𝑝 𝑡𝑡
𝐼𝐼𝐼𝐼
𝑟𝑟 = 𝑥𝑥100
𝑝𝑝 𝑡𝑡
75,000
r= x100
(250,000)(3)
75,000
= 𝑥𝑥100
750,000

αͲǤͳšͳͲͲ

αͳͲΨ 

Answer: An annual simple interest rate of 10% bank charge

5. If Mr. Miguel is planning to lend money from a lending institution with an amount
of Php 500,00 at a simple interest of 5% that charges 125,000. How long will Mr.
Miguel pay the said loan in years?

Note: To convert units of time from days or months to years, use these formulas:
𝑛𝑛𝑛𝑛.𝑜𝑜𝑜𝑜 𝑚𝑚𝑚𝑚𝑚𝑚𝑡𝑡ℎ𝑠𝑠
Time in months t=
12
𝑛𝑛𝑛𝑛.𝑜𝑜𝑜𝑜 𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑
Time in days (for exact method) t=
365
𝑛𝑛𝑛𝑛.𝑜𝑜𝑜𝑜 𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑
Time in days (for ordinary method) t=
360
Solution:
Given:
P = 500,000
Is = 125,000
r = 5% = 0.05
Find: t

9
 (from the simple interest Is formula we will derive the formula for time or term t
𝐼𝐼𝐼𝐼 𝑃𝑃 𝑟𝑟 𝑡𝑡
Is = P r t = by using the division property of equality
𝑝𝑝 𝑟𝑟 𝑝𝑝 𝑟𝑟
divide both sides of the equation by p and r )
𝐼𝐼𝐼𝐼 𝐼𝐼𝐼𝐼
= 𝑡𝑡 𝑜𝑜𝑜𝑜 𝑡𝑡 =
𝑝𝑝 𝑟𝑟 𝑝𝑝 𝑟𝑟
𝐼𝐼𝐼𝐼
𝑡𝑡 = 
𝑝𝑝 𝑟𝑟
125,000
t=
(500,000)(0.05)
125,000
=
25,000
= 5 years
Answer: It will take 5 years

6. Find the unknown by completing the table below.

Principal (P) Rate (r) Time (t) Interest (I)

250,000 2% 3 (a)
640,000 0.2% (b) 6,400
300,000 (c) 60 months 7,500
(d) 1.5% 5 4,500

Solutions:

𝐼𝐼𝐼𝐼
a.) IS = P r t c.) 𝑟𝑟 =
𝑃𝑃 𝑡𝑡
7,500
= (250,000)(0.02)(3) =
(300,000)(5 )
7,500
= 15,000 =
1,500,000
= 0.005 𝑥𝑥100
𝐼𝐼𝐼𝐼
b.) 𝑡𝑡 = = 0.5%
𝑃𝑃 𝑟𝑟
6,400
= (640,000)(0.002)
6,400
=
1,280
= 5 𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦

10
 𝐼𝐼𝐼𝐼
d.) 𝑃𝑃 =
𝑟𝑟 𝑡𝑡
4,500
=
(0.015)(5)
4,500
=
0.075
= 60,000

Maturity value or future value F is the total amount of money in a savings

account after number of years t at an interest rate r , in which many lending institutions
are willing to know that a lender or creditor will give to the borrower or debtor on the
maturity date/future value.
Similarly, the original amount of money invested plus the total earned interest
on that investment called accumulated value or accumulated amount.

Maturity value (Future value) formula:

F = P + Is
Where
F = Maturity value
P = Principal
Is = Simple interest

or substituting simple interest IS by Pr t results

F = P + P r t or F = P (1 + r t)

Where
F = Maturity (future) value
P = Principal
r = Annual simple interest rate
t = Term / Time in years

Illustrative example:

1.) If Php 1.5 M is deposited by Mr. Dela Cruz in a bank. Find the maturity value with
an annual simple interest rate of 0.20% after 4 years?

Solution:
Given:
P = 1.5 M
r = 0.20% = 0.002
t = 4 years
Find: F

11
 Note: There are two methods to solve the problem.
a.) Solve first the simple interest IS and then add it to the principal P,
thus, F = P + IS.
b.) Solve using the derived formula F = P (1 + r t)

Method 1:
Is = P r t
= (1,500,000) (0.002) (4)
= 12,000

then, F = P + IS
= (1,500,000) (12,000)
= 1,512,000

or F=P+Prt
= (1,500,000) + (1,500,000)(0.002) (4)
= (1,500,000) + 12,000
= 1,512,000

Method 2:
F = P (1+ r t)
= (1,500,000) {1 +(0.002)(4)}
= (1,500,000)(1.008)
= 1,512,000

Answer: Php 1,512,000 is the Maturity value

What’s More

Enrichment Activity 1

Complete the table below by finding the unknown principal P, rate r, time t, and
interest I.

Principal P Rate r Time t Interest I

(a) 6% 10 9,000
480,000 (b) 15 180,000
250,000 5.5% (c) 68,750
980,000 0.8% 3.5 (d)

12
Enrichment Activity 2

Solve the following problems.

a.) Find the interest and maturity value of a loan for Php 120,00 at 4.5%
simple interest for 2 years.
b.) How much will be the money of Mr. Kho if he will deposit Php 600,000 in
the Bank for 8 years that pays 0.3% simple interest.
c.) What is the interest rate per annum of a Php 30,000 for 3 years that
accumulate to Php 48,000?
d.) If Mrs. Ong wants to have Php 500,000 in 5 years with simple interest of
3.5%. How much should Mrs. Ong invest?

Answer key on page 26

13
 Lesson
Compound Interest
3

What Is It
In the previous lesson you were taught how to solve problem involving simple
interest. In this lesson you will learn another way or method of paying interest, in which
the interest for each period is added to the principal before interest is computed for the
next period, this method is called compound interest.
In investments such as saving accounts and bonds usually this method is used.
In this case, the interest is added to the account at regular intervals, and the sum
becomes the new basis for calculating interest. The interest gained at a certain term
interval is automatically reinvested to return more interest.

Study the table below that shows the principal P(Php 200,000) is invested at an
annual interest rate r (3%)compounded annually for 4 years t.

Formula
Year (t)
Amount at the end of the year
1 P(1 + r) = P(1 + r)
2 P(1 + r) (1 + r) = P(1 + r)2
3 P(1 + r)2 (1 + r) = P(1 + r)3
4 P(1 + r)3 (1 + r) = P(1 + r)4
Computation
Amount at the end of the year
(200,000)(1.03) = 206,000
(206,000)(1.03) = 212,180
(212,180)(1.03) = 218,545.4
(218,545.4)(1.03) = 225,101.762

The amount at the end of each year is just the product of the amount from the
previous year and (1 + r). It means, that (1 + r) multiplied by each time the year ends.

Maturity (Future) value & Compound Interest formula:

F = P(1 + r)t and Ic = F - P

Where
F = Maturity(future)value at the end of the term
P = Principal or present value
r = Interest rate
t = Term / time in years
Ic = Compound interest

14
Illustrative Example:
1. Suppose Php 25,000 is compounded annually at an interest rate of 4% in 4
years. Find the maturity value and the compound interest.
Given :
P = 25,000
r = 4% = 0.04
t = 4 years
Find : a.) Maturity value F
b.) Compound Interest IC
Solution :
a.) F = P( 1 + r )t
= (25,000) (1 + 0.04)4
= (25,000) (1.04)4
= (25,000) (1.17)
= 29,246.46
b.) IC = F – P
= 29,246.46 – 25,000
= 4,246.46
Answer: a.) Php 29,246.46 is the maturity (future) value
b.) Php 4,246.46 is the compound interest

2. If Mr. Perez deposited in his bank account an amount of Php 50,000 at an annual
interest rate of 0.4% compounded yearly. How much amount of money will
Mr.Perez have in his bank account after 15 years?

Given :
P = 50,000
r = 0.4% = 0.004
t = 15 years
Find : F

Solution:
Note: To simply (1.004)15
t
F = P( 1 + r ) by using a scientific
= (50,000) (1 + 0.004)15 calculator just type
= (50,000) (1.004)15 1.004, then press Xy and
= (50,000) (1.061709…) press equal sign.
= 53,085.45
Answer: Php 53,085.45 is the maturity (future) value

15
3. Find the present value of Php 70,000 at 6% compounded annually that will due
for 10 years?
Given :
P = 70,000
r = 6% = 0.06
t = 10 years
Find : P
From the maturity value formula we will derive the formula for present value or
𝐹𝐹 𝑃𝑃(1+𝑟𝑟)𝑡𝑡
principal, thus: = by using the division property of equality
( 1 +𝑟𝑟)𝑡𝑡 ( 1 +𝑟𝑟)𝑡𝑡
divide both sides of the equation by (1 + r )t. We will arrive with the formula of
𝐹𝐹
Present value which is P =
( 1 +𝑟𝑟)𝑡𝑡
F
Solution : P=
( 1 +r)t
70,000
P=
( 1 +0.06)10
70,000
P=
( 1.06)10

P = 39,087.63
Answer: Php 39,087.63 is the present value
4. Suppose a businessman place his money in a time deposit in a bank
compounded annually that pays 0.8%. How much money should the
businessman deposit so that he will have Php 250,000 after 5 years?
Given:
F = 250,000
r = 0.8% = 0.008
t = 5 years
Find : P

Solution :
F
P=
( 1 +r)t
250,000
P=
( 1 +0.008)5
250,000
P=
( 1.008)5
P = 240,235.59
Answer : Php 240,235.59 the amount of money should the businessman will deposit

16
 What’s More

Enrichment Activity 1
Complete the table below by finding the unknown Principal P, Rate r, Time t
and compound interest IC.

Compound Interest
Principal P Rate r Time t Maturity Value F
IC
15,000 7% 12 b.) a.)
c.) 3% 8 d.) 60,000

Enrichment Activity 2
Solve the following problems.
a.) How much should Mr. and Mrs. Reyes deposit if they want to have Php
800,000 that will be used for their son’s college education after graduating senior
high school at age 17 years old. If Mr. and Mrs. Reyes will deposit the said
amount in a bank that pays 1.2% interest compounded annually at the time when
their son’s age is 5 years old?
b.) If Mrs. Cruz invested Php 120,000 in a time deposit that pays 0.7%
compounded interest in a year a.)How much interest will Mrs. Cruz gain and how
much will be her money after 15 years?

Answer key on page 27

17
 Lesson Compounding more than Once a
4 Year

What Is It
In the previous lesson you learned about compound interest, wherein the
interest earned at certain time interval is automatically reinvested to yield more interest
or interest is calculated on the principal and also on the accumulated past interest.
In this lesson you will learn how to find maturity value, interest, and present
value, when compound interest is computed more than once a year.

Illustrative examples 1:

Suppose the two groups of depositors deposit Php 1,000.00 in a cooperative

bank. Group A earn compound interest each month at a rate of 1%. While group B
earn compound interest quarterly at a rate of 3%. Observe the compounding effect of
the two groups of depositors based on the table below. Which group earn more than
the other group.

Time (in months) Group A Group B

1 (1,000)(1.01) =1,010
2 (1,010)(1.01) =1,020.1 (1,000)(1.03)=1,030
3 (1,020.1)(1.01) =1,030.30
4 (1,030.30)(1.01)=1,040.60
5 (1,040.60)(1.01)=1,051 (1,030)(1.03)=1,060.9
6 (1,051)(1.01) =1,061.51
7 (1,061.51)(1.01)=1,072.13
8 (1,072.13)(1.01)=1,082.85 (1,060.9)(1.03)=1,092.73
9 (1,082.85)(1.01)=1,093.68
10 (1,093.68)(1.01)=1,104.62
11 (1,104.62)(1.01)=1,115.67 (1,092.73)(1.03)=1,125.51
12 (1,115.67)(1.01)=1,126.83

Group A earned more by Php 1.32 that of group B.

18
2. Compare the compound amounts with a given principal of Php 20,000 after 4 years
when compounding annually that earn an annual interest rate of 2% at the end of the
year and semi-annually that also earn an annual interest rate of 2% in two terms; 1%
after 6 months and another 1% after another 6 months.

Option 1 Option 2
Time
(Compounded annually at 2%) (Compounded semi-annually at
(in yr.)
2%)
Amount at the end of the year Amount at the end of the year
½ (20,000)(1.02) = 20,200
(20,000)(1.02) = 20,400
1 (20,200)(1.02) = 20, 402
1½ (20,402)(1.02) = 20,606.02
(20,400)(1.02) = 20,808
2 (20,606.02)(1.02) = 20,812.08
2½ (20,812.08)(1.02) = 21,020.20
(20,808)(1.02) = 21,224.16
3 (21,020.20)(1.02) = 21,230.40
3½ (21,230.40)(1.02) = 21,442.70
(21,224.16)(1.02) = 21,648.64
4 (21,442.70)(1.02) = 21,657.13

Option 2 investment scheme gives higher interest than Option 1, because

interest in Option 2 is compounded twice a year with a 6 months conversion period,
and the frequency of conversion is 2. Since the total number of conversion period is 8
because the investment covered is 4 years. 1% is the rate of interest for each
conversion period with a nominal rate of 2%.

The table below shows the examples of interest rate for each period, nominal
rates and the frequencies of conversion.
One Frequency of Internal Rate per
Nominal Rate (j(m)
Conversion conversions conversion period ( j )
(Annual Interest Rate
Period (m)
1 year 3% compounded 1 0.03/1 = 0.03 = 3%
annually; i = 0.03
(1)

6 months 3% compounded semi- 2 0.03/2 = 0.015 = 1.5%

annually; i = 0.03
(2)

3 months 3% compounded 4 0.03/4 = 0.0075 =0.75%

quarter i = 0.03
(3)

1 month 3% compounded 12 0.03/12 = 0.0025 =

monthly; i = 0.03
(12) 0.25%
1 day 3% compounded 365 0.03/365 = 0.000082
monthly; i (365) = 0.03 =0.0082%

From the Maturity (Future value) and compound interest formula F=P(1 + r)t we
can compute the compound amount when principal (P) is invested at an annual

19
interest rate ( j ) compounded annually, thus F = P(1 + j)t where j = i(m)/m is the rate for
each conversion period.
The formula in finding compound amount when compounding is computed
more than once a year.

F = P( 1 + i(m)/m )mt the same as F = P( 1 + j )t

Where
F = Maturity(future)value
P = Principal or present value
J(m)= Nominal rate of interest (annual rate)
m = frequency of conversion
t = Term / time in years
j = Interest rate per conversion period
n or t & mt = Refer to the number of times that
interest is compounded

Illustrative examples:
1. Php 20,000 is deposited in a bank at 1.5% compounded semi-annually for 6 yrs.
Compute for the maturity value and interest.
Given:
P = 20,000
J(2) = 0.015
t = 6 years
m= 2
Find : F and P

Solution:
Step 1 - Compute for the interest rate in a conversion period:
0.015
J = i(2)/m = = 0.0075
2
Step 2 - Compute for the total number of conversion periods:
mt = (2)(6) = 12
Step 3 - Compute for the maturity value:
F = P(1 + j)n Note: To simply
= (20,000)(1 + 0.0075) 12 (1.0075)12 by using a
= (20,000)(1.094) scientific calculator just
= Php 21, 880 type 1.0075, then press
Step 4 – Compute for compound interest Xy and type 12, then
IC = F – P press equal sign.

20
 = Php 1,880
Answer: Php 21,880 is the maturity value and Php 1,880 is the interest
2. How much will Mr. Delos Reyes repay his loan, both the principal and interest at
15% after 3 years compounded quarterly?
Given:
P = 100,000
J(3)= 0.15
t = 3 years
m= 3
Find : F
Solution:
Step 1 - Compute for the interest rate in a conversion period:
0.15
J = i(3)/m = = 0.0375
4
Step 2 - Compute for the total number of conversion periods:
mt = (4)(3) = 12
Step 3 - Compute for the maturity value:
F = P(1 + j)n Note: To simply
= (100,000)(1 + 0.0375) 12 (1.0375)12 by using a
= (100,000)(1.56) scientific calculator just
= Php 156,000 type 1.0375, then press
Or Xy and type 12, then
F = P( 1 + i(m)/m )mt press equal sign.
= (100,000)( 1 + 0.15/4 ) (3)(4)

= (100,000)( 1 + 0.0375 )12

= (100,000)( 1.56 )
= 156,000)

IC = F – P
= 156,000 – 100,000
= Php 56,000
Answer: Php 212,000 both the maturity value and interest

We may also compute for present value when interest is compounded more
than once a year by using this formula:
F = P( 1 + i(m)/m )mt
we can derive this formula by dividing both sides of the equation by ( 1 + 𝑗𝑗 𝑚𝑚 /m)mt
F P ( 1 +𝑗𝑗 𝑚𝑚 /m)mt
=
( 1 +𝑗𝑗 𝑚𝑚 /m)mt ( 1 +𝑗𝑗 𝑚𝑚 /m)mt

21
 F F F
= P or P= or P =
( 1 +𝑗𝑗 𝑚𝑚 /m)mt ( 1 +𝑗𝑗 𝑚𝑚 /m)mt ( 1 +j)n

Illustrative examples:

1. Suppose Mrs. Reyes invested money at 2% compounded monthly. Find the

present value of Php 25,000 that will due for 2.5 years.
Given:
F = 25,000
t = 2.5
j(12)= 0.02
Find : P
Solution:
Step 1 - Compute for the interest rate in a conversion period:
0.02
J = i(12)/m = = 0.0017
12
Step 2 - Compute for the total number of conversion periods:
mt = (2.5)(12) = 30
Step 3 - Compute for the maturity value:
F Note: To simply
P=
( 1 +j)n (1.0017)30 by using a
25,000 scientific calculator just
P= type 1.0017, then press
( 1 +0.0017)30
Xy and type 30, then
P = Php 23,809.52 press equal sign.
Answer: Php 23,809.52 is the present value

What’s More

Enrichment Activity 1
Complete the table below.
Interest rate per
Interest Nominal rate Frequency of
conversion
compounded i(3) conversion m
period
Semi-annually 4% 2 a.)
Quarterly 6% 4 b.)

22
 Monthly c.) 12 0.9%
Daily d.) 365 0.07%

Enrichment Activity 2
Complete the table below.
Frequency Interest Time Total No.
Interest Nominal Compound Compound
Principal of rate per in of
compounded rate interest amount
conversion period year conversion

Monthly 15,000 6% 12 a.) 8 b.) d.) c.)

Quarterly 5,000 4% 4 e.) 10 f.) h.) g.)
Semi-
k.) 2% 2 i.) 12 j.) l.) 10,000
annually

Enrichment Activity 3
Solve the following problems.
a.) How is the accumulated amount of Php 35,000 for 8 years at 11%
compounded quarterly?
b.) How much money should Mr. Smith invest in the bank that earn 3.5%
compounded semi-annually if Mr. Smith needs 250,000 in 5 years?

Answer key on page 27

23
 Summary/Generalizations
To find the interest and maturity value of an amount earning simple interest the
three important factors were based on the principal, simple interest rate, and term of
loan wherein the interest is calculated on principal. In compound interest, the interest
for each period is added to the principal before interest is computed for the next period
and the interest earned at a certain time interval is automatically reinvested to yield
more interest. In computing compound interest and the compound amounts when
compounded monthly, quarterly, semi-annually and annually the frequency of
conversion period increases the compound interest also increases as well as the
compound amount.

Glossary

Conversion or Interest Period – A successive conversions of interest between time

Frequency of Conversion – A number of conversion periods in one year
Maturity date – A date on which the money borrowed or loan is to be completely
repaid
Maturity Value or Future Value – An amount after a number of years that the lender
receives from the borrower on the maturity date
Nominal rate – An interest rate annually

Reference

General Mathematics TG. (2020). 16th ed. C.P. Garcia Ave., Diliman, Quezon City:
Commission on Higher Education, pp.159 - 186.

24
 Post test

Directions: Choose the best answer from the four options given. Write the letter of
the best answer on your paper.
1. An amount paid or earned for the use of money.
A. interest B. lender C. principal D. term
2. An interest calculated on principal
A. simple interest C. future interest
B. compound interest D. none of the above
3. An interest calculated on the sum of principal plus accrued interest
A. simple interest C. principal
B. compound interest D. rate
4. John deposited Php 40,000 in a bank with 0.4% simple interest. How much will
be the money of John after years?
A. Php 1,280 B. Php 16,000 C. Php 41,280 D. Php 56,000
5. How long will Php 70,000 amount to Php 84,000 with simple interest rate of
4% per annum?
A. 0.5 yrs. B. 5 yrs. C. 5.5 yrs. D. 50 yrs.
6. If Mr. Castro borrowed Php 230,000 at an annual simple interest rate of 3.5% for
6 years. How much interest should Mr. Castro pay?
A. Php 805 B. Php 8,050 C. Php 8,500 D. Php 80,500
7. How much money must be invested by a businessman to obtain an amount of
Php 80,000 in 5 years if the money earns at 2.5% compounded annually?
A. Php 97,656.25 C. Php 70,708.34
B. Php 79,007 D. Php 26,214.40
8. Find the maturity value if Php 90,000 is invested at 7% compounded annually for
10 years?
A. Php 177,043.62 C. Php 96,502.20
B. Php 126,350.89 D. Php 6,746.75
9. How is the present value of Php 45,000 that will due in 4 years at 1.5%
compounded monthly?
A. Php 1,779.21 C. Php 40,844.26
B. Php 24,788.54 D. Php 42,381
10. Find the maturity value if Josh deposited Php 120,000 in a bank at 3%
compounded semi-annually for 9 years.
A. Php 1,568.09 C. Php 15,688.09
B. Php 15,688 D. Php 156,880.88

25