BUSINESS

MATHEMATICS
SIMPLE AND COMPOUND
INTEREST
OBJECTIVES
1. Illustrate simple and compound interest; and,
2. Distinguish between simple and compound
interest.
Definition of terms:
1. LENDER OR CREDITOR
◦ a person who invests the money or makes the funds available.

2. BORROWER OR DEBTOR
◦ a person who owes the money or avails of the funds from the lender

3. ORIGIN OR LOAN DATE

◦ date on which money is received by the borrower

4. REPAYMENT DATE OR MATURITY DATE

◦ date on which the money borrowed, or loan is to be completely repaid.
5. TIME OR TERM (t)
o amount of time in years the money is borrowed or
invested; length of time between the origin and
maturity dates.
6. PRINCIPAL (P)
o amount of money borrowed or invested on the origin
date.
7. RATE (r)
o annual rate, usually in percent, charged by the lender,
or rate of increase of the investment
8. INTEREST (I)
o amount paid or earned for the use of money.
9. SIMPLE INTEREST (
o interest that is computed on the principal and added to it.
10. COMPOUND INTEREST (
o interest is computed on the principal and also on the
accumulated past interests.
11. MATURITY VALUE OR FUTURE VALUE (F)
o amount after t years that the lender receives from the borrower
on the maturity date.
EXAMPLE:
Suppose you won 10, 000 pesos and you plan to invest it for 5 years. A
cooperative group offers 2% simple interest rate per year and a bank
offers 2% compound annually. Which will you choose and why?
EXAMPLE:
Suppose you won 10, 000 pesos and you plan to invest it for 5 years. A
cooperative group offers 2% simple interest rate per year and a bank
offers 2% compound annually. Which will you choose and why?
Simple interest remains constant throughout the
investment term. In compound interest, the interest
from the previous year also earns interest. Thus, the
interest grows every year.
THANK YOU
AND GOD
BLESS! 