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 SIMPLE AND
COMPOUND
INTEREST
PREPARED BY BRYAN D. VALDEZ, MA-CDDS

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OBJECTIVES:
1. illustrate simple and compound interests;
2. distinguish between simple and compound interests.

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Definition of Terms
Simple Interest (Is) – interest that is computed on the principal. It
remains constant throughout the term.
Maturity date – date on which the money borrowed or loan is to be
completely repaid.
Time/term(t) – amount of time in years the money is borrowed or
invested; length of time between the origin and maturity dates.
Principal amount(P) – the amount of money borrowed or invested on the
origin date.
Rate(r) – annual rate, usually in percent, charged by the lender, or rate of
increase of the investment.

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Definition of Terms
Maturity value or Future value(F) – amount after t years that the
lender receives from the borrower on the maturity date.
Compound Interest (Ic) – is the interest computed on the
principal and also on the accumulated past interest.

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Definition of Terms
Maturity value or Future value(F) – amount after t years that the
lender receives from the borrower on the maturity date.
Compound Interest (Ic) – is the interest computed on the
principal and also on the accumulated past interest.

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 SIMPLE INTEREST FORMULA

Is = Prt
Where:
Is = the interest
P = the Principal amount/starting amount of money
r = the interest rate (in decimal form)
t = time (in years)

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1. Solve for the simple interest of a loan worth
P15, 000 at 3% rate for a year.
Where:

Is = Prt
P = P15, 000
r = 3% 0.03 to change percentage to decimal just divide it by 100

t=1
Solution:

Is = Prt
Is = (P15, 000)(0.03)(1) substitute and evaluate the values

Is = P450
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2. Solve for the simple interest of a loan worth
P10, 000 at 2.75% rate for half a year.
Where:

Is = Prt
P = P10, 000
r = 2.75% 0.0275 to change percentage to decimal just divide it by 100

t = 6/12 or ½ or 0.5 half a year is equal to 6 months.

Solution:

Is = Prt
Is = (P10, 000)(0.0275)(0.5) substitute and evaluate the values

Is = P137.50
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3. Solve for the simple interest of a loan worth
P25, 000 at 5% rate for 15 months.
Where:

Is = Prt
P = P25, 000
r = 5% 0.05 to change percentage to decimal just divide it by 100

t = 1 3/12 or 1 ¼ or 1.25 12 mos. = 1 year and the remaining 3 mos. Should be divided
by a year which is 12 mos.
Solution:

Is = Prt
Is = (P25, 000)(0.05)(1.25) substitute and evaluate the values

Is = P1562.50
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FUTURE/MATURITY VALUE (SIMPLE
INTEREST)

FI = P + Prt
Or
FI = P(1 + rt)

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1. Solve for the total amount due on a loan
worth P10, 000 at 2.75% rate for half a year.
Where:

P = P10, 000
r = 2.75% 0.0275 to change percentage to decimal just divide it by 100

t = 6/12 or ½ or 0.5 half a year is equal to 6 months.

Solution:

FI = P + Prt
FI = P10, 000 + [(P10, 000)(0.0275)(0.5)]
FI = P10, 000 + (P137.50)
FI = P10, 137.50

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 2. Solve for the total amount due on a loan worth
P600 at 16% interest at the end of 15 months.
Where:

P = P600
r = 16% 0.16 to change percentage to decimal just divide it by 100

t = 1 3/12 or 1 ¼ or 1.25 12 mos. = 1 year and the remaining 3 mos. Should be

divided by a year which is 12 mos.
Solution:

FI = P + Prt
FI = P600 + [(P600)(0.16)(1.25)]
FI = P600 + (P120)
FI = P720

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 COMPOUND INTEREST FORMULA
IC = P[1+(r/n)] nt
Where:
IC = the interest
P = the Principal amount/starting amount of money
r = the interest rate (in decimal form)
t = time (in years)
n = number of times interest applies per time period

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COMPOUNDING PERIODS TABLE
COMPOUNDING PERIOD NUMBER OF INTEREST
PERIODS PER YEAR
Annully n= 1
Semi-annually n= 2
Quarterly n= 4
Monthly n= 12
Weekly n= 52
Daily n= 365

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 1. Solve for the amount to which P1,500 will grow
if compounded quarterly at 6.75% interest for 10
years.
Where:

IC = P[1+(r/n)]nt
P = P1, 500
r = 6.75% 0.0675 to change percentage to decimal just divide it by 100

t = 10
n=4 quarterly = divided into 4
Solution:

IC = P[1+(r/n)]nt
IC = P1,500[1+(0.0675/4)]4(10) substitute and evaluate the values (GEMDAS Rule)

IC = P1,500(1.016875)40 evaluate the exponent then multiply the answer to P

IC = P2, 925.50
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 SIMPLE INTEREST(YEARLY)

4,287.65
4,287.65
65,539.80
65,539.80 65,539.80 65,539.80 4,587.79
4,587.79
70,127.59

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Traditional Bank vs
Digital Bank

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 Traditional Bank vs Online banking
TRADITIONAL BANK DIGITAL BANK
Online banking(Internet banking)
allows customers to conduct financial
A financial institution whose primary transactions on a secure website
activity is to act as a payment agent operated by their retail or virtual
for customers and to borrow and lend bank, credit union
money. It is an institution for
receiving, keeping and lending money

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DIFFERENCE BETWEEN ONLINE BANKS
AND TRADITIONAL BANKS
ONLINE BANKS TRADITIONAL BANKS
No physical locations Local branches are available

Speedy account opening process Opening an account can take a while

A slick online process Some online banking options

Some ATM fees Large ATM network

Higher interest rates Lower interest rates

Few to no fees Typically come with fees

Phone or online customer service In-person customer service

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SAVINGS ACCOUNT

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What is a savings account?
A savings account is a basic account offered by
banks, coops, and other financial institutions. It’s
where you can deposit money to be kept safely and
that you can withdraw anytime. Plus, it is insured
by the Philippine Deposit Insurance Corporation
(PDIC) up to half a million pesos and earns modest
interest over time.

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Purpose of Savings account?
A savings account in the Philippines is good for spare cash that you intend to spend
immediately, such as buying groceries and other such needs. It can also be used in
building your emergency fund. Because it earns interest, it’s the easiest form of
passive income and investment.
It’s also a better alternative to piggy banks where your money doesn’t earn interest
and may be subject to wear and tear
One of the least known use of a savings account is that it can be used as a
settlement account for various purposes. For instance, you can nominate your
account to receive Pag-ibig MP2 annual dividend pay-out, to enable
investing in the stock market with any stock brokerage companies, to invest in
retail treasury bonds online, send or receive remittance abroad, etc.

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