0

LYCEUM OF THE PHILIPPINES UNIVERSITY CAVITE

INTERNATIONAL SCHOOL
General Trias City, Cavite

7
MATS01G: GENERAL MATHEMATICS
CORE SUBJECT FOR SENIOR HIGH SCHOOL

MODULE 7: Compound Interest

Subquarter C
November 9-27, 2020

This set of modules was prepared by Ms. Joy S. Gutang, Senior High School faculty member of the LPU
International School. The author of the modules may be different from your actual subject teacher.
Please refer to the Class Orientation Kit for details and instructions from your subject teacher.

The use, disclosure, reproduction, modification and/or transfer of this document for any purpose, in any form or by
any means without approval from Lyceum of the Philippines University Cavite is strictly prohibited, and may be
subject to disciplinary and/or legal sanctions.
 1

Dear learner,

In this module we will investigate, analyze, and solve problems

involving compound interests using appropriate business and financial
instruments. You will see TRY THESE activities that will serve as
performance checks to help you assess your learning as you go along the
lessons. Your answers to these activities need not be submitted and an
answer key is provided. The summative assessments like the performance
task and the quiz will be given in our myLPU course site.

Again, to help you attain the objectives of this module, try following the
steps below.
 First, carefully read each lesson on this module. Should there be
times that you need to read again parts of the lesson, go ahead!
 Second, read and follow instructions honestly. Read the notes in red
font in the left side of some pertinent ideas and examples.
 Third, answer the in-text activities or the TRY THESE sections, if
any. It is expected that some parts may be challenging for you as
new lessons will be learned in this module.
 Fourth, read the SUMMARY and generalizations as well.
 Lastly, check your answers to each activity. You can find the answer
key in the last pages of this module.

If you follow these tips, for sure, you will enjoy learning. Good Luck!

The use, disclosure, reproduction, modification and/or transfer of this document for any purpose, in any form or by
any means without approval from Lyceum of the Philippines University Cavite is strictly prohibited, and may be
subject to disciplinary and/or legal sanctions.
 2

LESSON 13
Compound Interest

In many aspects of modern life, Mathematics plays an important role. In the field of
business, mathematics is essential in analyzing markets, predicting stock market prices,
business decision making, forecasting production, financial analysis, and in business
operation in general. This module will introduce the students to the basic concepts of
business mathematics such as the compound interest.

Get ready to learn a quick and easy method of calculating the interest charge on
a loan and interest to be earned in investments. Challenge yourself, prepare for quizzes
and performance tasks, and have a little fun along the way.

At the end of the lesson, the learners should be able to:

• define compound interest;
• compute compound interest, maturity value and present value;
• differentiate simple from compound interest; and
• solve problems involving compound interest.

Annual Conversion period Nominal rate

Semi-annual Compound interest Periodic rate

The use, disclosure, reproduction, modification and/or transfer of this document for any purpose, in any form or by
any means without approval from Lyceum of the Philippines University Cavite is strictly prohibited, and may be
subject to disciplinary and/or legal sanctions.
 3

Compound interest is one of two ways to calculate

interest -- the other is simple interest. While simple
interest calculates interest on the initial principal only,
compound interest lets you enjoy higher returns by paying
you interest on the principal amount plus the interest you
previously earned. If, for example, you invested 1,000 and
earned 50 in interest at the end of the earning period, your
new principal becomes1,050. The interest rate will be
applied to 1,050, not to your original 1,000, the next time
interest is calculated.

The use, disclosure, reproduction, modification and/or transfer of this document for any purpose, in any form or by
any means without approval from Lyceum of the Philippines University Cavite is strictly prohibited, and may be
subject to disciplinary and/or legal sanctions.
 4

LESSON PROPER

Problems involving simple interest were discussed on the previous

lesson. Simple interest is the interest charged on the principal alone for the
entire length of the loan or investment. Several formulas were introduced to
solve problems involving simple interest. The second type of interest, which
will be discussed on this lesson. is the compound interest. For many long-
term financial transactions, compound interest is used instead of simple
interest.

Definition of terms and variables to be used:

Compound interest (I) is usually used by banks in calculating interest for

long-term investments and loans such as savings account and time
deposits. In this type of interest, the interest due at stipulated interval
is added to the principal and earns interest thereafter. It implies that
the principal increases over a period of time, resulting to an increase
in interest earned at every compounding period. Thus, compound
interest is an interest resulting from the periodic addition of simple
interest to the principal amount.

Compound maturity value (F) – also called maturity value, it is an

accumulated amount obtained by adding the principal and the
compound interest.

Conversion period (m) – the number of times in a year the interest will be
compounded.

The following are the common conversion periods in a year:

annually : m=1
semi-annually: m=2
quarterly : m=4
monthly : m = 12

Number of conversion periods (n) – the total number of times interest is

calculated for the entire term of the investment or loan.

Annual interest rate or nominal rate (j) – the stated rate of interest per year.

Periodic rate (i) – the interest rate per conversion period.

Present value (P) – this is the principal P, that will accumulate to F if there is
an interest at periodic rate i for n conversion periods.

Term or time (t) – The duration or the entire term of the investment or loan

The use, disclosure, reproduction, modification and/or transfer of this document for any purpose, in any form or by
any means without approval from Lyceum of the Philippines University Cavite is strictly prohibited, and may be
subject to disciplinary and/or legal sanctions.
 5

The problem below is an example of compound interest.

Example:

₱50,000.00 was loaned for a period of 3 years with 5% interest

compounded annually. What amount of money will be needed to repay the
loan?

Principal
Amount at the end
Year at the start Interest
of the year
of the year

₱50,000 × 0.05 × 1 = ₱50,000 + 2 500 =

First Year ₱50,000.00
₱2,500.00 ₱52,500.00

Second ₱52,500 × 0.05 × 1 = ₱52,500 + 2625 =

₱52,500.00
Year ₱2,625.00 ₱55,125.00

₱55,125 + 2 756.25
Third ₱55,125 × 0.05 × 1 =
₱55,125.00 =
Year ₱2,756.25
₱57,881.25

The required answer to the problem is ₱57,881.25.

The total interest is ₱7,881.25

As shown in the table, the amount at the end of the year is equal to the
sum of the principal and the interest for that year.

Thus,

Amount for First Year: A = 50000 + (50000 × 0.05)

= 50000 (1 + 0.05)

Amount for Second Year: A = 50000 (1 + 0.05) + (50000 (1 + 0.05)(0.05))

= 50000 (1 + 0.05) (1 + 0.05)
= 50000 ( 1 + 0.05)2

Amount for Third Year: A = 50000 (1 + 0.05)2 + (50000 (1+.05)2(0.05))

= 50000 (1 + 0.05)2 (1 + 0.05)
= 50000 (1 + 0.05)3

The use, disclosure, reproduction, modification and/or transfer of this document for any purpose, in any form or by
any means without approval from Lyceum of the Philippines University Cavite is strictly prohibited, and may be
subject to disciplinary and/or legal sanctions.
 6

Below are examples of computations using simple interest and

compound interest. Compare the two and decide on your answer to the
question.

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. A bank offers 2%
compounded annually. Which will you choose and why?” ______________
____________________________________________________________

Simple Interest:

Time (t) Principal Interest Simple Interest Amount after t years

(P) Rate (r) Solution Answer
1 2% (10000)(0.02)(1) 200
2 2% (10000)(0.02)(2) 400
3 10,000 2% (10000)(0.02)(3) 600
4 2% (10000)(0.02)(4) 800
5 2% (10000)(0.02)(5) 1 000
(Maturity Value)
10 000 + 200 = 10 200
10 000 + 400 = 10 400
10 000 + 600 = 10 600
10 000 + 800 =10 800
10 000 + 1 000 = 11 000

Compound Interest:
Time Amount at Rate Compound Interest Amount at the end of year t
the start of
(t) (r) Solution Answer (Maturity Value)
year t

1 10 000 2% (10000)(0.02)(1) 200 10 000 + 200 = 10 200

2 10 200 2% (10200)(0.02)(1) 204 10 200 + 204 = 10 404.
3 10 404 2% (10404)(0.02)(1) 208.08 10 404 + 208.08 =10 612.08
4 10 612.08 2% (10612.08)(0.02)(1) 212.24 10612.08 + 212.24 =10 824.32
5 10 824.32 2% (10824.32)(0.02)(1) 216.49 10824.32 + 216.49 = 11 040.81

Those were very long and complicated processes, don’t you think? To
make computations easier, we will use the formulas below. The formulas are
derived from the process of computing compound interest. The step-by-step
solution was translated into mathematical models to make computing easier.

The use, disclosure, reproduction, modification and/or transfer of this document for any purpose, in any form or by
any means without approval from Lyceum of the Philippines University Cavite is strictly prohibited, and may be
subject to disciplinary and/or legal sanctions.
 7

Compound maturity value formula:

𝑭 = 𝑷(𝟏 + 𝒊)𝒏

The compound interest is given by

𝑰 = 𝑭 —𝑷

where
F = maturity (future) value
I = compound interest
P = principal, or present value
i = the interest rate per conversion period.
𝒋
𝒊=
𝒎

n = the total number of times interest is calculated for the

entire term of the investment or loan (total number of
conversion periods).
𝒏 = 𝒕𝒎
j = annual interest rate
𝒕 = time (in years)
𝒎 = conversion period

annually : m=1
semi-annually: m=2
quarterly : m=4
monthly : m = 12

The use, disclosure, reproduction, modification and/or transfer of this document for any purpose, in any form or by
any means without approval from Lyceum of the Philippines University Cavite is strictly prohibited, and may be
subject to disciplinary and/or legal sanctions.
 8

Below are some examples of problems involving compound interest.

Read and analyze the problem, inspect the solutions, and familiarize the
process.

Example 1:

Find the maturity value and the compound interest if P10,000 is

compounded annually at an interest rate of 2% in 5 years.

Given: P = 10,000 j = 2% o r 0.02 t = 5 years

j .𝟎𝟐
m = 1 (annually) i = m = 𝟏 =.02 n = tm= (5)(1)=5

Find: Maturity value (F)

Solution: 𝐅 = 𝐏 (𝟏 + 𝐢 )𝐧
= (10,000) (1 + .02)5
F = ₱11,040.81

𝐈= 𝐅−𝐏
= 11,040.81 − 10,000
I = ₱1,040.81
Answer: The maturity value is ₱11,040.81 and the compounded
interest is ₱1,040.81

Example 2:

Find the maturity value and interest if P 50,000 is invested at 12%

compounded quarterly for 2 years.

Given: P = 50,000 j = 12% o r 0.12 t = 2 years

𝒋 .𝟏𝟐
m = 4 (quarterly) 𝒊 = 𝒎 = 𝟒 =.03 𝒏 = 𝒕𝒎= (2)(4)=8

Find: Maturity value (F)

Solution: 𝐅 = 𝐏(𝟏 + 𝐢)𝐧

= (50,000) (1 + .03)8
= ₱63,338.50

𝐈 = 𝐅−𝐏
= 63,338.50 − 50,000
= ₱13, 338.50
Answer: The maturity value is ₱63,338.50 and the compounded
interest is ₱13, 338.50
The use, disclosure, reproduction, modification and/or transfer of this document for any purpose, in any form or by
any means without approval from Lyceum of the Philippines University Cavite is strictly prohibited, and may be
subject to disciplinary and/or legal sanctions.
 9

Example 3:

Suppose your father deposited in your bank account P10,000 at an

annual interest rate of 0.5% compounded yearly when you graduate
from kindergarten and did not get the amount until you finish Grade 12.
How much will you have in your bank account after 12 years?

Given: P = 10,000 j = 0.5% o r 0.005 t = 12 years

𝑗 .005
m = 1 (yearly) 𝑖 = 𝑚 = 1 =.005 𝑛 = 𝑡𝑚= 12(1)=12

Find: Maturity value (F)

Solution: 𝐅 = 𝐏 (𝟏 + 𝐢 )𝐧
= (10,000) (1 + .005)12
= ₱10,616.78

Answer: The amount will become P10,616.78 after 12 years.

Example 4:

Find the maturity value and interest if P10,000 is deposited in a bank

at 2% compounded quarterly for 5 years.

Given: P = 10,000 j = 2% o r 0.02 t = 5 years

𝒋 .02
m = 4 (quarterly) 𝑖 = 𝒎 = 4 =.005 𝑛 = 𝑡𝑚= (5)(4)=20

Find: Maturity value (F) and interest (I)

Solution: 𝐅 = 𝐏(𝟏 + 𝐢)𝐧

= (10,000) (1 + .005)20
= ₱11,048.96

𝐈 =𝐅−𝐏
=11,048.96 − 10,000
= ₱1,048.96

Answer: The maturity value is ₱11,048.96 and the interest

₱1,048.96

The use, disclosure, reproduction, modification and/or transfer of this document for any purpose, in any form or by
any means without approval from Lyceum of the Philippines University Cavite is strictly prohibited, and may be
subject to disciplinary and/or legal sanctions.
 10

Example 5:

Krissa borrows P50,000 and promises to pay the principal and

interest at 12% compounded monthly. How much must she repay after
6 years?

Given: P = 50,000 j = 12% o r 0.12 t = 6 years

𝑗 .12
m = 12 (monthly) 𝑖 = 𝑚 = 12 =.01 𝑛 = 𝑡𝑚= 6(12)=72

Find: Maturity value (F) and interest (I)

Solution: 𝐅 = 𝐏(𝟏 + 𝐢)𝐧

= (50,000) (1 + .01)72
= ₱102,354.97
Answer: Krissa must pay ₱102,354.97 after 6 years.

Example 6:

Find the present value of P25,000 due in 4 years if money is invested

at 12% compounded semi-annually.

Given: F = 25,000 j = 12% o r 0.12 t = 4 years

𝑗 .12
m = 6 (semi-an) 𝑖 = 𝑚 = 6 =.02 𝑛 = 𝑡𝑚 = 4(6)=24

Find: Present value

Solution: From 𝐅 = 𝐏(𝟏 + 𝐢)𝐧, we solve for P to derive the

formula
𝐅
𝐏 = (𝟏+𝐢)𝐧

Now we can just plug in the values given, then solve.

𝐅
Solution: 𝐏 = (𝟏+𝐢)𝐧

25,000
=
(1+.02)24
= ₱15,543.04

Answer: The present value is ₱15,543.04.

The use, disclosure, reproduction, modification and/or transfer of this document for any purpose, in any form or by
any means without approval from Lyceum of the Philippines University Cavite is strictly prohibited, and may be
subject to disciplinary and/or legal sanctions.
 11

Example 7:

Find the present value of ₱12,850.00 due in 3 years if the interest rate
is 6% compounded monthly.

Given: F = ₱12,850 j = 6% o r 0.06 t = 3 years

𝑗 .06
m = 12 (monthly) 𝑖 = 𝑚 = 12 =.0005 𝑛 = 𝑡𝑚 = 3(12)=36

Find: Present value

Solution: From 𝐅 = 𝐏(𝟏 + 𝐢)𝐧 , we solve for P to derive the

formula
𝐅
𝐏 = ( )𝐧
𝟏+𝐢

Now we can just plug in the values given, then solve.

F
Solution: 𝐏 = (1+i)n

12,850
=(
1+.0005)36

= ₱10,738.04
Answer: The present value is ₱10,738.04

Example 8:

Find the maturity value and compound interest of ₱3,000.00 due in

780 months if the interest rate is .25% compounded monthly.

Given: P = ₱3,000 j = .25% o r 0.0025 t = 780 months

𝑗 .0025
m = 12 (monthly) 𝑖 = 𝑚 = 12 =.0005 (12)=36

Find: Maturity value and compound interest

Solution: 𝐅 = 𝐏(𝟏 + 𝐢)𝐧

.0025 780
= (3,000) (1 + )
12

F = ₱𝟑, 𝟓𝟐𝟗. 𝟐𝟗

I=F–P

= 3,529.29 – 3000

I = ₱𝟓𝟐𝟗. 𝟐𝟗
The use, disclosure, reproduction, modification and/or transfer of this document for any purpose, in any form or by
any means without approval from Lyceum of the Philippines University Cavite is strictly prohibited, and may be
subject to disciplinary and/or legal sanctions.
 12

A. Complete the table below.

Principal Time (t) Nominal Conversions Periodic Number of Compound Maturity

(P) Interest per Year interest Conversions Interest (I) Value (F)
Rate (j) (m) Rate (i) of the Loan
(n)

₱13,500 24 .25% 24 ₱13,567.66

mons.
₱50,000 2 0.06 72

2% 1 5 ₱1,040.81

8 years 5% 4 ₱74,406.53

B. Answer the questions.

1. In a certain bank, Justine invested ₱100,000.00 in a time deposit that pays

0.5% compounded annually. How much will be his money after 5 years?
How much interest will he gain?

2. David borrows ₱35,400.00 and agrees to pay ₱47,500.00 after 2 years. At

what rate, compounded monthly, is the interest computed?

3. Suppose you are working in a bank that encourages customers to save

money for their future. Your bank manager requested you to form a team
and formulate a slogan to be used for this savings campaign. Write a short
phrase or slogan to persuade people to open a savings account in the bank
where you work.

The use, disclosure, reproduction, modification and/or transfer of this document for any purpose, in any form or by
any means without approval from Lyceum of the Philippines University Cavite is strictly prohibited, and may be
subject to disciplinary and/or legal sanctions.
 13

C. Complete the Simple Interest Vs Compound Interest Comparison

Chart below.

Simple Interest Vs Compound Interest

Basis for Simple Interest Compound
Comparison Interest

1. Meaning

2. Formula

3. Principal

4. Amount of
Interests

D. Read each statement carefully. Choose the letter of the correct

answer and write it on a 1 whole sheet of paper.
1
1.) 3 % is equivalent to
5
A. 0.0032 C. 0.32
B. 0.032 D. 3.2

2.) This refers to the number of years for which the money is borrowed or
invested.
A. Conversion period C. Principal
B. Interest rate D. Time

3.) An interest resulting from the periodic addition of simple interest to the
principal amount.
A. Compound amount C. Interest rate
B. Compound interest D. Simple interest
A.

4.) How much was the interest if Joy invested ₱30,400.00 and received a
total of ₱50,300.00 at the end of the term?
A. ₱19,900.00 C. ₱40,300.00
B. ₱30,400.00 D. ₱70,700.00

The use, disclosure, reproduction, modification and/or transfer of this document for any purpose, in any form or by
any means without approval from Lyceum of the Philippines University Cavite is strictly prohibited, and may be
subject to disciplinary and/or legal sanctions.
 14

5.) How much is the future value on this financial transaction, P =

₱10,000.00, r = 5%, and t = 3 years?
A. ₱1,500.00 C. ₱21,500.00
B. ₱11,500.00 D. ₱25,000.00

6.) What is the total number of conversion periods when a certain amount
is borrowed at 5.5% compounded quarterly for 4 years?
A. 4 C. 16
B. 12 D. 22

7.) What is the interest rate per conversion period if ₱29,500.00 was
invested at 2.5% compounded semi-annually for 5 years and 4
months?
A. 0.0025 C. 0.025
B. 0.0125 D. 2.5

8.) Edgardo invested ₱15,600.00 at 10.25% interest rate compounded

annually. How long will take for his investment to earn an interest of
₱5,055.00?
A. 0.32 years C. 6.29 years
B. 3.16 years D. 30.11 years

9.) At what interest rate compounded semi-annually will ₱15,000.00

accummulate to ₱25,000.00 in 10 years?
A. 2.05% C. 4.05%
B. 2.59% D. 5.17%

10.) LPU University anticipates additional expenses of ₱367,800.00 for a

new equipment needed for offering a new course 5 years from now.
How much should be invested in an account that earns 12%
compounded monthly?
A. ₱62,427.83 C. ₱202,455.37
B. ₱165,344.63 D. ₱668,181.05

The use, disclosure, reproduction, modification and/or transfer of this document for any purpose, in any form or by
any means without approval from Lyceum of the Philippines University Cavite is strictly prohibited, and may be
subject to disciplinary and/or legal sanctions.
 15

Variables used:
I = compound interest

P = principal, or the amount of money that you start out with, or

amount of money borrowed or invested on the origin date.

j = nominal interest rate

i = periodic interest rate

t =term or time in years.

F = maturity or future value

m = number of conversions per year

n = number of conversions of the loan or investment

• To solve for the maturity value, use the formula 𝐅 = 𝐏(𝟏 + 𝐢)𝐧

𝐅
• To solve for the principal amount, use 𝐏 = (𝟏+𝐢)𝐧
𝒐𝒓 𝐏 = 𝐅(𝟏 + 𝐢)−𝐧
𝐣
• To solve for the periodic rate, i =
𝐦
• To solve for the number of conversions of the loan or investment,
n = 𝒕𝒎

• To solve for the interest, use 𝐈 = 𝐅 − 𝐏

The use, disclosure, reproduction, modification and/or transfer of this document for any purpose, in any form or by
any means without approval from Lyceum of the Philippines University Cavite is strictly prohibited, and may be
subject to disciplinary and/or legal sanctions.
 16

Department of Education. (2019). General Mathematics Learner’s Materials

(1st ed.). Republic of the Philippines: DepEd-BLR.

Department of Education. (2019). General Mathematics Quarter 2 - Module

6:Simple and Compound Interests. Republic of the Philippines:
DepEd-BLR.

Commission on Higher Education. (2016). Teaching Guide for Senior High

School General Mathematics. Quezon City: CHED.

Pinterest
https://www.google.com/search?q=Maturity+value+cartoon&sxsrf=

Chron
https://smallbusiness.chron.com/uses-compound-interest-business-
49709.html

The use, disclosure, reproduction, modification and/or transfer of this document for any purpose, in any form or by
any means without approval from Lyceum of the Philippines University Cavite is strictly prohibited, and may be
subject to disciplinary and/or legal sanctions.
 17

TRY THESE A.

The use, disclosure, reproduction, modification and/or transfer of this document for any purpose, in any form or by
any means without approval from Lyceum of the Philippines University Cavite is strictly prohibited, and may be
subject to disciplinary and/or legal sanctions.
 18

TRY THESE B.

1. F = ₱102,525.13 I = ₱2,525.13
2. r = 0.1479 or 14.79%
3. Answers may vary.

TRY THESE C.

1. Definitions of Simple Interest and Compound Interest

2. Formulas of Simple Interest and Compound Interest

3. Simple Interest – Constant;

Compound Interest – Changing during the entire term of loan or
investment

4. Simple Interest – uniform; Compound Interest – Increasing rapidly

TRY THESE D.

1. B
2. D
3. B
4. A
5. B
6. C
7. B
8. B
9. D
10. C

The use, disclosure, reproduction, modification and/or transfer of this document for any purpose, in any form or by
any means without approval from Lyceum of the Philippines University Cavite is strictly prohibited, and may be
subject to disciplinary and/or legal sanctions.