Senior High School GENERAL MATHEMATICS Quarter 2 - Module 6: Simple and Compound Interests f “ALrUNATIVE ALIVERY MODE Department of Education e Republic of the PhilippinesGeneral Mathematics - Grade 11 Alternative Delivery Mode Quarter 2 — Module 6: Simple and Compound Interests First Edition, 2020 Republic Act 8293, section 176 states that: ‘No copyright shall subsist in any work of the Government of the Philippines. However, prior approval of the goverment agency or office wherein the work is created shall be necessary for exploitation of such work for profit, Such agency or office may, among other things, impose as a condition the payment of royalties. Borrowed materials included in this module are owned by their respective copyright holders. Effort has been exerted to locate and seek permission to use these materials from the respective copyright owners. The publisher and author do not represent nor claim ‘ownership over them. Published by the Department of Education Secretary: Undersecretary: Assistant Secretary: Development Team of the Module Author: Ricky S. Casio Edito Reviewers: Mlustrator: Layout Artist: Management Team: Printed in the Philippines by: Department of Education ~ Bureau of Learning Resources (DepEd - BLR) Office Address E-mail Address:11 General Mathematics Quarter 2 - Module 6: Simple and Compound Interests This instructional material was collaboratively developed and reviewed by educators from public and private schools, colleges, and or/universities. We encourage teachers and other education stakeholders to email their feedback, comments, and recommendations to the Department of Education at action@deped.aov. ph. We value your feedback and recommendations. Department of Education + Republic of the PhilippinesTABLE OF CONTENTS LESSON 1: Simple Interest What I Need to Know What I Know What's In What's New What is It What's More What I Have Learned What I Can Do Additional Activities ‘Answer Key LESSON 2: Compound Interest What I Need to Know What's In What's New What is It What's More What I Have Learned What I Can Do Additional Activities Assessment (Post-test) Answer Key References 10 10 10-11 1-15 15 16-17 7 18 19-20 21-22 23Prey Simple Interest In many aspects of modem 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 simple and compound interests. &) What I Need to Know ‘At the end of the lesson, the learners should be able to: 1. define simple interest; 2. compute simple interest, maturity value and present value; and 3. solve problems involving simple interest. 4 What I Know (Pretest) ections: Read each statement carefillly. Choose the letter of the correct answer and write it ona 1 whole sheet of paper. 1.) This refers to the accumulated amount obtained by adding the prineipal and the compound interest A. Compound amount C. Present value B. Compound interest D. Simple interest 2.) Date on which the money borrowed or loaned is to be completely repaid. A. Conversion petiod C. Maturity date B. Loan date D. Origin date 3.) What is the formula in computing the simple interest on a given financial transaction? A. I, = Prt chat B. I, = Prt DR=t me 4.) This refers to the interest rate per conversion period. A. Compound interest C. Rate of interest B. Periodic rate D. Simple interest5.) This refers to the amount paid or earned for the use of money. A. Conversion period C. Principal B. Interest D. Rate 6.) 30 months is equivalent to A. 25 years C. 3 years B. 2.75 years D. 3.25 years 7.) How much is the simple interest on this financial transaction, P = P5,000.00, r = 6% and 1=2 years? A. P120.00 C. P1,200.00 B. P600,00 D. P6,000.00 8.) What is the total number of conversion periods when a certain amount is borrowed at 10% compounded monthly for 5 years? A 12 Cc. 24 B. 50 D. 60 9.) How much was the interest if Sophia borrowed P45,000.00 and paid a total of 55,500.00 at the end of the term? A. P10,500.00 C. P11,500.00 B. P45,000.00 D. P100,500.00 10.) What is the interest rate per conversion period if P25,900.00 was invested at 3.5% compounded annually for 4 years and 6 months? A. 0.035 C. 0.140 B. 0.350 D, 0.460 11.) John borrowed P45,400.00 at 10% simple interest rate. How much should he repay after 3 years? A. 13,620.00 C. P59,020.00 B. P46,762.00 D. P104,420.00 2.) An interest of P760 was earned on an investment for 9 months at 3% interest rate. How ‘much was invested? A, P2,052.00 C. P20,520.00 B. P2.814.81 D. P33,777.78 13.) At what simple interest rate was P18,350,00 invested if it eared P1,025,00 interest for 1.5 years? A. 0.0372% C. 3.72% B. 0.193% D. 11.93% 14.) How much will be the compound interest if 30,220.00 is invested at 7% compounded quarterly for 2 years and 9 months? A. P4,499.21 C. P36,574.05 B. P6,354.05, D. P147,899.3115.) When is P78,800.00 due if its present value of P61,500.00 is invested at 102% compounded monthly? A. 2.32 years C. 10.75 years B. 6.95 years D. 27.79 years On the previous modules, the basic concepts on functions were introduced. Functions were used as mathematical models. These are abstract models that use mathematical language to describe relationships. With the notion of mathematical modeling, mathematics is concerned not only with the measures of the physical world but it has also expanded its applicability to sciences, both social and biological, business, and finance. So with this, lessons relating to business and finance will then be introduced specifically on simple interest. 8 What's New “When you saved money in the bank, you will gained an interest paid by the bank. On the other hand, when you borrow money, you are charged an interest on the amount you borrowed. How does gained and charged interests computed?” A debtor pay the bank an amount which is more than the amount they borrowed, An investor may withdraw from the bank more than the amount deposited. This additional sum is called INTEREST. Definition of terms: Lender or ereditor — person (or institu available. mn) who invests the money or makes the funds Borrower ot debtor — person (or institution) who owes the money or avails of the funds from the lender. Origin or loan date — date on which money is received by the borrower. Repayment date or maturity date — date on which the money borrowed or loaned is to be completely repaid. ‘Time or term (1) — amount of time in years the money is borrowed or invested; length of time between the origin and maturity dates.ail or present value (P) ~ amount of money borrowed or invested on the origin date. Rate of interest of simply rate (+) — annual rate, usually in percent, charged by the lender, or rate of increase of the investment. Interest (J) — amount paid or earned for the use of money. Maturity Value or Future Value (F) ~ amount afier ¢ years that the lender receives from the borrower on the maturity date; equal to the sum of principal and the interest eamed. ( What is It AS ‘Simple Interest (J,) For every financial transaction, whether you borrowed or invested a certain amount P, a corresponding percentage of the principal called interest is being paid. Simple Interest (J,) is the interest charged on the principal alone for the entire duration or period f of the loan or investment, at a particular rate r. After the term of the loan or investment, the maturity value or future value F is computed by getting the sum of the principal and the interest due. Formulas: © 1,=Pre * F=P+l, or F=P+Prt or F=P(1+rt) ° P=h or P=F-I, be o tae . A T= ***where — /, — simple interest P — principal ‘= rate of interest or simply rate t ~ time (in year) F — future value (or maturity value) Note: If the given time is in months, it can be converted to year(s) by using the formula number of months 12Example. Directions: Complete the table below by solving the unknown quantities in each row. Principal Rate Time | Simple Interest | Future Value ”) @ o () ) 1) | P500,000.00 12.5% | 10 years 2) 2.5% 4 years P1,500,00 3.) | P36,000.00 l year and | P4,860.00 6 months 4.) | P250,000.00 0.5% P 1,400.00 5.) | P10,000.00 4% 5 months Solution: 1.) Given: P=P500,000.00; r= 12.5% or 0.125 ; = 10 years P+ = P500,000.00 + P625,000.00 P1,125, 000.00 I= Prt 1, = P500,000.00(0.125)(10) 1, = P625,000.00 2.) Given: r=2.5% or 0.025; 1=4 years; J, = P1,500.00 pot raph, _ Peswag - P= 0.025 (4) F =P15,000.00 + P1,500.00 P =P15,000.00 F=P16,500.00 3.) Given: P= P36,000.00 ; S years or 1.5 years ; Is = P4,860.00 1 - & F=P+l, 4,960.00 _ ‘Faepon00G5) F = P36,000.00 + P4,860.00 r=0.09 or 9% F = P40, 860.00 4.) Given: P= P250,000.00; r=05%o0r0.005; [= P1,400.00 im iS & F=P+i, —_—_ F = P250,000.00 + P1,400.00 7250,000 00(0.005) t= 1.12 years F = 251,400.00P=P10,000.00; — r=4% or 0.04; 3 year 5.) Given: I= Prt Pls I, = P'10,000.00 (0.04) ® F =P10,000.00 + ?166.67 I, =P 166.67 P10, 166.67 i What's More Complete the table below by solving the unknown quantities in each row. Write 1 your complete solutions and answers on a I whole sheet of paper. Principal Rate Time | Simple Interest | Future Value () ” @ (h) a 1.) | P40,000.00 2% 3 years 2) 10% Syears | P2,500.00 3) | P100,000.00 TS years | P3,600.00 4) | P250,000.00 45% 15,400.00 5) | P12,345.00 8.25% | 9 months Solve the future value (refer on test 1) using the alternative formulas: IL F=P+Prt or F=P(+rt) VO) What 1 Have Learned Problems Involving Simple Interest A bank offers 1.5% annual simple interest rate for a particular deposit. How much interest will be eamed if | million pesos is deposited in this savings account for | year? ts Solution: Given: r= 15% or 0.015; P=PI,000,00000; 1=1 year I= Prt 1, = P1,000,000.00 (0.015)(1) I, = P15, 000.00 ‘Therefore, an interest amounting to P15,000.00 will be earned if 1 million pesos is deposited in a savings account for | year with 1.5% annual simple interest rate.2. When invested at an annual interest rate of 7%, the amount earned P1 1,200.00 of simple interest in 2.5 years. How much money was originally invested? Solution: Given: r=7% 000.07; fg =P11,200.00; +t Is B ae Tt p —P11,200.00 ~ 0.0725) P = P64,000.00 ‘Therefore, the amount of money originally invested was P64,000.00. 3. Ricky borrowed P25,000.00 and paid 1,250.00 interest for 6 months. What was the rate of interest? Solution’ 6 year or 0.5 year Given: 1, =P1,250.00; 4 de Pt P1,250.00 P25,000.00(0.5) T=O01 of 10% Therefore, the rate of interest was 0.1 or 10%, 4. How long in years will it take for P17,300.00 to amount to P20,000.00 at 11.25% simple interest? Solution: Given: P=P17,300,00; — =P20,000.00; r= 11.25% or 0.1125 I=F-P 1, = 20,000.00 — P:17,300.00 I, = 92,700 Js Pr 2,700 P17,300.00(0.1125) t= 1.39 years Therefore, it will take 1.39 years for 17,300.00 to amount to 20,000.00. 7) What I Can Do / Answer the following problems involving simple interest. Write your complete solutions and answers on a 1 whole sheet of paper. 1. Find the simple interest on a loan of P65,000.00 if the loan is given at a rate of 2% and is due in 5 years and 3 months? 2. How much money will you have after 4 years if you deposited P10,000.00 in a bank that pays 6% simple interest? (e) Additional Activities G Formulate own three problems that involve simple interest. Write the problems and its complete solutions and answers on 1 whole sheet of paper.Compound Interest What I Need to Know At the end of the lesson, the learners should be able to” 1, define compound interest; 2. compute compound interest, maturity value and present value; 3. differentiate simple from compound interest; and 4. solve problems involving compound interest (SE What's In Problems invoh interest is the interest charged on the princi investment, Several formulas were introduced to solve problems involving simple interest. The second type of interest that will be discussed on this lesson is the compound interest. For many long-term financial transactions, compound interest is used instead of simple interest, 1g simple interest were discussed on the previous lesson. Simple I alone for the entire length of the loan or 7 Sy Whar's ‘Suppose you won P10,000.00 and you plan to invest if for $ years. A cooperative group offers 2% simple interest rate per year. A bank offers 2% compounded annually. Which will you choose and why?” New Definition of terms: ‘Compound amount (F) ~ also called maturity value, it is an accumulated amount obtained by adding the principal and the compound interest. Conversion period (im) — 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 10Number of conversion periods (2) ~ the total number of times interest is calculated for the entire term of the investment of loan. Annual interest rate or nominal rate (7) ~ the stated rate of interest per year Periodic rate (i) — the interest rate per conversion period. Present value of F (P)~ this is the principal P, that will accumulate to F if there is an interest at periodic rate i for n conversion periods, What is It Compound Interest (f) Compound interest (72) 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 eam 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 or simply the difference between the compound amount and the original principal The problem below is an example of compound interest. Example: P50,000.00 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 at the start of forest Amount at the end of the year the year it Sx 2. P50,000 + 2 500 = First Year | P50,000,00 | 50,000 = 0.05 = | = P2,500.00 'P52,500.00 52,500 + 2625 = Second Year | 52,500.00 | P52,500 = 0.05 x 1 = P2,625.00 55,125.00 55,125 + 2 756.25 = 0,08 x 1= 2 ‘Third Year | P55,125,00 | 55,125 x 0.05 « 1 = P2,756.25 57,861.25 ‘The required answer to the problem is P57,881.25. a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 = $0000 + (50000 « 0.05) = 50000 (1 + 0.05) Amount for Second Year: A= $0000 (1 + 0.05) + (50000 (1 + 0.05)(0.05)) = 50000 (1 + 0.05) (1 + 0.05) 50000 (1 + 0.05 Amount for Third Year: A= 50000 (1 + 0.05)? + (50000 ( 1 +0.05)°(0.05)) = 50000 (1 + 0.05)?(1 + 0.05) = 50000 (1 + 0.05)? Generally, when interest is compounded annually for n years, the amount A = P( I + i)" Computation of the compound amount by the method shown above is tedious and time- consuming. The formulas below will greatly ease computations. Formulas: nm + F=PQ+0" or F=P(1+2) nym © P=FO+0™ or P=F(1+2) I, =F-P or 1. = P(A +0"—4]) “lo _ teats) ~ jalloga+0) where er J, — compound interest P — present value of F — annual interest rate t — time (per year) F — compound amount or maturity value ‘am ~ conversion period annually semi-annually quarterly monthly n ~ total number of conversion periods (n = mt) i periodic rate (i =") 2Examples: 1.) Find the compound amount and interest earned on P15,000.00 for 1 year at (a) 7% compounded semi-annually and (b) 7% compounded quarterly. Solution: (a) Given: P=P15,000.00 t=1year r=7% or 0.07 m=2 t=2=% = 0035 = mt = 20) F=Pa+i" = F-P F = P15,000.00(1 + 0.035 )? 1. = P16,068.38 — P15,000.00 F = P16, 068.38 is ‘1, 068,38 Therefore, the compound amount and the interest are P16,068.38 and P1,068.38, respectively. Alternative solution for solving the compound interest Ie = P(A +)" —-1) I, = P15,000.00[(1 + 0.035)? ~ 1] I, = P1, 068.38 (b) Given: P= P15,000.00 r=7% or 0.07 i=t= 5 = 00175 = mt = 4() = F=PQ+i" I= F-P F = P15,000.00(1 + 0.0175 )* 16,077.89 — P15,000.00 F =P16,077.89 I, = 1,077.89 Therefore, the compound amount and the interest are P16,077.89 and P1,077.89, respectively. Alternative solution for solving the compound interest: = PIL +)"~ 1 I, = P15,000.00[(1 + 0.0175 )* ~ 1] I, = 1,077.89 32.) Find the present value of P12,850.00 due in 3 years if the interest rate is 6% compounded monthly. Solution: (a) Given: 12,850.00 years % or 0.06 2 0.005 = mt = 12(3) = 36 P=F(+i™ P = P12,850.00(1 + 0,005) -*° P =P10,738.04 ‘Therefore, the present value is P10,738.04. 3.) At what rate of interest compounded semi-annually will 14,300.00 accumulate to 17,000.00 in 2 years and 6 months? Solution Given: P=P14,300.00 ma2 1= 25 years or 25 years (| a [ere 00 1 =0.0704 or 7.04% Therefore, the rate of interest will be 0.0704 or 7.04%, 144.) How many years will it take for P13,000.00 to become P20,000.00 at 12.5% compounded annually? Solution: 1 2.5% or 0.125 ‘mflog(1 +] tog (720.900.90 °8 \PT3,000.00, Tflog(l + 0.125)] £=3.66 years ‘Therefore, P13,000.00 will become P20,000.00 in 3.66 years. &) What's More Solve what is asked in each item. Write your complete solutions and answers on a 1 whole sheet of paper. 1.) Find the final or compound amount of P15,900.00 at 5.5% interest compounded annually for 18 months. 2.) Find the interest on P25,750.00 for 3 years at 8% compounded quarterly. 3.) Find the present value of P150,000.00 at 15% interest compounded monthly for 6 years, 4.) At what rate of interest compounded semi-annually will 21,590.00 accumulate to 26,900.00 in 2 years? 5.) How long will it take for P3,700.00 accumulate to 76,900.00 at 4.5% compounded quarterly? 15v) What I Have Learned Problems Involving Compound Interest 1. Joseph borrows P50,000.00 and promise to pay the principal and interest at 12% compounded monthly. How much must he repay afier 6 years? Solution Given: P= P50,000.00 12 r= 12% or 0.12 years ist a 0.01 mt = 12(6) = 72 F=PQ+i" F = P50,000.00(1 + 0.01)? F = P102, 354.97 ‘Therefore, Joseph must repay P102,354.97 after 6 years 2. A loan P125,000.00 at 8% compounded quarterly was paid back with an amount of 176,000.00 at the end of the period. For how long was the money borrowed? Solution Given: P~P125,000.00 8% or 0.08 ¥=P176,000.00 4 ae i=t= 08 F tos (5) mflog(1 + i] 176,000.00 Jog (Bras'000°00, 4flog(1 + 0.02)] t =4.32 years ‘Therefore, the money was borrowed for 4,32 years, 163. How much must be invested today in a savings account in order to have P50,800.00 in 6 years and 9 months if money eams 5.4% compounded semi-annually? Solution Given: = P50,800.00 1= 6 years or 6.75 years 15.4% oF 0.054 m=2 i=z mt = 2(6.75) = 13.5 P=Fa+i P = P50,800.00(1 + 0.027)-**5 P = P35,453,79 ‘Therefore, an amount of P35,453.79 must be invested today. What I Can Do Answer the following problems involving compound interest. Write your complete solutions and answers on a 1 whole sheet of paper. 1. In a certain bank, Justine invested P100,000.00 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. Recea borrows P35,400.00 and agrees to pay P47,500.00 after 2 years. At what rate, compounded monthly, is the interest computed? 7@) Additional Activities Directions: Answer the following activities and write answers on a 1 whole sheet of paper 1 Arrange the jumbled letters to form a words related to business mathematics. 1) TMTURIYA AEDT 2) NEETTRIS ERTA 3) TIPPCNLRA 4) OOUDCMNP NUTMAO 5) IPSEML TENTSREI 6) EVMNTTNEIS 7) TEUYAQRLR 8) CMCUETULAA 9) RWORBORE 10) MOCUDONP TNTREESI I 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. II Complete the Simple Interest Vs Compound Interest Comparison Chart below. Simple Interest Vs Compound Interest. Basis for Comparison | Simple Interest ‘Compound Interest 1. Meaning 2. Formula 3. Principal 4, Amount of Interests 18(Zz) Assessment (Post-test) \ Directions: Read each statement carefully. Choose the letter of the correct answer and write it ona 1 whole sheet of paper 1.) Date on which money is received by the borrower. A. Conversion period C. Maturity date B. Loan date D. Repayment date 2.) 32% is equivalent to A. 0.0032 Cc. 0.32 B. 0.032 D. 32 3.) This refers to the interest charged on the principal alone for the entire duration or period of the loan or investment. A. Compound interest C. Interest rate B. Future value D. Simple interest 4.) 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 5.) 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 6.) What is the formula in computing the present value of F in a financial transaction involving compound interest? A. P=FU+i)™ Cc. P=FU-0" B. P=F(+i)" D. P=FQ-" 7.) How much was the interest if Althea invested P30,400.00 and received a total of 40,300.00 at the end of the term? A. P9,900.00 C. 40,300.00 B. P30,400.00 D. P70,700,00 8.) How much is the future value on this financial transaction, P = P10,000.00, r and 1=3 years? A. P1,500.00 C. P21,500.00 B. P11,500.00 D. P25,000.00 9.) What is the total number of conversion periods when a certain amount is borrowed at 5.5% compounded quarterly for 4 years? A4 C16 B. 12 D2 1910.) What is the interest rate per conversion period if P29,500.00 was invested at 2.5% compounded semi-annually for 5 years and 4 months? A. 0.0025 C00 B. 0.0125 D. 25 11.) Edgardo invested P15,600.00 at 10.25% interest rate, How long will take for his investment to eam an interest of P5,055.00? A. 0.32 years C. 6.29 years B. 3.16 years D. 30.11 years 12.) Find the simple interest on a loan of 65,000.00 if the loan is given at a rate of 8% and. is due in 6 years and 3 months A. P3,250.00 C. P32,500.00 B. P31,200.00 D. 746,800.00 13.) Jamaico made a loan of P20,450.00 from a bank that charges 3% simple interest. How ‘much must he pay the bank after 2 years? A. P1227.00 C. P32,720.00 B. P21,677.00 D. P42,127.00 14.) At what interest rate compounded semi-annually will P15,000.00 accummulate to P25,000.00 in 10 years? A. 2.05% C. 4.05%. B. 2.59% D. 5.17% 15.) ABC University anticipates additional expenses of P367,800.00 for a new equipment needed for offering a new course 5 years from now. How much should be invested in an account that eams 12% compounded monthly? A, P62427.83 C. P202,455.37 B P165,344.63 D. P668,181.05, 20Referencé ou) ‘Teaching Guide for Senior High School — General Mathematics by Commission on Higher Education (2016) pages 156-185 General Mathematics for Senior High School by Aoanan, Grace O.; Plarizan, Ma, Lourdes P.; Regidor, Beverly T.; Simbulas, Lolly Jean C C &E Publishing, Inc. (2016) 839 EDSA, South Triangle, Quezon City pages 225-229; 233-235; 243-257 General Mathematics for Senior High School by Bagano, Dominic C.; Bunsa, Hazam E.; Cabrera, Milna K.; Ganir, Florence D.; Partible, Fe G,; Zorilla, Roland S. MUTYA Publishing House, Inc. (2016) 105 Engineering Road, Araneta University Village, Potrero, Malabon City pages 93-97, 102-109; 114-128; 131-136, 140-145 General Mathematics by Oronce, Orlando A Rex Book Store, Inc. (2016) 856 Nicanor Reyes Sr. St., Sampaloc, Manila pages 196 - 199 23For inquiries or feedbacks, please write or call: Department of Education — (Bureaw/Office) (Office Address) Telefax: Email Address: