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FYI: For Your Interest!
FYI: For Your Interest!
FYI: For Your Interest!
Department of Education
REGION IV-A CALABARZON
SCHOOLS DIVISION OF BATANGAS
Pansol Integrated National High School
Learning Competencies:
1. Illustrates simple and compound interests(M11GM-IIa-1)
2. Distinguishes between simple and compound interests (M11GM-IIa-2)
3. Computes interest, maturity value, future value, and present value in simple interest and compound interest
environment. (M11GM-IIa-b-1)
4. solves problems involving simple and compound interests. ( M11GM-IIb-2)
INTRODUCTION :
“Suppose you won ₱100,000.00 and you plan to invest if for 10 years. A cooperative group offers 5% simple
interest rate per year. A bank offers 2% compounded annually. Which will you choose and why?”
“When you saved money in the bank, you will gain 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 pays 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 creditor – person (or institution) who invests the money or makes the funds available.
Borrower or debtor – person (or institution) who owes the money or avails of the funds from the lender.
Repayment date or maturity date – date on which the money borrowed or loaned is to be completely repaid.
Time or term (t) – amount of time in years the money is borrowed or invested; length of time between the origin
and maturity dates.
Principal or present value (P) – amount of money borrowed or invested on the origin date.
Rate of interest or simply rate (r) – annual rate, usually in percent, charged by the lender, or rate of increase of
the investment.
Maturity Value or Future Value (F) – amount after t years that the lender receives from the borrower on the
maturity date; equal to the sum of principal and the interest earned.
DEVELOPMENT :
Let’s Make It Simple!
Simple Interest (Is)
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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 (Is) is the interest
charged on the principal alone for the entire duration or period t 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:
I s=Prt
Is
P= or P=F−I s
rt
Is
t=
Pr
Is
r=
Pt
Note: If the given time is in months, it can be converted to year(s) by using the formula
number of months
t= .
12
Compound Interest (Ic)
Compound interest (Ic) 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 or simply the difference between the compound amount and the original principal.
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 (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 (r) – the stated rate of interest per year.
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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.
Formulas:
( )
mt
n r
F=P ( 1+i ) ∨F=P 1+
m
∨P=F ( 1+ )
−mt
−n r
P=F ( 1+i )
m
I c =F−P or
I c =P[ ( 1+ i )n −1]
r =m [( ) ]
F 1n
P
−1
t=
log ( FP )
m [ log ( 1+i ) ]
***where
I c −¿ compound interest
P−¿ present value of F
r −¿ annual interest rate
t−¿ time (per year)
F−¿ compound amount or maturity value
m−¿ conversion period
annually : m=1
semi-annually : m=2
quarterly : m=4
monthly : m = 12
n−¿ total number of conversion periods ( n=mt )
i−¿ periodic rate i=
m( )
r
ENGAGEMENT :
I. “SIMPLEHAN LANG MUNA!”
Study the given examples about Simple Interest.
A. Fill me!
Directions: Complete the table below by solving the unknown quantities in each row.
Principal Rate Time Simple Interest Future Value
(P) (r) (t) (Is) (F)
1. ₱500,000.00 12.5% 10 years
)
2. 2.5% 4 years ₱1,500.00
)
3. ₱36,000.00 1 year and ₱4,860.00
) 6 months
4. ₱250,000.00 0.5% ₱1,400.00
)
5. ₱10,000.00 4% 5 months
)
Solution:
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1.) Given: P = ₱500,000.00 ; r = 12.5% or 0.125 ; t = 10 years
I s=Prt F=P+ I s
I s=₱ 500,000.00(0.125)(10) F=₱ 500,000.00+ ₱ 625,000.00
I s=₱ 625,000.00 F=₱ 1,125,000.00
Is
P= F=P+ I s
rt
₱ 1,500.00
P= F=₱ 15,000.00+ ₱ 1,500.00
0.025(4)
P=₱ 15,000.00 F=₱ 16,500.00
6
3.) Given: P = ₱36,000.00 ; t=1 years or 1.5 years ; I s = ₱4,860.00
12
Is
r= F=P+ I s
Pt
₱ 4,860.00
r= F=₱ 36,000.00+ ₱ 4,860.00
₱ 36,000.00(1.5)
r =0.09 or 9% F=₱ 40,860.00
Is
t= F=P+ I s
Pr
₱ 1,400.00
t= F=₱ 250,000.00+ ₱ 1,400.00
₱ 250,000.00(0.005)
t=1.12 years F=₱ 251,400.00
5
5.) Given: P = ₱10,000.00 ; r = 4% or 0.04 ; t= year
12
I s=Prt F=P+ I s
I s=₱ 10,000.00(0.04) ( 125 ) F=₱ 10,000.00+ ₱ 166.67
I s=₱ 166.67 F=₱ 10,166.67
B. Solve It!
1. When invested at an annual interest rate of 7%, the amount earned ₱11,200.00 of simple interest
in 2.5 years. How much money was originally invested?
Solution:
Is
P=
rt
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₱ 11,200.00
P=
0.07 (2.5)
P = ₱64,000.00
2. Ricky borrowed ₱25,000.00 and paid ₱1,250.00 interest for 6 months. What was the rate of
interest?
Solution:
6
Given: P = ₱25,000.00 ; I s = ₱1,250.00 ; t= year or 0.5 year
12
Is
r=
Pt
₱ 1,250.00
r=
₱ 25,000.00 ( 0.5 )
r =¿ 0.1 or 10%
Solution:
r 0.07
i= = =0.035 n=mt=2 ( 1 )=2
m 2
F=P ( 1+i )
n
I c =F−P
F=₱ 15,000.00 ( 1+0.035 )
2
I c =₱ 16,068.38−₱ 15,000.00
F=₱ 16,068.38 I c =₱ 1,068.38
Therefore, the compound amount and the interest are ₱ 16,068.38 and ₱ 1,068.38 , respectively.
r 0.07
i= = =0.0175 n=mt=4 ( 1 )=4
m 4
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F=P ( 1+i )
n
I c =F−P
F=₱ 15,000.00 ( 1+0.0175 )
4
I c =₱ 16,077.89−₱ 15,000.00
F=₱ 16,077.89 I c =₱ 1,077.89
Therefore, the compound amount and the interest are ₱ 16,077.89 and ₱ 1,077.89 , respectively.
Solution:
r 0.06
i= = =0.005 n=mt=12 ( 3 ) =36
m 12
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:
[( ) ]
1
F n
r =m −1
P
r =2
[( ) ]
₱ 17,000.00 15
₱ 14,300.00
−1
r =0.0704 or 7 .04 %
4.) How many years will it take for ₱ 13,000.00 to become ₱ 20,000.00 at 12.5% compounded
annually?
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Solution:
r 0.125
i= = =0.125
m 1
t=
log ( FP )
m [ log ( 1+i ) ]
t=
log ( ₱₱ 20,000.00
13,000.00 )
1 [ log ( 1+0.125 ) ]
t=¿3.66 years
ASSIMILATION:
YOUR TURN!
I. Complete the table below by solving the unknown quantities in each row. Write your
complete solutions and answers on a 1 whole sheet of paper.
A.
Principal Rate Time Simple Interest Future Value
(P) (r) (t) (Is) (F)
1. ₱40,000.00 2% 3 years
)
2. 10% 5 years ₱2,500.00
)
3. ₱100,000.00 1.5 years ₱3,600.00
)
B.
1. A bank offers 1.5% annual simple interest rate for a particular deposit. How much interest
will be earned if 1 million pesos is deposited in this savings account for 1 year?
2. Joseph borrows ₱50,000.00 and promise to pay the principal and interest at 12% compounded
monthly. How much must he repay after 6 years?
3. How much must be invested today in a savings account to have ₱50,800.00 in 6 years and 9
months if money earns 5.4% compounded semi-annually?
4. A loan ₱125,000.00 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?
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Rubric:
Criteria 25 points 20 points 15 points 10 points 5 points
CORRECTNESS 96% TO 100% 75% TO 95% 50% TO 74% 25% TO 49% 0% TO 24% of
of the given of the given of the given of the given the given
solutions are solutions are solutions are solutions are solutions are
correct correct correct correct correct
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