Plaridel Integrated National High School

Brgy. Banago Nagcarlan Laguna

S.Y. 2022-2023

Simple and Compound

Interest

Pamela P. Moraleja
November 22, 2022
Simple Interest

Problem 1
Lawrence deposits $5,000 in a bank account
which pays 6% simple interest per year. Find the
value of his deposit after 4 years.

Solution
Formula for simple interest: I = Prt
s

Substitute P= $5,000, t= 4, r= 6%
Is = $5,000 x 6/100 x 4
Is = 1200

Accumulated value= Principal + Interest

= 5,000 + 1,200
= $6,200
Problem 2
Pamela received $2,250 loan from bank. After six months, she paid
back $2,295 and closed the loan. Find the rate of interest.

Solution
Interest = Amount – Principal
Is = 2,295 – 2,250
Is = 45

Given: Time period is 6 months.

In simple interest formula, we use time period in years. But the
time period given in the question in months.
So, let us change the given time period in years.
6 months = 6/12 years = ½ year

Formula for simple interest: I = Prt s

Substitute I = 45, P= 2,250, t= 1/2

s

45 = 2,250 x r x ½
45 = 1,125 x r
Divide both sides by 1,125
45/1,125 = r
0.04 = r
To convert the decimal 0.04 into percentage, multiply it by 100.
0.04 x 100% = r
4% = r
Compound Interest

Problem 3
A principal of $2,000 is placed in a savings
account at 3% per annum compounded annually. How
much is in the account after one year, two years, and
three years?

Solution
When interest is compounded annually, total
amount A after t years is given by:
A = P(1+r ) , where P is the initial amount (principal), r is
t

the rate and t is time in years.

1 year: A = 2,000(1+0.03) = $2,060

1

2 years: A = 2,000(1+0.03) = $ 2,121.80

2

3 years: A = 2,000(1+0.03) = $2,185.45

3
Problem 4
$1,200 is placed in an account at 4% compounded
annually for 2 years. It is then withdrawn at the end of
the two years and placed in another bank at the rate of
5% compounded annually for 4 years. What is the
balance in the second account after the 4 years.

Solution
Annual compounding
First two years: A = P(1+r ) t

= 1,200(1+0.04 ) = $1,297.92
2

Last four years: A = P(1+r ) t

= 1,297.92(1+0.05) = $1,577.63
4
Problem 5
What principal you have to deposit in a 4.5%
saving account compounded monthly in order to have
a total of $10,000 after 8 years?

Solution
P initial balance to find and final balance A
known and equal to $10,000.

0.045 12 x 8
A= P(1+
12
) = 10,000
P = 10,000/((1+ )
0.045
12
¿ ¿ 12 x 8) ¿ = $6,981.46