Simple

and
Compound
Interests
Simple Interests
 Definitions:
Simple Interest (𝑰𝒔 ) – interest that is computed on the principal. The
interest remains constant throughout the term.

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
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 loan is to be completely repaid
 Definitions:
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 (P) – 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 Interest (I) – amount paid or earned for
the use of money

Maturity value or future value (F) –amount after t years that the
lender receives from the borrower on the maturity date
Example 1. Simply Saving!
A working student at one of the biggest fast-food
restaurants in Laoag City wants to save for the
upcoming school year. He wants to deposit his money
to a Filipino owned bank so that even in a simple way
he can help his fellow Filipino. Supposed his monthly
salary is ₱10,000.00, and it was deposited to an
account that earns a simple interest of 2.75% per
annum. Find the simple interest after 6 months, one
year, and 18 months.
You can solve this problem using the simple interest formula
𝐼𝑠 = 𝑃𝑟𝑡
where:
Is = Simple Interest
P = Principal or amount invested or borrowed
r = simple interest rate
t = term of time in years
Here are the steps to find the simple interest:
Step 1: Identify the given and the unknown
P = ₱10,000.00
r = 2.75% or 0.0275
Step 2: Substitute the given to the formula
Is = Prt

For 6 months For 1 year

Is = (₱10,000.00) (0.0275) (0.5) Is = (₱10,000.00) (0.0275) (1)
= ₱137.50 = ₱275.00

For 18 months
Is = (₱10,000.00) (0.0275) (1.5)
= ₱412.50
Example 2.
Problem Solving: During this summer season, Miss Tamayo a
female resident of Brgy. Lydia thinks of a business that can
provide for her needs as well as the need of her neighbors so she
can be of help even in this summer season.
Having no money at hand she decided to borrow from a bank as
the start-up capital of ₱50,000.00 at 7% simple interest rate
payable within 5 years. Compute for the interest yield.
Solution.
Simple Interest
Simple Interest (Is)
Formulas: where 𝐼𝑠 − simple interest
𝑃 − principal
 𝑰𝒔 = 𝑷𝒓𝒕
𝑟 − rate of interest or simply rate
 𝑭 = 𝑷 + 𝑰𝒔 or 𝑭 = 𝑷 + 𝑷𝒓𝒕 𝑡 − time (in year)
𝐹 − future value (or maturity value)
or 𝑭 = 𝑷(𝟏 + 𝒓𝒕)
Note: If the given time is in months, it can be
𝑰𝒔
 𝑷= or 𝑷 = 𝑭 − 𝑰𝒔 converted to year(s) by using the formula
𝒓𝒕
𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑚𝑜𝑛𝑡ℎ𝑠
𝑰 𝑡= .
 𝒕 = 𝑷𝒓𝒔 12

𝑰𝒔
 𝒓=
𝑷𝒕
Example 3
A loan company charges 30 pesos interest for a one
month loan of 500 pesos. Find the annual interest rate
they are charging.
Solution: I = Prt
I = 30 pesos of interest
30 = (500)(r) (1/12)
P = 500 principal r = 30/((500)(1/12))
t = 1 month r = 0.71 or 72%
r = unknown
Example.
Directions: Complete the table below by solving the unknown
quantities in each row.
Principal Rate Time Simple Future Value
(P) (r) (t) Interest (F)
(Is)
1.) ₱500,000.00 12.5% 10 years
2.) 2.5% 4 years ₱1,500.00
3.)
1 year and
₱36,000.00 ₱4,860.00
6 months

4.) ₱250,000.00 0.5% ₱1,400.00

5.) ₱10,000.00 4% 5 months
 Solution:

1) Given: P = ₱500,000.00 ; r = 12.5% or 0.125 ; t = 10 years

𝐼𝑠 = 𝑃𝑟𝑡 𝐹 = 𝑃 + 𝐼𝑠
𝐼𝑠 = ₱500,000.00(0.125)(10) 𝐹 = ₱500,000.00 + ₱625,000.00
𝑰𝒔 = ₱𝟔𝟐𝟓, 𝟎𝟎𝟎. 𝟎𝟎 𝑭 = ₱𝟏, 𝟏𝟐𝟓, 𝟎𝟎𝟎. 𝟎𝟎
 Example.
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

₱625,000.00 ₱1,125,000.00
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

2.) Given: r = 2.5% or 0.025 ; t = 4 years ; 𝐼𝑠 = ₱1,500.00

𝐼𝑠
𝑃= 𝐹 = 𝑃 + 𝐼𝑠
𝑟𝑡
₱1,500.00
𝑃= 𝐹 = ₱15,000.00 + ₱1,500.00
0.025 (4)
𝑷 = ₱𝟏𝟓, 𝟎𝟎𝟎. 𝟎𝟎 𝑭 = ₱𝟏𝟔, 𝟓𝟎𝟎. 𝟎𝟎
 Example.
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

₱625,000.00 ₱1,125,000.00
2.) ₱15,000.00 2.5% 4 years ₱1,500.00
₱16,500.00
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

 6
3.) Given: P = ₱36,000.00 ; t=1 years or 1.5 years ;
12
𝐼𝑠 = ₱4,860.00

𝐼𝑠
𝑟= 𝐹 = 𝑃 + 𝐼𝑠
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
 Example.
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

₱625,000.00 ₱1,125,000.00
2.) ₱15,000.00 2.5% 4 years ₱1,500.00
₱16,500.00
3.) ₱36,000.00 1 year and ₱4,860.00
9%
6 months
₱40,860.00
4.) ₱250,000.00 0.5% ₱1,400.00

5.) ₱10,000.00 4% 5 months

4) Given: P = ₱250,000.00 ; r = 0.5% or 0.005 ; 𝐼𝑠 = ₱1,400.00

𝐼𝑠
𝑡= 𝐹 = 𝑃 + 𝐼𝑠
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
 Example.
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

₱625,000.00 ₱1,125,000.00
2.) ₱15,000.00 2.5% 4 years ₱1,500.00
₱16,500.00
3.) ₱36,000.00 1 year and ₱4,860.00
9%
6 months
₱40,860.00
4.) ₱250,000.00 0.5% ₱1,400.00
1.12 year ₱251,400.00
5.) ₱10,000.00 4% 5 months
 5
5.) Given: P = ₱10,000.00 ; r = 4% or 0.04 ; t= year
12

𝐼𝑠 = 𝑃𝑟𝑡 𝐹 = 𝑃 + 𝐼𝑠
5
𝐼𝑠 = ₱10,000.00 (0.04) 𝐹 = ₱10,000.00 + ₱166.67
12
𝑰𝒔 = ₱𝟏𝟔𝟔. 𝟔𝟕 𝑭 = ₱𝟏𝟎, 𝟏𝟔𝟔. 𝟔𝟕
 Example.
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

₱625,000.00 ₱1,125,000.00
2.) ₱15,000.00 2.5% 4 years ₱1,500.00
₱16,500.00
3.) ₱36,000.00 1 year and ₱4,860.00
9%
6 months
₱40,860.00
4.) ₱250,000.00 0.5% ₱1,400.00
1.12 year ₱251,400.00
5.) ₱10,000.00 4% 5 months
₱166.66.00 ₱10,166.67.00
Quiz 2

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.

Principal Rate Time Simple Future Value

(P) (r) (t) Interest (F)
(Is)
1.) ₱40,000.00 2% 3 years
1 2
2.)
3 10% 5 years ₱2,500.00
4
3.) ₱100,000.00
5 1.5 years ₱3,600.00
6
4.) ₱250,000.00 4.5%
7 ₱15,400.00
8
5.) ₱12,345.00 8.25% 9 months
9 10
Write the word TRUE if the statement is correct, otherwise write FALSE
on a separate answer sheet. If your answer is FALSE, write the word or
phrase that will make the statement correct.

1. Simple interest changes throughout the investment

term.

True
Write the word TRUE if the statement is correct, otherwise write FALSE
on a separate answer sheet. If your answer is FALSE, write the word or
phrase that will make the statement correct.

2. Simple interest computation will always be based

on the original principal.

True
Write the word TRUE if the statement is correct, otherwise write FALSE
on a separate answer sheet. If your answer is FALSE, write the word or
phrase that will make the statement correct.

3. Interest is the amount of money invested or

borrowed originally.

False, the longer the pay debt the greater interest you pay.
Write the word TRUE if the statement is correct, otherwise write FALSE
on a separate answer sheet. If your answer is FALSE, write the word or
phrase that will make the statement correct.

4. Interest is the amount of money invested or

borrowed originally.

False, the debtor is still in good standing since no

penalty will be charge.
Write the word TRUE if the statement is correct, otherwise write FALSE
on a separate answer sheet. If your answer is FALSE, write the word or
phrase that will make the statement correct.

5. In ordinary interest, the interest is computed

based on 365 days.

True
Match the terminologies in column B to its definition or statement in column A.
Write your answer on the blanks provided below the trivia question inside the
box. Your answer should reveal one of the products that we should be proud of
as a Filipino. Finally, answer the guided questions that follow.

T. Interest

O. Borrower/Debtor

N. Compound Interest

C. rate of interest
U. Future Value
Compound interest

-is the interest computed on the principal and also on

the accumulated past interest, so compound interest is a
way to earn money because you don’t just earn using
your original money, but also the interest you earned.
Example Problem Solving:
Due to COVID-19 pandemic Miss Dada a female resident of
Barangay May Pagkakaisa somewhere in Quezon Province thinks of
a business that can provide for her needs as well as the need of her
neighbors so she can be of help even in this trying time. Having no
money at hand she decided to borrow from a bank as the start-up
capital of ₱50,000.00 at 7% interest rate compounded annually and
payable within 5 years. Compute for the interest yield.
Simple interest
Solution.
The formula to find the future value in a compound interest is
given by

𝐹 = 𝑃(1 + 𝑟/n) n𝑡

where:

𝐹 = future value
𝑃 = principal amount
𝑟 = compound interest rate
𝑡 = time or time in years
n = number of times compounded per year
Example 1: If you deposit P4000 into an account paying 6% annual interest
compounded quarterly, how much money will be in the account
after 5 years?

0.06 4(5)
𝐹 = 4000 (1 + )
4

𝐹 = 4000 (1.015) 20

𝐹 = 4000 (1.346855007)
After 5 years there will be P5387.42 in
𝐹 = 5387.42 the account.
Example 2: If you deposit P6500 into an account paying 8% annual interest
compounded monthly, how much money will be in the account after 7 years?

0.08 12(7)
𝐹 = 6500 (1 + )
12

𝐹 = 6500 (1.007) 84

𝐹 = 6500 (1.75)
After 7 years there will
𝐹 = 11358.24 be P11358.24 in the account.
Example 3: How much money would you need to deposit today at 9% annual
interest compounded monthly to have P12000 in the account after 6 years?

0.09 12(6)
12000 = P (1 + )
12

12000 = P (1.0075) 72

12000 = P (1.71)
You would need to deposit
P = 7017.54 P7017.54 to have P12000 in
6 years.
Activity: Assuming that your father asks you about investment and
wants to know the interest that will be earned if he will invest
₱500,000.00 in a certain bank that offers an annual compounding
interest of 8% for 5 years.
 Simple Interest
Interest on principal only.
P200.00 invested with a rate of 3% for 3
years.
Interest
1st Year: Is=Prt: (200)(0.03)(1) = P6.00
2nd Year: Is=Prt: (200) (0.03)(1) = P6.00
3rd Year Is=Prt: (200) (0.03)(1) = P6.00
Total interest: P18.00
Compound Interest
Interest on principal and interest
previously earned.
P200.00 invested with a rate of 3% for 3
years.
Interest
1st Year: Ic= F-P: P206 - P200 = P6.00
2nd Year: Ic= F-P: P206.00 (0.03)
= P6.18.00
3nd Year: Ic= F-P: 212.18 (0.03) = 6.37
Total interest: P18.55