IMPSLE

SIMPLE
MOCPNOUD
COMPOUND
TERSTEIN
INTEREST
PALICPRIN
PRINCIPAL
TRAE
RATE
MTIE
TIME
SIMPLE AND COMPOUND
INTEREST
SIMPLE INTEREST

Simple interest refers to the amount earned for one year

calculated by multiplying the principal by the interest rate.
Only the principal, no more no less, is considered for the
computation of interest. This kind of interest is applied for
transaction that usually last only for less than a year. It is also
important to note that simple interest I directly proportional
to the principal P, interest rate r, and the time t, In symbols
 SIMPLE INTEREST ( I = PRT)
• A quick method of calculating the interest charge on a loan.
• Determined by multiplying the daily interest rate by the principal by the number of
days that elapse between payments.
Interest = Principal x Rate x Time
Where:
“Interest” the total amount of interest paid
“Principal” amount lent or borrowed
“Rate” percent of the principal earned or paid. It is expressed as a decimal
fraction, so percentages must be divided by 100
if the rate is 15% then use 15/100 or 0.15
“Time” time in years of the loan
Example 1: Aziz deposits Php 5,000 at a bank at an interest rate
of 5% per year. How much interest will have earn at the end 4
years?

Interest = Principal x Rate x Time = 5,000 *.05 * 4 = Php 1,000

 Example 2:
A dollar investment of $ 1,200 is
transacted for 5 months at 6% find:
a. The interest B. Maturity vale A is
b. Maturity value
Solution:
A=P+I
Given: Principal P = $ 1,200
Rate r = 6% or 0.06 A = $ 1,200 + $30
Term t = 5 months or
A = $ 1,230
The Interest I is

I = Prt
I = ($ 1,200)(0.06)(
I =$30
 Example 3:

An investment of $25,125 earns 10.55% interest. What is the

total amount of the investment?

Solution: use the following for calculating

simple interest. P is the principal $25,125 and r
is the interest rate in decimal for.

Simple interest = P • (1+r)

= 25,125 • (1+0.1055)
= 25,125 • 1.1055
= 27,775.6875
= 27,775.69
SIMPLE INTEREST VS COMPOUND INTEREST
Only the principal earns interest. Both the principal and interest earn interest.

₱ 100,000 ₱ 100,000
x 10% x 10%
Year 1 ₱ 10,000 Year 1 ₱ 10,000
Year 2 ₱ 10,000 + 100,000
₱ 110,000
x 10%
Year 2 ₱ 11,000
Interest is always based on the ₱ 100,000

They are different

 FORMULA
^nt

A = Future Value/ Maturity Value/ Compound Amount

P = Principal/ Present Value
r = rate of interest
n = number of times and interest is compounded in a year
t = time period ( ex. 1 year, 5 y)
Compounded Daily n = 365
Compounded Weekly n = 52
Compounded Monthly n = 12
Compounded Quarterly n=4
Compounded Semi – annually n = 2
Compounded Annually n=1
 1 year and 6 months

1 + 0.5

t = 1.5
Example : 1
An initial deposit of ₱100,000 is made into a savings account that compounds 10% interest
annually. How much is in the account at the end of 5 years?

GIVEN: A = P nt
P = 100,000 A = 100,000
r = 10% A = 100,000 (1 + 10%)
t=5 A = 100,000 (1 + 0.10)
n=1 A = 100,000 (1.10)
A = 100,000 (1.10) ^5
A = 100,000 (1.61051)
A = ₱161,051
Example : 2
After 5 years of 10% interest compounded quarterly, an account has ₱163,861.64.
What was the original deposit amount?
Find the P or Principal.
A = P ^nt
GIVEN: 163,861.64 = P (
t=5 163,861.64 = P ( 1 + 2.5%
163,861.64 = P (1 + 0.025
r = 10% 163,861.64 = P (1.025)
A = 163,861.64 163,86.64 = P (1.025)^20
n=4

P = ₱99,999.99
THANK YOU!!