MATS01G - NW - SQC - M7 (Compound Interest)
MATS01G - NW - SQC - M7 (Compound Interest)
MATS01G - NW - SQC - M7 (Compound Interest)
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MATS01G: GENERAL MATHEMATICS
CORE SUBJECT FOR SENIOR HIGH SCHOOL
Subquarter C
November 9-27, 2020
This set of modules was prepared by Ms. Joy S. Gutang, Senior High School faculty member of the LPU
International School. The author of the modules may be different from your actual subject teacher.
Please refer to the Class Orientation Kit for details and instructions from your subject teacher.
The use, disclosure, reproduction, modification and/or transfer of this document for any purpose, in any form or by
any means without approval from Lyceum of the Philippines University Cavite is strictly prohibited, and may be
subject to disciplinary and/or legal sanctions.
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Dear learner,
Again, to help you attain the objectives of this module, try following the
steps below.
First, carefully read each lesson on this module. Should there be
times that you need to read again parts of the lesson, go ahead!
Second, read and follow instructions honestly. Read the notes in red
font in the left side of some pertinent ideas and examples.
Third, answer the in-text activities or the TRY THESE sections, if
any. It is expected that some parts may be challenging for you as
new lessons will be learned in this module.
Fourth, read the SUMMARY and generalizations as well.
Lastly, check your answers to each activity. You can find the answer
key in the last pages of this module.
If you follow these tips, for sure, you will enjoy learning. Good Luck!
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LESSON 13
Compound Interest
In many aspects of modern 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 compound interest.
Get ready to learn a quick and easy method of calculating the interest charge on
a loan and interest to be earned in investments. Challenge yourself, prepare for quizzes
and performance tasks, and have a little fun along the way.
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subject to disciplinary and/or legal sanctions.
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LESSON PROPER
Conversion period (m) – the number of times in a year the interest will be
compounded.
Annual interest rate or nominal rate (j) – the stated rate of interest per year.
Present value (P) – this is the principal P, that will accumulate to F if there is
an interest at periodic rate i for n conversion periods.
Term or time (t) – The duration or the entire term of the investment or loan
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Example:
Principal
Amount at the end
Year at the start Interest
of the year
of the year
₱55,125 + 2 756.25
Third ₱55,125 × 0.05 × 1 =
₱55,125.00 =
Year ₱2,756.25
₱57,881.25
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,
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Suppose you won 10,000 pesos and you plan to invest it for 5 years.
A cooperative group offers 2% simple interest rate per year. A bank offers 2%
compounded annually. Which will you choose and why?” ______________
____________________________________________________________
Simple Interest:
Compound Interest:
Time Amount at Rate Compound Interest Amount at the end of year t
the start of
(t) (r) Solution Answer (Maturity Value)
year t
Those were very long and complicated processes, don’t you think? To
make computations easier, we will use the formulas below. The formulas are
derived from the process of computing compound interest. The step-by-step
solution was translated into mathematical models to make computing easier.
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𝑭 = 𝑷(𝟏 + 𝒊)𝒏
𝑰 = 𝑭 —𝑷
where
F = maturity (future) value
I = compound interest
P = principal, or present value
i = the interest rate per conversion period.
𝒋
𝒊=
𝒎
annually : m=1
semi-annually: m=2
quarterly : m=4
monthly : m = 12
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Example 1:
Solution: 𝐅 = 𝐏 (𝟏 + 𝐢 )𝐧
= (10,000) (1 + .02)5
F = ₱11,040.81
𝐈= 𝐅−𝐏
= 11,040.81 − 10,000
I = ₱1,040.81
Answer: The maturity value is ₱11,040.81 and the compounded
interest is ₱1,040.81
Example 2:
𝐈 = 𝐅−𝐏
= 63,338.50 − 50,000
= ₱13, 338.50
Answer: The maturity value is ₱63,338.50 and the compounded
interest is ₱13, 338.50
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Example 3:
Solution: 𝐅 = 𝐏 (𝟏 + 𝐢 )𝐧
= (10,000) (1 + .005)12
= ₱10,616.78
Example 4:
𝐈 =𝐅−𝐏
=11,048.96 − 10,000
= ₱1,048.96
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Example 5:
Example 6:
𝐅
Solution: 𝐏 = (𝟏+𝐢)𝐧
25,000
=
(1+.02)24
= ₱15,543.04
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Example 7:
Find the present value of ₱12,850.00 due in 3 years if the interest rate
is 6% compounded monthly.
12,850
=(
1+.0005)36
= ₱10,738.04
Answer: The present value is ₱10,738.04
Example 8:
F = ₱𝟑, 𝟓𝟐𝟗. 𝟐𝟗
I=F–P
= 3,529.29 – 3000
I = ₱𝟓𝟐𝟗. 𝟐𝟗
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2% 1 5 ₱1,040.81
8 years 5% 4 ₱74,406.53
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1. Meaning
2. Formula
3. Principal
4. Amount of
Interests
2.) 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
3.) 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
A.
4.) How much was the interest if Joy invested ₱30,400.00 and received a
total of ₱50,300.00 at the end of the term?
A. ₱19,900.00 C. ₱40,300.00
B. ₱30,400.00 D. ₱70,700.00
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6.) What is the total number of conversion periods when a certain amount
is borrowed at 5.5% compounded quarterly for 4 years?
A. 4 C. 16
B. 12 D. 22
7.) What is the interest rate per conversion period if ₱29,500.00 was
invested at 2.5% compounded semi-annually for 5 years and 4
months?
A. 0.0025 C. 0.025
B. 0.0125 D. 2.5
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Variables used:
I = compound interest
• To solve for the maturity value, use the formula 𝐅 = 𝐏(𝟏 + 𝐢)𝐧
𝐅
• To solve for the principal amount, use 𝐏 = (𝟏+𝐢)𝐧
𝒐𝒓 𝐏 = 𝐅(𝟏 + 𝐢)−𝐧
𝐣
• To solve for the periodic rate, i =
𝐦
• To solve for the number of conversions of the loan or investment,
n = 𝒕𝒎
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Pinterest
https://www.google.com/search?q=Maturity+value+cartoon&sxsrf=
Chron
https://smallbusiness.chron.com/uses-compound-interest-business-
49709.html
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TRY THESE A.
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TRY THESE B.
1. F = ₱102,525.13 I = ₱2,525.13
2. r = 0.1479 or 14.79%
3. Answers may vary.
TRY THESE C.
TRY THESE D.
1. B
2. D
3. B
4. A
5. B
6. C
7. B
8. B
9. D
10. C
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