NORTHEASTERN CEBU COLLEGES, INC.

P.G. Almendras St.,Poblacion, Danao City, Cebu

Mobile #: 09228282445
Email Address: [email protected]/ [email protected]
SENIOR HIGH SCHOOL DEPARTMENT

Module 1: Simple Interest and Compound Interest

Name: __________________________________
Grade & Section: _________________________
Allotted Time: October 29- November 12, 2021

Prepared by:

JEAHME R. SOTTO, LPT

Subject Teacher

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 Email: [email protected]
FB Account: Jeahme Roble Sotto

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 Module 1: Simple Interest and Compound Interest

INTRODUCTION
After completing the tasks of this module, you should be able to:

a. illustrate simple and compound interest;

b. computes interest, maturity value, future value, and present value in simple
interest and compound interest; and
c. solve problems involving simple and compound interest.

OVERVIEW ON TERMS AND CONCEPTS

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

 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

 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

 Simple Interest ( I s) - interest that is computed on the principal and then added to it

 Compound Interest ( I c ) - interest is computed on the principal and also on the. accumulated past

interests

 Maturity value or future value ( F ) - amount after t years; that the lender receives from the borrower

on the maturity date

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 Module 1: Simple Interest and Compound Interest

I. A. Express each percentage as a decimal.

1.) 8 %=¿ ¿ 2.) 12.5 %=¿ ¿ 3.) 100 %=¿ ¿

B. Answer the following. Show your solution.

Remember!
To convert a percent to decimal, drop the percent sign and move the decimal point two places to thee left.

4.) What is 15% of 108? 5.) 48 is what percent of 60?

II. Directions: Complete the table below showing the amount needed in any one of the first five
years to pay off a loan of ₱ 20 000 at 8% per year at simple interest.

At the end of Principal Accumulated Amount Due

Interest
1 year ₱ 20 000 ₱ 1 600 ₱ 21 600
2 years
3 years
4 years
5 years

Describe the data under the heading “Amount Due”.

____________________________________________________________________________
____________________________________________________________________________

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 1: Simple Interest

Simple interest is charged only on the loan amount called the principal. Thus, interest
on the interest previously earned is not included. Simple interest is calculated by multiplying the
principal by the rate of interest by the number of payment periods in a year.

Simple Interest
I =Prt

I I I
(a) P= (b) r = (c) t=
rt Pt Pr

where I =¿interest, P = Principal, r = rate of interest and t = time or term in years or

fraction of a year.

Example 1. Teresa borrowed PI 20 000.00 from her uncle. If Teresa agreed to pay an 8%
annual interest rate, calculate the amount of interest she must pay if the loan period is (a) 1
year, and (b) 18 months.
Solution.
a. We are given P=₱ 120 000.00, r =8 % or 0.08, and t=1 year. Thus,

I =Prt=( 120 000 ) ( 0.08 ) ( 1 )=9 600

18
b. We are given P=₱ 120 000.00, r =8 % or 0.08, and t=18 months or year. Thus,
12

I =Prt=( 120 000 ) ( 0.08 ) ( 1812 )=14 400

Example 2. To buy the school supplies for the coming school year, you get a summer job at a
resort. Suppose you save ₱ 4 200.00 of your salary and deposit it into an account that earns
simple interest. After 9 months, the balance is ₱ 4 263.00. What is the annual interest rate?

I Alternate Solution.
Solution. Use the formula r = where
Pt
Use the formula A=P( I + rt) where
P=₱ 4 200.00,
3
A=₱ 4 263.00, P=₱ 4 200.00, and t=
9 3 4
t=9 months or or or year, and
12 4 year. Solve for r after substituting values for
A , P, and t .
I =₱ 4 263−₱ 4 200=₱ 63
63
r= =0.02∨2 %
(4 200) ()
3
4 Apply Distributive Property.

Subtract 4 200 from each side.

Therefore, the annual interest rate is 2 %.
Divide each side by 3 150.

The annual interest rate is 2%.

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Example 3. If ₱I0 000.00 is invested at 4.5% simple interest, how long will it take to grow to :
₱ 11 800.00?
I Alternate Solution.
Solution. Use the formula t= where
Pt
Use the formula A=P(I + rt) where A = PI
P=₱ 10 000.00
1 800.00, P=₱ 10 000.00, and r =0.045.
Solve for t after substituting values for A , P,
and r .

Apply the Distributive Property.

Subtract 10 000 from each side.
Divide each side by 450
It will take 4 years. It will take 4 years.
Many persons or institutions are interested to know the amount that a lender will give to the
borrower on the maturity date. For instance, you may be interested to know the total amount of
money in a savings account after t years at an interest rate r . This amount is called the
maturity value or future value A .

To find the maturity value, simply add interest to the principal.

Maturity (Future) Value

A=P+ I or A=P+ Prt or A=P( I + rt)

where A = Maturity value, P = Principal, and I = Interest.

The principal P of a loan or investment is also called the face value or the present value of the
loan.

Example 4. Find the maturity value if 1 million pesos is deposited in a bank at an annual simple
interest rate of 0.25% after (a) 1 year and (b) 5 years?
Solution. Given: P=1 , 000 , 000,
r =0.25 %=0.0025
(a) maturity or future value A after 1 year
Alternate Solution. To directly solve the
When t=1, the simple interest is given by future value A ,

The maturity or future value is given by The future or maturity value after 1 year is
A=P+ I ₱ 1 , 002 ,500 .

Solution. (b) When t = 5,

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 Alternate Solution.

Answer: The future or maturity value after 5

year is ₱ 1 , 012,500.

Web watch:
Topic: Simple Interest
https://youtu.be/rbjYr8V8ne4
https://youtu.be/NCYNXkbTTUo

2: Compound Interest

Compound interest compounded annually

t
A=P(1+r )

where A = Amount (Future Value), P = Principal (Initial Value), r = Interest rate, and t = time
(number of periods.

This is the basic formula for Compound Interest.

Compound interest
It means that the interest you earn each year is added to your principal, so that the balance
doesn't merely grow, it grows at an increasing rate.
Example 1. Find the compound amount on deposit at the end of I year if P20 000.00 is
deposited at 4% compounded annually.

Solution. Using the formula A=P(1+r )t where P=₱ 20 000, r =4 % or 0.04, and t=l , we have

A=20 000 ( 1+ 0.04 ) =₱ 20 800

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*Compound Interest is not always calculated per year, it could be per month, per day, etc. But
if it is not per year it should say so!
For instance, we use the same problem but change the compounding period from annual to
semi-annual.
Example 2. Find the compound amount on deposit at the end of I year if ₱ 20 000.00 is
deposited at 4% compounded semi-annually.
Solution. A rate of 4% per year compounded semi-annually means a rate of 2% per half year.

Amount
Principal Interest
(At the end of the year)
₱ 20 000
( 12 )=₱ 400 ₱ 20 000+ ₱ 400=₱ 20 400
First half year
( 20 000 ) ( 0.04 )

( 42 400 ) ( 0.06 ) ( )=₱ 400

Second half year ₱ 42 400 1 ₱ 20 400+ ₱ 408=₱ 20 808
2
At the end of one year, the amount of deposit is ₱ 20 808 .

In Example 2, the period (interval for compounding) is 6 months. There are two periods per
r
per period, and the number of periods in n years is 2 n. Thus, if the interest is
year: the rate is
2
compounded semi-annually for n years, the amount A is

( )
2t
r
A=P 1+
2
r
In the same way, if interest is compounded quarterly, the rate per period is and there are 4 n
4
periods in n years. In symbols, the compound amount is

( )
4t
r
A=P 1+
4
In general, the pattern can be extended for compounding n times per year to get

( )
nt
r r
A=P 1+ , where is called the periodic rate.
n n
Compound interest, Compounding n times a year

( )
nt
r
A=P 1+
n
where
A = Amount (Future Value)
P= Principal (Initial Value)
r = Interest rate
n = number of times the interest is compounded per year
t = time
Example 3. Identify the interest rate per compounding period and the number of compounding
periods for each of the following investments.
a. 12% compounded monthly for 4 years
b. 10.2% compounded quarterly for 9 quarters
r 0.12
Solution. a. r =12%=0.12 and n=12 (months per year), then = =0.01 . The number of
12 12
compounding periods is 12 t=12 ( 4 ) =48 .

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 r 0.102
b. r =10.2%=0.102andn=4 (quarters per year), then = =0.026. The number of
4 4
compounding periods is 9 .

Example 4. If ₱ 320 000.00 is invested for 5 years at 8% compounded quarterly, find (a) the
compound amount and (b) the compound interest.
r 0.08
Solution. a. r =8 %=0.08 and n=4 . Then = =0.02. The number of compounding
4 4
periods is 4 t=4 ( 5 )=20.

( ) =320 000(1+0.02)
4t
r 4 (5) 20
A=P 1+ =320 000 (1.02) =₱ 475 503.17
4
The compound amount is ₱ 475 503.17 .
b. Compound Interest = Compound Amount — Principal

I =475503.17−320 000=₱ 155 503.17

Compound Interest
The compound interest I is given by
I = A−P
where A = Amount (Future Value) and P = Principal (Initial Value).

Example 4. What amount must be invested in order to have ₱ 128 376.52 after 8 years if money
is worth 6% compounded semi-annually?
Solution. We need to find the principal P , knowing that the compound amount is
A=₱ 128 376.52, r =6 %=0.06 , K=2, and t=8 years.

( )
nt
r
Divide both sides by 1+
n

Answer: The initial amount invested or the Principal is ₱ 80 000.

Web watch:
Topic: Compound Interest

https://youtu.be/OQ9Mv2jwQWo

https://youtu.be/P182Abv3fOk

https://youtu.be/Hn0eLcOSQGw

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Topic: Simple and Compound Interest

https://youtu.be/gyiiqUQgEeA
 https://youtu.be/jlKy2w4MicY

Lesson 1
A. Complete the table by finding the simple interest.

Principal (P) Interest Rate (r ) Time (t) Amount of Interest (I )

₱ 72 500 8% 3 yr.

₱ 3 000 12 % 6 mo.

B. Complete the table by finding the maturity value.

Principal (P) Interest Rate (r ) Time (t) Maturity Value (A)

₱ 35 600 7% 9 mo.

₱ 140 250 11% 15 mo.

₱ 75 800 10 % 2 yr.

D. Solve the problem. Show your solution.

1. Toni decides to pay off a 12% interest ₱ 25 000.00 loan ahead of time. The lending institution
tells her that she owes ₱ 986.31 interest. If the lending institution uses a 365-day year, for how
many days are you being charged interest?

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Lesson 2
A. Complete the table to find the compound amount of P100 000.00 invested at 10 % interest.

in 1 year in 5 years
Compounded annually

Compounded semi-annually

Compounded quarterly

B. Answer the following. Show your solution.

1.) Lauro deposited P54 600 in a savings account which pays 8% interest compounded semi-
annually. What will his balance be in 3 years?

If a sum of money placed at compound interest doubles itself in 5 years,

how long will it become 8 times itself at the same rate of interest?
Solve and explain (30 points)

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