Gen Math

SIMPLE AND COMPOUND
INTEREST
SAN JOSE HIGH SCHOOL
LYNDON B. PAGUNTALAN
DEFINITION OF TERMS
 Principal ( P)– the amount that is lent or the amount that you have.
 Interest( I) – the amount that is earned or the amount that is needed to be paid
for the use of one`s money.
 Rate (r) - annual rate, usually in percent, charge by the lender.
 Time or term (t)- amount of time in years the money is borrowed or invested,
length of time between the origin and maturity dates.
 Maturity value or accumulated amount – the final amount that you will pay
or the amount after t years, that the lender receives from the borrower on the
maturity date.
 Simple Interest – interest that is computed on the principal and then added to it.
DEPARTMENT OF EDUCATION
SIMPLE INTEREST
Interest is given by the formula, I = Prt where P is the principal or the original
amount, r is the rate of the annual interest and t is the time or terms in years.
Since interest are made annually, it is logical that other measure of time such as
months or days must be converted into fraction of the years. This can be done
using the following formulas:
 t years = t years
 t months = t/12 years
 t days = t/365 years
The final amount or the maturity value, however, can be computed by adding the
Principal amount plus the total interest or F = P + I.
EXAMPLE 1:
Suppose you save ₱1,000 at 8% simple interest. How much money will you have
after 6 years?
Solutions:
Given: P =₱1,000
r = 8%
t = 6 years
a. I = Prt b. M = P + I
I = ₱1,000(.08)(6) M = ₱1,000 +₱ 480
I = ₱480 M = ₱1,480 the amount of money after 6 years
EXAMPLE 2:
How much was borrowed if the interest at 2% after 6 months is ₱400?
Solutions:
Given: I = ₱400
r = 2%
t = 6 months
a. 6 months = 6/12 = ½ year

b. P = 𝐼/𝑟𝑡
P = 400/(0.02)(0.5)
P = 400/0.01
P = ₱40,000 (amount borrowed)
EXAMPLE 3:
At what rate should ₱7,500 be invested to have a final amount of ₱9,300 in 8 months?
Solutions:
Given: P = ₱7,500
F = ₱9,300
t = 8 months
a. 8 months = 8/12 = 2/3 year

b. I = F – P c. r = I / Pt
I = ₱9,300 – ₱7,500 r = ₱1,800/ ₱7,500 X 2/3
I = ₱1,800 r = ₱1,800/ ₱5,000
r = 0.36
r = 36% (the rate that the money should be
invested)
EXAMPLE 4:
How many years would it take for ₱6,000 to grow until ₱7,900 if it is invested at a
9% simple interest?
Solutions:
Given: P = ₱6,000
F = ₱7,900
r = 9%
a. I = F – P b. t = I / Pr
I = ₱7,900 – ₱6,000 t = ₱1,900/ ₱6,000 X .09
I = ₱1,900 t = ₱1,900 / 540
t = 3.52
MATURITY VALUE
Suppose the bank granted you a loan worth ₱5,000,000 for 2 years at 7% rate of
interest. The final amount that you must pay, including the interest and the
principal amount after two years is called maturity value. Meanwhile, the current
worth of cash to be received in the future with one or more payment is called the
present value. The maturity date of the loan is the deadline agreed by both parties
where in the debtor must pay the maturity value of the money he lend from the
bank.
To get the maturity value, we add the total sum of interest to the present value of
the money or: M = P + I
EXAMPLE 1:
Landbank granted Joey a ₱250,000 loan payable for 2 years at 5% interest. How much
money does Neil owe on the maturity date?
Solutions:
Given: P = ₱250,000
r = 5%
t = 2 years
We need to compute first the interest, I = Prt
I = ₱250,000 (.05) (2)
I = ₱25,000
To get the amount that Neil will pay on the maturity date use, M = P + I
M = ₱250,000 + ₱25,000
M = ₱275,000
EXAMPLE 2:
Find the term of a ₱75,000 loan whose interest is 24,000 at 11% rate of interest.
Solution:
Given: P = ₱75,000
r = 11%
I = ₱24,000
t = I/Pr
t = ₱24,000/ ₱75,000 X .11
t = ₱24,000 / ₱8,250
t = 2.91 years rounded off to the nearest whole number
t = 3 years
EXAMPLE 3:
Gina needs ₱6,000 for her son`s tuition fee after 5 months. One day, her friend asked her if she
could lend her some money. She decided to lend her friend who needs it so that she can save
her money today and also make it sufficient for her son`s tuition fee. On what rate of increase
should she offer her friend given that her money now is ₱4,000?
Solutions:
Given: P = ₱4,000
M = ₱6,000
t = 5 months
a. 5 months = 5/ 12 b. r = I / Pt
I=M–P = ₱2,000/ ₱4,000 X 5/12
I = ₱6,000 – ₱4,000 = ₱2,000/ ₱1,666.67
I = 2,000 r = 120%
A. Complete the table below by finding the unknown values.
Principal (P) Rate (r) Time (t) Interest (I)

P 2.5% 4 1500
36, 000 r 1.5 4860
250,000 0.5% t 275
500,000 12.5% 10 I
B. Solve the following problem. Show your solution.
1. A bank offers 0.25% annual simple interest rate for a particular deposit.
How much interest will be earned if 1 million pesos is deposited in this
savings account for 1 year?
2. When invested at an annual interest rate of 7%, an amount earned ₱11,200

of simple interest in two years. How much money was originally invested?

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SIMPLE AND COMPOUND

a. 6 months = 6/12 = ½ year

a. 8 months = 8/12 = 2/3 year

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

2. When invested at an annual interest rate of 7%, an amount earned ₱11,200

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