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Interest

The document discusses simple and compound interest. It defines interest as the cost of borrowing money or a service charge paid to a lender. It distinguishes between simple interest, which is based only on the principal amount, and compound interest, which is based on the principal plus accumulated interest. The document provides formulas for calculating simple and compound interest, as well as examples of computing interest for different time periods and rates.

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Mark Kirby De Las Llagas
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24 views20 pages

Interest

The document discusses simple and compound interest. It defines interest as the cost of borrowing money or a service charge paid to a lender. It distinguishes between simple interest, which is based only on the principal amount, and compound interest, which is based on the principal plus accumulated interest. The document provides formulas for calculating simple and compound interest, as well as examples of computing interest for different time periods and rates.

Uploaded by

Mark Kirby De Las Llagas
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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INTEREST

✓ Illustrate simple and compound interest


✓ Distinguish between simple and compound
interest
✓ Solve problems involving interest
What is interest?
The cost of money which doesn’t belong
to you, but have used it

A service charge
The extra amount or fee
What is interest?
The amount paid back to the lender along with
the original amount borrowed
It is the monetary charge for the privilege of
borrowing money, typically expressed as an
annual percentage rate
Interest Rate
• extra amount paid • expressed as
percent per year
Principal Time
• original amount
• period of maturity
borrowed or invested
Two types of interest
An interest based on the
An interest based on the principal amount and the
principal amount of a loan or interest that accumulates on
deposit it in every period

Dependent on the principal, Dependent on the principal,


rate of interest, and the time rate of interest, the time
period period , and the compounding
terms

SIMPLE COMPOUND
Year Principal Interest Year Principal Interest
1 ₱100 ₱10 1 ₱100 ₱10
2 ₱100 ₱10 2 ₱110 ₱11
3 ₱100 ₱10 3 ₱121 ₱12.1
4 ₱100 ₱10 4 ₱133.1 ₱13.31
5 ₱100 ₱10 5 ₱146.41 ₱14.64
6 ₱100 ₱10 6 ₱161.05 ₱16.11
7 ₱100 ₱10 7 ₱177.16 ₱17.72
8 ₱100 ₱10 a comparison at 8 ₱194.87 ₱19.49
10% for 8 years
Total ₱80 Total ₱114.36

SIMPLE COMPOUND
Computing simple interest
Where:
I = interest
𝐼 = 𝑃𝑟𝑡 P = principal
r = rate (per annum)
t = time (in years)
₱120

8%

3.4 years

₱ 2,532.28

₱ 42,236.02
1. How much interest is earned when an amount of
₱100,000 is invested with an annual interest rate of 8%
for 5 years? ₱40,000

2. Find the total interest earned of an investment


amounting to ₱13,000 for 7 years at 5% annual simple
interest. ₱4,550
Computing future value (simple)
Where:
A = future value
𝐴 = 𝑃(1 + 𝑟𝑡) P = principal
r = rate
𝐴 =𝐼+𝑃 t = time
A businessman invested ₱80,000 in a firm which will
earn an annual simple interest of 12%. Financial needs
arise and he has to take them out in 9 months only. How
much amount will he receive?

₱87, 200
COMPOUND INTEREST
“the interest you earn on interest”
Computing future value (compound)
Where:
𝑟 𝑐𝑡 P = principal
𝐴 =𝑃 1+ r = rate
𝑐 t = time
c = compounding term
Where:
P = principal
r = rate
t = time

c = compounding term
• the number of times in a year when the principal earns interest
Annually = 1
Monthly = 12
Semi – annually = 2
Daily = 365
Quarterly = 4
𝑟 𝑐𝑡
Example:
𝐴 =𝑃 1+
𝑐
P = ₱13,700 (4)(7)
0.03
r = 3% 𝐴 = 13,700 1 +
4
t = 7 years
c = quarterly 𝑨 = ₱𝟏𝟔, 𝟖𝟖𝟖. 𝟏𝟓
I = ₱3,188.15
1,012.26 212.26

551,802.31 1,248,197.69

49,141.13 4,141.13
4,320.67 2,479.33

𝑟 𝑐𝑡
𝐴 =𝑃 1+
𝑐
If ₱20,000 is deposited in a savings account at an
annual rate of 5%. What is the amount in the account at
the end of 3 years if interest is compounded semi –
annually? How much interest will it earn?

A = ₱23,193.87 I = ₱3,193.87

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