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Q2 GenMath - Module 9 - Simple Compound Interest

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18 views34 pages

Q2 GenMath - Module 9 - Simple Compound Interest

Uploaded by

cuzz
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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GENERAL MATHEMATICS - MODULE 9

Simple &
Compound
Interest
Presented by: Ms. Jiezyl Jamaica M. Aquino
MELCs
1. illustrate simple and compound interests (M11GM-
IIa-1),
2. distinguish between simple and compound
interests (M11GM-IIa-2); and
3. compute interest, maturity value, future value, and
present value in simple interest and compound
interest environment(M11GM-IIa-b-1).
Interest is the amount paid or
earned for the use of money.
An amount of money that is
borrowed for a period of time
is called loan.
A person or institution who
invests the money or makes
the funds available is called
lender or creditor.
The person or institution who
owes or avails the fund from
the lender is called borrower
or debtor.
Principal or present value (P) is
an amount of money borrowed
or invested on
the origin date.
Origin or loan date is the date
on which money is received by
the borrower.
Repayment date or maturity
date is the date on which the
money borrowed or
loan is to be completely repaid.
Time or term (t) is the length of
time between the origin and
maturity dates
Rate (r) is annual rate usually in
percent, charged by the
lender.
Maturity value or future value
(F) is the amount after t years
that the lender receives from
the borrower on the maturity
date.
Principal Value + Interest (I) = Maturity Value/
(P) Rate (r) Future Value (F)

Origin Date Time (t) Maturity Date


Two types of Interest
SIMPLE INTEREST COMPOUND INTEREST

Simple interest is an Compound interest is an


interest that is interest on the principal
computed on the amount and also on the
principal and then accumulated past
added to it interest.
Example: Suppose you won Php 5 000 and you plan you invest it for 5
years. A cooperative group offers 5 % simple interest rate per year. A bank
offers 5 % compounded annually. Which will you choose and why?
Two types of Interest
SIMPLE INTEREST COMPOUND INTEREST

Simple interest remains In Compound interest


constant throughout the the interest from the
investment term. previous year earns
interest. Thus, the
interest grows every
year.
Two types of Interest
SIMPLE INTEREST COMPOUND INTEREST

Simple interest is only Compound interest is


paid on principal paid on the principal
plus all of the interest
that has previously been
earned.
Simple
Interest
Problems related to simple interest may require
solving for any of the variables involved: interest,
principal, rate, or time or the number of periods.

I = Interest
P = Principal
r = rate
t = time
𝑰 = 𝑷𝒓𝒕
𝑰
𝑷=
I 𝒓𝒕
𝑰
𝒓=
P r t 𝑷𝒕
𝑰
𝒕=
𝑷𝒓
Steps in Solving Problems related
to Simple Interest
Step 1: Identify what is asked.
Step 2: Identify what are given.
Step 3: Identify which formula to be used.
Step 4: Substitute the given values to the
formula.
Step 5: Solve the problem.
EXAMPLE

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?
EXAMPLE

2
When invested at an annual interest rate of 7.5%, the
amount earned ₱ 15,400 of simple interest in two years.
How much money was originally invested?
Suppose the problem asks the maturity or future value.
How will you solve it? Maturity value or amount refers to
the sum of the principal and interest. It is the future value
of the principal amount expressed given the formula:
EXAMPLE

3
Anthony borrowed ₱150 000 from a lending company
where he needs to pay an interest rate of 3% annually.
Find the a.) simple interest for 2 years. b.) maturity
value of the loan.
EXAMPLE

3
Anthony borrowed ₱150 000 from a lending company
where he needs to pay an interest rate of 3% annually.
Find the a.) simple interest for 2 years. b.) maturity
value of the loan.
TIPS: Do not be confused between
interest and maturity value.
▪ Interest is the product of the
principal, the rate, and the time.
▪ Maturity value is the sum of the
present value and the interest.
Compound
Interest
Compound interest is calculated as the
difference between the compound amount
and the original or principal amount. It is
calculated as:
EXAMPLE

4
If ₱ 20,000 is deposited in a savings account at an
annual rate of 5%,
what will be the amount in the account at the end of 3
years if the interest is
compounded annually?
EXAMPLE

5
Find the maturity value and the compound interest if ₱
20, 500 is compounded annually at an interest rate of
3% in 7 years.
EXAMPLE

6
What amount must be deposited by a student in the
bank that pays
2% compounded annually so that after 12 years he will
have ₱ 100 000?

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