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Q2 GM Week1

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43 views23 pages

Q2 GM Week1

Uploaded by

angelcampos041990
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Objectives

At the end of the lesson, you should be able to


•illustrate simple interest in computing the maturity value; and
•solve problems involving simple.
Learn about It!

The amount of interest that a lender receives or a borrower pays is


computed using three elements: principal, interest rate, and time.
Terminologies
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
Principal refers to the amount of money extended for credit or the amount of
money deposited in a bank for safekeeping.

Interest rate refers to the charged amount for using the money over a
certain period. It is commonly expressed in percent, but is converted to
decimal.
Unless otherwise specified in the problem, the interest rate is expressed in
percent per year.

Time refers to the period covered from the time that the money (principal) is
borrowed until its due date. The due date of the payment of the principal is
known as the maturity date.

The reference point of time is 1 year or 12 months.

Commonly, there are two types of interest: simple interest and compound
interest.
Simple interest refers to an interest that is computed on the original
principal during the whole period or time of borrowing.
The formula for simple interest is as follows:
I=Prt
where I is the interest, P is the principal, r is the interest rate, and t is the
time.
Maturity value or amount refers to the sum of the principal and
interest. It is the future value of the principal amount expressed in the
following formula:
M=P+I
where M is the maturity value, P is the principal, and I is the interest.

By expanding the basic simple interest formula, the maturity value may
be computed using the following alternative formula:
M=P+I Definition of maturity value

M=P+(Prt) Substitution of I=Prt

M=P(1+rt) ; Distributive property


Questions

1. What do you call a person or an institution who invests the money or


the one who makes the funds available?
2. Which is technically defined as the price for the privilege of borrowing
money?
3. If the interest given in the borrowed amount is 5%, how do you
express the percent interest to its decimal counterpart?
4. What is the value of 0.008 when expressed in percent?
5. A ₱2 000 000 house loan was made by Mrs. Dwight in the year 1999. If
it has 10% annual interest and has to mature in 2019, how much
would be the interest?
Objectives
At the end of the lesson, you should be able to
•illustrate simple interest in computing the value of maturity, as
well as the present and future values; and
•solve problems involving simple interest.
Learn about It!
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 represents the interest, P is the principal, r is the rate, and t is the time.
This triangle will help you on how to solve for the principal, rate, time, or
interest. You simply cover the variable representing what is needed, and the
remaining variables give you a clue to form the formula needed to solve for
the unknown.
For example, if you want to find the formula that will help you solve for
the principal that earns a simple interest, then cover the variable P. This
yields to . Using the same principle, we can arrive with the following
formula:

To find the rate,

To find the time,

t
Questions
1. What formula is used to solve for the principal/present value in simple
interest given the maturity value?
2. In the equation I=Prt, what does r represent?
3. If ₱10 000 is invested in a savings account that earns 5% annual
simple interest for 10 years, what are the values of P, r, and t?
4. What is being asked in the following problem?
To have ₱130 000 in 2 years, how much should you invest if the annual
simple interest is 4.5%?
Objectives
At the end of the lesson, you should be able to
•illustrate compound interest in computing the maturity value; and
•solve problems involving compound interest.
Learn about It!
Compound interest refers to the sum of interests of prior periods
computed on the original or principal amount and each of the successive
periods on both the principal and the interest.
A period is a time interval it takes for the money to be converted or to
earn interest in a year.
For example, annual conversion means to compute the interest only once
a year, semi-annually means twice a year, quarterly means four times a
year, bi-monthly means every two months or six times a year, and
monthly means 12 times in a year.
Hence, if the term of a transaction lasts two years, then money will be
converted using the table:

The total number of conversion periods is the product of the frequency


conversion and the term of the loan. Thus, a loan payable in 5 years with
quarterly conversion has a total compounding period of 20.
However, there are two types of interests that need to be discussed in
understanding compound interest: nominal rate and periodic rate.
Nominal rate refers to the rate of borrowing and is quoted as an annual
interest rate.
Periodic rate is called the interest rate per compounding period. It is
equal to the nominal rate divided by the compounding period in a year.
Hence, if a loan earns 8% quarterly, 2% is being imposed each quarter.
Compound amount is the accumulated value of the principal and all interest
amounts of prior periods. It is typically calculated first before determining the
net interest on the original loan or investment.
The formula for the compound amount, C, is

where P is the principal, r is the nominal rate, n is the number of


compounding periods per year, and t is the time in years.
Compound interest is calculated as the difference between the
compound amount and the original or principal amount. It is
calculated as:
I=C−P
Questions
1. Which of the following refers to the standard mode of return for real-
world investment?
2. Which of the following formulas represents the maturity value within
given time in years?
3. Suppose a student earned an amount I after t time from his account
that gives r return annually. How much is the students’ principal
deposit?
4. The compound interest on ₱30 000 at 9% per annum after 1 year is
______________.
5. If you invest ₱13 000 at 7% compounded biweekly, how much will
your investment be worth in 4 years?
Objectives
At the end of the lesson, you should be able to
•illustrate compound interest in computing the value
of maturity, as well as the present and future values;
and
•solve problems involving compound interest.
Learn about It!
Problems may involve finding any of the variables involved: interest,
principal, rate, time, and the number of compounding periods. Trial-and-
error method can be a way of computing for any of the variables
involved, however, this method is time-consuming. The given problems
will equip you to solve for the different elements in the compound
interest.
ACTIVITY
Solve the following:
1. Supposed that a local farmer wants to borrow money from Landbank
of the Philippines to start the organic farming in his one (1) hectare of
agricultural land. The farmer needs ₱ 150,000.00 as start-up capital.
The bank offers him10%interest rate compounded annually. Compute
for the total amount to be paid for 5 years.
2. A private school teacher plans to apply for a housing loan in the Home
Mutual Development Fund or Pag-ibig. It offers her a loan amounting
to ₱1,500,000.00, considering all the rules and regulations regarding
the policy with 6.5%interestper annum payable within 15 years.
Compute for the compound amount.
3. A bank offers a cash loan for an annual interest rate of 6%. Mr. Dela
Cruz borrowed 50,000 pesos from the bank for 3 years. Compute for the
simple interest.

4. An entrepreneur applied for a loan amounting to 500,000 pesos in a


bank. The bank charges a 7% interest rate annually. Compute for the
simple interest and maturity value after 2 years.

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