ST. ANTHONY’S HIGH SCHOOL OF BARBAZA, INC.

Barbaza, 5706 Antique, Philippines

CP No. 0917-7237931 E-mail Address: [email protected]

GENERAL MATH
First Semester/ Final Term SIMPLE & COMPOUND INTEREST
Module 1

Content Standard:
To demonstrate understanding of key concepts of simple and
compound interests.

Performance Standard:
To investigate, analyze and solve problems involving simple and
compound interests.

Most Essential Learning Competencies

1. Illustrate simple and compound interests.
2. Distinguish between simple and compound interests.
3. Compute interest, maturity value or future value and present value
in simple interest and compound interest environment.
4. Solve problems involving simple and compound interests.

Value Focus

Accuracy and Thriftiness

INTRODUCTION

Interest is the cost of borrowing money, where the borrower pays a fee
to the lender for the loan. The interest, typically expressed as a percentage,
can be either simple or compounded. Simple interest is based on
the principal amount of a loan or deposit. In contrast, compound interest is
based on the principal amount and the interest that accumulates on it in
every period. Simple interest is calculated only on the principal amount of a
loan or deposit, so it is easier to determine than compound interest.

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EXPECTED SKILLS:

To do well in this module, you need to remember and do the following:

1. follow the directions carefully

2. master the prerequisite skills such as solving
simple problems that involves money
3. solve with speed and accuracy

INTERACTION

LESSON 1: Simple Interest

 Let us discuss simple interest.

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 (Is) – interest that is computed on the principal and
then added to it
Compound Interest (Ic) – 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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Simple Interest (Is)
For every financial transaction, whether you borrowed or invested a
certain amount P, a corresponding percentage of the principal called interest
is being paid. Simple Interest (Is) is the interest charged on the principal
alone for the entire duration or period t of the loan or investment, at a
particular rate r. After the term of the loan or investment, the maturity value
or future value F is computed by getting the sum of the principal and the
interest due.
Formulas:
 𝑰𝒔 = 𝑷𝒓𝒕

 𝑭 = 𝑷 + 𝑰𝒔 or 𝑭 = 𝑷 + 𝑷𝒓𝒕 or 𝑭 = 𝑷(𝟏 + 𝒓𝒕)

𝑰𝒔
 𝑷= or 𝑷 = 𝑭 − 𝑰𝒔
𝒓𝒕

𝑰
 𝒕 = 𝑷𝒓𝒔

𝑰
 𝒓 = 𝑷𝒕𝒔

where 𝐼𝑠 − simple interest

𝑃 − principal
𝑟 − rate of interest or simply rate
𝑡 − time (in year)
𝐹 − future value (or maturity value)
Note: If the given time is in months, it can be converted to year(s) by using
the formula
𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑚𝑜𝑛𝑡ℎ𝑠
𝑡= .
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Example.
Directions: Complete the table below by solving the unknown quantities in
each row.
Principal Rate Time Simple Future Value
(P) (r) (t) Interest (F)
(Is)
1.) ₱500,000.00 12.5% 10 years
2.) 2.5% 4 years ₱1,500.00
3.) ₱36,000.00 1 year ₱4,860.00
and
6 months
4.) ₱250,000.00 0.5% ₱1,400.00
5.) ₱10,000.00 4% 5 months

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Solution:

1.) Given: P = ₱500,000.00 ; r = 12.5% or 0.125 ; t = 10 years

𝐼𝑠 = 𝑃𝑟𝑡 𝐹 = 𝑃 + 𝐼𝑠
𝐼𝑠 = ₱500,000.00(0.125)(10) 𝐹 = ₱500,000.00 + ₱625,000.00
𝑰𝒔 = ₱𝟔𝟐𝟓, 𝟎𝟎𝟎. 𝟎𝟎 𝑭 = ₱𝟏, 𝟏𝟐𝟓, 𝟎𝟎𝟎. 𝟎𝟎

2.) Given: r = 2.5% or 0.025 ; t = 4 years ; 𝐼𝑠 = ₱1,500.00

𝐼
𝑃 = 𝑟𝑡𝑠 𝐹 = 𝑃 + 𝐼𝑠
₱1,500.00
𝑃= 𝐹 = ₱15,000.00 + ₱1,500.00
0.025 (4)
𝑷 = ₱𝟏𝟓, 𝟎𝟎𝟎. 𝟎𝟎 𝑭 = ₱𝟏𝟔, 𝟓𝟎𝟎. 𝟎𝟎

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3.) Given: P = ₱36,000.00 ; t = 1 12 years or 1.5 years ;
𝐼𝑠 = ₱4,860.00

𝐼𝑠
𝑟= 𝐹 = 𝑃 + 𝐼𝑠
𝑃𝑡
₱4,860.00
𝑟 = ₱36,000.00(1.5 ) 𝐹 = ₱36,000.00 + ₱4,860.00
𝒓 = 𝟎. 𝟎𝟗 or 9% 𝑭 = ₱𝟒𝟎, 𝟖𝟔𝟎. 𝟎𝟎

4.) Given: P = ₱250,000.00 ; r = 0.5% or 0.005 ; 𝐼𝑠 = ₱1,400.00

𝐼
𝑡 = 𝑃𝑟𝑠 𝐹 = 𝑃 + 𝐼𝑠
₱1,400.00
𝑡 = ₱250,000.00(0.005) 𝐹 = ₱250,000.00 + ₱1,400.00
𝒕 = 𝟏. 𝟏𝟐 years 𝑭 = ₱𝟐𝟓𝟏, 𝟒𝟎𝟎. 𝟎𝟎

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 5
5.) Given: P = ₱10,000.00 ; r = 4% or 0.04 ; t = 12 year

𝐼𝑠 = 𝑃𝑟𝑡 𝐹 = 𝑃 + 𝐼𝑠
5
𝐼𝑠 = ₱10,000.00 (0.04) (12) 𝐹 = ₱10,000.00 +
₱166.67
𝑰𝒔 = ₱𝟏𝟔𝟔. 𝟔𝟕 𝑭 = ₱𝟏𝟎, 𝟏𝟔𝟔. 𝟔𝟕

ACTIVITY NO.1
I. Complete the table below by solving the unknown quantities in
each row. Write your complete solutions and answers on a 1 whole
sheet of paper.
Principal Rate Time Simple Future Value
(P) (r) (t) Interest (F)
(Is)
1.) ₱40,000.00 2% 3 years
2.) 10% 5 years ₱2,500.00
3.) ₱100,000.00 1.5 years ₱3,600.00
4.) ₱250,000.00 4.5% ₱15,400.00
5.) ₱12,345.00 8.25% 9 months

II. Solve the future value (refer on I) using the alternative formulas:
𝐹 = 𝑃 + 𝑃𝑟𝑡 or 𝐹 = 𝑃(1 + 𝑟𝑡)

LESSON 2: Compound Interest

 Let us discuss compound interest.

Problems involving simple interest were discussed on the previous

lesson. Simple interest is the interest charged on the principal alone for the
entire length of the loan or investment. Several formulas were introduced to
solve problems involving simple interest. The second type of interest that will
be discussed on this lesson is the compound interest. For many long-term
financial transactions, compound interest is used instead of simple interest.

“Suppose you won ₱10,000.00 and you plan to invest if for 5 years. A
cooperative group offers 2% simple interest rate per year. A bank offers 2%
compounded annually. Which will you choose and why?”

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Definition of terms:

Compound amount (F) – also called maturity value, it is an accumulated

amount obtained by adding the principal and the compound interest.

Conversion period (m) – the number of times in a year the interest will be
compounded.
The following are the common conversion periods in a year:
annually : m=1
semi-annually : m=2
quarterly : m=4
monthly : m = 12
Number of conversion periods (n) – the total number of times interest is
calculated for the entire term of the investment or loan.

Annual interest rate or nominal rate (r) – the stated rate of interest per year.

Periodic rate (i) – the interest rate per conversion period.

Present value of F (P) – this is the principal P, that will accumulate to F if

there is an interest at periodic rate i for n conversion periods.
Compound Interest (Ic)

Compound interest (Ic) is usually used by banks in calculating interest

for long-term investments and loans such as savings account and time
deposits. In this type of interest, the interest due at stipulated interval is
added to the principal and earns interest thereafter. It implies that the
principal increases over a period of time, resulting to an increase in interest
earned at every compounding period. Thus, compound interest is an interest
resulting from the periodic addition of simple interest to the principal amount
or simply the difference between the compound amount and the original
principal.

The problem below is an example of compound interest.

Example:

₱50,000.00 was loaned for a period of 3 years with 5% interest

compounded annually. What amount of money will be needed to repay the
loan?

Principal
Amount at the end of
at the start Interest
the year
of the year

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 ₱50,000 × 0.05 × 1 = ₱50,000 + 2 500 =
First Year ₱50,000.00
₱2,500.00 ₱52,500.00

Second ₱52,500 × 0.05 × 1 = ₱52,500 + 2625 =

₱52,500.00
Year ₱2,625.00 ₱55,125.00
₱55,125 + 2 756.25
₱55,125 × 0.05 × 1 =
Third Year ₱55,125.00 =
₱2,756.25
₱57,881.25

The required answer to the problem is ₱57,881.25.

As shown in the table, the amount at the end of the year is equal to the
sum of the principal and the interest for that year.

Thus,
Amount for First Year : A = 50000 + (50000 × 0.05)
= 50000 (1 + 0.05)

Amount for Second Year: A = 50000 (1 + 0.05) + (50000 (1 + 0.05)(0.05))

= 50000 (1 + 0.05) (1 + 0.05)
= 50000 ( 1 + 0.05)2

Amount for Third Year: A = 50000 (1 + 0.05)2 + (50000 ( 1 + 0.05)2(0.05))

= 50000 (1 + 0.05)2 (1 + 0.05)
= 50000 (1 + 0.05)3

Generally, when interest is compounded annually for n years, the amount A

= P( 1 + i) n.

Computation of the compound amount by the method shown above is

tedious and time-consuming. The formulas below will greatly ease
computations.

Formulas:
𝒓 𝒎𝒕
 𝑭 = 𝑷(𝟏 + 𝒊)𝒏 or 𝑭 = 𝑷 (𝟏 + )
𝒎

𝒓 −𝒎𝒕
 𝑷 = 𝑭(𝟏 + 𝒊)−𝒏 or 𝑷 = 𝑭 (𝟏 + 𝒎)

𝑰𝒄 = 𝑭 − 𝑷 or
𝑰𝒄 = 𝑷[(𝟏 + 𝒊)𝒏 − 𝟏]
𝟏
𝑭 𝒏
 𝒓= 𝒎 [(𝑷) − 𝟏]

𝑭
𝐥𝐨𝐠( )
 𝑷
𝒕 = 𝒎[𝐥𝐨𝐠(𝟏+𝒊)]

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where
𝐼𝑐 − compound interest
𝑃 − present value of F
𝑟 − annual interest rate
𝑡 − time (per year)
𝐹 − compound amount or maturity value
𝑚 − conversion period
annually : m=1
semi-annually : m=2
quarterly : m=4
monthly : m = 12
𝑛 − total number of conversion periods (𝑛 = 𝑚𝑡)
𝑟
𝑖 − periodic rate (𝑖 = 𝑚)

Examples:
1.) Find the compound amount and interest earned on ₱15,000.00 for 1
year at
(a) 7% compounded semi-annually and
(b) 7% compounded quarterly.

Solution:

(a) Given: P = ₱15,000.00 t = 1 year

r = 7% or 0.07 m=2
𝑟 0.07
𝑖=𝑚= = 0.035 𝑛 = 𝑚𝑡 = 2(1) = 2
2

𝐹 = 𝑃 (1 + 𝑖 ) 𝑛 𝐼𝑐 = 𝐹 − 𝑃
𝐹 = ₱15,000.00(1 + 0.035 )2 𝐼𝑐 = ₱16,068.38 − ₱15,000.00
𝑭 = ₱𝟏𝟔, 𝟎𝟔𝟖. 𝟑𝟖 𝑰𝒄 = ₱𝟏, 𝟎𝟔𝟖. 𝟑𝟖

Therefore, the compound amount and the interest are ₱16,068.38 and
₱1,068.38, respectively.

Alternative solution for solving the compound interest:

𝐼𝑐 = 𝑃[(1 + 𝑖 )𝑛 − 1]
𝐼𝑐 = ₱15,000.00[(1 + 0.035)2 − 1]
𝑰𝒄 = ₱𝟏, 𝟎𝟔𝟖. 𝟑𝟖

(b) Given: P = ₱15,000.00 t = 1 year

r = 7% or 0.07 m=4

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 𝑟 0.07
𝑖=𝑚= = 0.0175 𝑛 = 𝑚𝑡 = 4(1) = 4
4

𝐹 = 𝑃 (1 + 𝑖 ) 𝑛 𝐼𝑐 = 𝐹 − 𝑃
𝐹 = ₱15,000.00(1 + 0.0175 )4 𝐼𝑐 = ₱16,077.89 − ₱15,000.00
𝑭 = ₱𝟏𝟔, 𝟎𝟕𝟕. 𝟖𝟗 𝑰𝒄 = ₱𝟏, 𝟎𝟕𝟕. 𝟖𝟗

Therefore, the compound amount and the interest are ₱16,077.89 and
₱1,077.89, respectively.

Alternative solution for solving the compound interest:

𝐼𝑐 = 𝑃[(1 + 𝑖 )𝑛 − 1]
𝐼𝑐 = ₱15,000.00[(1 + 0.0175 )4 − 1]
𝑰𝒄 = ₱𝟏, 𝟎𝟕𝟕. 𝟖𝟗

2.) Find the present value of ₱12,850.00 due in 3 years if the interest rate is
6% compounded monthly.

Solution:

(a) Given: F = ₱12,850.00 t = 3 years

r = 6% or 0.06 m = 12

𝑟 0.06
𝑖=𝑚= 12
= 0.005 𝑛 = 𝑚𝑡 = 12(3) = 36

𝑃 = 𝐹 (1 + 𝑖 )−𝑛
𝑃 = ₱12,850.00(1 + 0.005)−36
𝑷 = ₱𝟏𝟎, 𝟕𝟑𝟖. 𝟎𝟒

Therefore, the present value is ₱10,738.04.

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 3.) At what rate of interest compounded semi-annually will ₱14,300.00
accumulate to ₱17,000.00 in 2 years and 6 months?

Solution:

Given: P = ₱14,300.00 m=2

6
F = ₱17,000.00 t = 2 12 years or 2.5 years
𝑛 = 𝑚𝑡 = 2(2.5) = 5

1
𝐹 𝑛
𝑟 = 𝑚 [( ) − 1]
𝑃
1
₱17,000.00 5
𝑟 = 2 [( ) − 1]
₱14,300.00

𝒓 = 𝟎. 𝟎𝟕𝟎𝟒 or 7. 𝟎𝟒%

Therefore, the rate of interest will be 0.0704 or 7.04%.

4.) How many years will it take for ₱13,000.00 to become ₱20,000.00 at 12.5%
compounded annually?

Solution:

Given: P = ₱13,000.00 m=1

F = ₱20,000.00 r = 12.5% or 0.125

𝑟 0.125
𝑖=𝑚= = 0.125
1

𝐹
log ( )
𝑡= 𝑃
𝑚[log(1 + 𝑖 )]
₱20,000.00
log (₱13,000.00)
𝑡=
1[log(1 + 0.125)]
𝒕 =3.66 years

Therefore, ₱13,000.00 will become ₱20,000.00 in 3.66 years.

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ACTIVITY NO.2

A. Solve what is asked in each item. Write your complete solutions and
answers on a sheet of paper.

1.) Find the final or compound amount of ₱15,900.00 at 5.5% interest

compounded annually for 18 months.
2.) Find the interest on ₱25,750.00 for 3 years at 8% compounded
quarterly.

INTEGRATION
Problems Involving Simple Interest

1. A bank offers 1.5% 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?

Solution:

Given: r = 1.5% or 0.015 ; P = ₱1,000,000.00 ; t =

1 year

𝐼𝑠 = 𝑃𝑟𝑡
𝐼𝑠 = ₱1,000,000.00 (0.015)(1)
𝑰𝒔 = ₱𝟏𝟓, 𝟎𝟎𝟎.00

Therefore, an interest amounting to ₱15,000.00 will be earned if 1 million

pesos is deposited in a savings account for 1 year with 1.5% annual simple
interest rate.

2. When invested at an annual interest rate of 7%, the amount earned

₱11,200.00 of simple interest in 2.5 years. How much money was
originally invested?
Solution:

Given: r = 7% or 0.07 ; 𝐼𝑠 = ₱11,200.00 ; t = 2.5 years

𝐼𝑠
𝑃=
𝑟𝑡
₱11,200.00
𝑃=
0.07(2.5)
𝑷 = ₱64,000.00

Therefore, the amount of money originally invested was ₱64,000.00.

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 3. Ricky borrowed ₱25,000.00 and paid ₱1,250.00 interest for 6 months.
What was the rate of interest?

Solution:

6
Given:P = ₱25,000.00 ; 𝐼𝑠 = ₱1,250.00 ; t= year or 0.5 year
12

𝐼𝑠
𝑟=
𝑃𝑡
₱1,250.00
𝑟=
₱25,000.00(0.5)
𝒓 = 0.1 or 10%

Therefore, the rate of interest was 0.1 or 10%.

4. How long in years will it take for ₱17,300.00 to amount to ₱20,000.00

at 11.25% simple interest?

Solution:

Given: P = ₱17,300.00 ; F = ₱20,000.00 ; r = 11.25% or

0.1125

𝐼𝑠 = 𝐹 − 𝑃
𝐼𝑠 = ₱20,000.00 − ₱17,300.00
𝐼𝑠 = ₱2,700

𝐼𝑠
𝑡=
𝑃𝑟
₱2,700
𝑡=
₱17,300.00(0.1125)
𝒕 = 𝟏. 𝟑𝟗 years
Therefore, it will take 1.39 years for ₱17,300.00 to amount to
₱20,000.00.
Problems Involving Compound Interest

1. Joseph borrows ₱50,000.00 and promise to pay the principal and

interest at 12% compounded monthly. How much must he repay after
6 years?

Solution:

Given: P = ₱50,000.00 m = 12
r = 12% or 0.12 t = 6 years

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 𝑟 0.12
𝑖=𝑚= = 0.01 𝑛 = 𝑚𝑡 = 12(6) = 72
12

𝐹 = 𝑃 (1 + 𝑖 ) 𝑛
𝐹 = ₱50,000.00(1 + 0.01 )72
𝑭 = ₱𝟏𝟎𝟐, 𝟑𝟓𝟒. 𝟗𝟕

Therefore, Joseph must repay ₱102,354.97 after 6 years.

2. A loan ₱125,000.00 at 8% compounded quarterly was paid back with an

amount of ₱176,000.00 at the end of the period. For how long was the
money borrowed?

Solution:

Given: P = ₱125,000.00 r = 8% or 0.08

F = ₱176,000.00 m=4

𝑟 0.08
𝑖=𝑚= 4
= 0.02

𝐹
log (𝑃 )
𝑡=
𝑚[log(1 + 𝑖 )]

₱176,000.00
log (₱125,000.00)
𝑡=
4[log(1 + 0.02)]

𝒕 =4.32 years

Therefore, the money was borrowed for 4.32 years.

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 3. How much must be invested today in a savings account in order to have
₱50,800.00 in 6 years and 9 months if money earns 5.4% compounded
semi-annually?

Solution:
9
Given: F = ₱50,800.00 t = 6 12 years or 6.75 years
r = 5.4% or 0.054 m=2

𝑟 0.054
𝑖=𝑚= = 0.027 𝑛 = 𝑚𝑡 = 2(6.75) = 13.5
2

𝑃 = 𝐹 (1 + 𝑖 )−𝑛
𝑃 = ₱50,800.00(1 + 0.027)−13.5
𝑷 = ₱𝟑𝟓, 𝟒𝟓𝟑. 𝟕𝟗

Therefore, an amount of ₱35,453.79 must be invested today.

 What I Have Learned.

Sum-up what you have learned by completing the following
statements. Write your answer in a separate sheet of paper.

I have learned that________________________________________________

_______________________________________________________________.
I have realized that________________________________________________
____________________________________.
I believe I can deepen my understanding through___________________
___________________________________________________________________

References
General Mathematics Learners Material(2016)
Oronce,O.A.(2016). General Mathematics. Rex Book Store Inc.
Aoanan,G,et.al(2016). General Mathematics for SHS.C & E Publishing Inc.

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