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Lecture On Simple Compound Interest

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23 views

Lecture On Simple Compound Interest

...

Uploaded by

lssiqtq
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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SAMPLE LESSON PLAN ON SIMPLE AND COMPOUND INTEREST

I. Learning Objectives:

At the end of the period, the students should be able:

1. To understand the difference between simple and compound interest;


2. To solve problems involving simple and compound interest;
3. To appreciate the importance of the types of interest in our daily lives
in either saving money or borrowing money from any financial
institution.

II. Subject Matter: Simple and Compound Interest


Teaching Materials: scientific calculator, note pads, ballpen

III. Lesson Proper

When you deposit money in a bank, the bank usually pays you for the use
of your money. When you take out a loan from a bank, you have to pay the
bank for the use of their money. In both cases, the money paid is called
the interest.

The Simple Interest Formula is given by

Simple Interest = Principal × Interest Rate × Time

I = Prt

where:
The Principal (P) is the original amount of money deposited or borrowed.
The Interest Rate (r) is a percent of the principal earned or paid. It is
usually expressed in terms of percent.
The Time (t) is the length of time the money is deposited or borrowed. It is
usually expressed in terms of year.

When Principal (P) is unknown use: P = I/rt

When Interest Rate (r) is unknown use: r = I/Pt

When Time (t) is unknown use: t = I/Pr

Illustrative Example:

Solve the unknown quantity in each of the problems below. Show your
complete solution.

1. Reinchelle deposits P4,000 in a bank paying an interest rate of 4.5%


per year. How much interest will she earn at the end of 3 years?
I = Prt = P4,000.00 (0.045)(3) = P540.00
F = P + I = P4,000.00 + P540.00 = P4,540.00
*Reinchelle deposits P4,000 in a bank paying an interest rate of 4.5% per
year. What is the final amount at the end of 3 years?

Alternate Formula for F:


F=P+I
F = P + Prt
F = P (1 + rt)
F = P4,000.00 (1 + (0.045)(3))
F = P4,000.00 (1 + 0.135)
F = P4,000.00 (1.135)
F = P4,540.00)

2. Bianca borrowed P15,000 from a bank that charges 12% simple


interest. If it has earned an interest of P5,000.00 how long will she
have to pay the loan?
3. Allyxa bought a car for P1,400,000.00. She took a P220,000 loan from
a bank that charges 15% simple interest rate. What is the total
amount (interest and loan) that she would have to pay the bank at the
end of 3 years?
4. Mark Butch is investing P4,000 for 2 years. The interest rate is 5.5%.
How much interest will Mark Butch earn after 2 years?
5. Jesus made a 3- year investment. The interest rate was 4.5%. After 3
years, he earned P67,500.00 in interest. How much was his original
investment?
Compound Interest

If the interest is added to the principal after which interest is again


computed, the sum by which the original principal has increased by the end
of the term of the investment is called Compound Interest.
Example 1: Find the compound amount and compound interest at the end of
one year if P1,000.00 is invested at 10% compounded quarterly.
Method 1:
First Period: At the end of 3 months or after first quarter, the interest due is
P1,000(0.1)(3/12) =P25.00
The new principal will be P1,000 + P25 = P1,025.00
Second Period: At the end of 6 months, the interest due is P1,025.00(0.1)
(3/12)= P25.625
The new principal will be = P1,025 + P25.625 = P1,050.625
Third Period: At the end of 9 months, the interest due is P1,050.625(0.1)
(3/12)=P26.266
The new principal will be P1,050.625 + P26.266 = P1,076.891
Fourth Period: At the end of 1 year, the interest due is P1,076.891(0.1)
(3/12)=P26.922
The Compound Amount (F) is P1,103.81 and the Compound Interest
is P103.81.
Method 2: F = P (1 + i)n
where: F is the compound amount
P is the principal
i is the interest rate per period = j/m
j = nominal rate
m = frequency of
conversion

n is the number of conversion = tm


F = P1,000 (1 + 0.025)4
= P1,000.00 (1.025)4
= P1,000.00 (1.10381289)
F = P1,103.81
In your scientific calculator: 1.025^4 = _______ x 1000 = __________
Solve the following compound interest problems.
1. Find the compound amount due at the end of the time if money is
invested at the given rate:
a. P4,000.00 ; 2 years at 12% compounded quarterly.
b. P30,000.00 ; 4 years at 10 ½% compounded semi-annually.
1.a. F = P (1 + i)n
F = P4,000.00 (1.03)8
F = P5,067.08
IV. Practice Activity
Solve the following investment problems involving simple and
compound interest

1. Butch got a loan of P147,000.00 to buy a used car. The interest rate is
7.5%. He paid P25,000.00 in interest. How many years did it take him
to pay off his loan?
2. If you invest P35,000 in savings account that pays 4% simple interest,
how much interest will you earn after 3 years?
3. Jesus borrowed P60,000 from a loan shark. If you will owe P72,000 for
18 months, what simple interest rate was imposed?
4. An investment earned P11,250.00 interest after 9 months. The rate
imposed was 5%. How much was originally invested?
5. P120,000.00 was invested for 3 years. It earned P20,400.00 in interest.
What was the interest rate imposed?
6. Find the compound amount due at the end of the time if money is
invested at the given rate:
6.1 P20,000.00 ; 2 years and 8 months at 8% compounded
monthly.
6.2 P50,000.00 ; 4 years and 2 months at 12.75% compounded
quarterly.
6.3 P65,800.00 ; 6.25 years at 9½% months compounded
monthly.

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