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Simple and Compound Interest for ORAL

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Cyrin Mante
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5 views

Simple and Compound Interest for ORAL

Uploaded by

Cyrin Mante
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 DOCX, PDF, TXT or read online on Scribd
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SIMPLE INTEREST

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 loaned 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 or present value (P) – amount of money borrowed or invested on the origin
date.
Rate of interest or simply 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.
Maturity Value or Future Value (F) – amount after t years that the lender receives
from the borrower on the maturity date; equal to the sum of principal and the interest
earned.
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:
 I s=Prt
 F=P+ I s∨F=P+ Prt∨F=P(1+rt )
Is
 P= ∨P=F−I s
rt
Is
 t=
Pr
Is
 r=
Pt

𝑃− principal
***where I s− simple interest

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=
12
COMPOUND INTEREST

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) - the interest due at stipulated interval is added to the
principal and earns interest thereafter.

Formulas:

( )
mt
n r
 F=P ( 1+ i ) ∨F=P 1+
m

( )
−mt
−n r
 P=F ( 1+ i ) ∨P=F 1+
m

I c =F−P or
n
I c =P[ ( 1+ i ) −1]

[( ) ]
1
F n
 r =m −1
P


t=
log ( )
F
P
m [ log ( 1+i ) ]
***where
I c −¿ 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 )

( )
i−¿ periodic rate i=
r
m

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