GENERAL

MATHEMAT I IC
S
SIMPLE INTEREST AND
COMPOUND I N T E R E S T
What is the meaning
of Simple Interest
?
 SIMPL INTEREST
E
Sl oi m
a np l i no tr e trhe es f ii sr s bt da es pe oosni t it nh ea ps raivnicni gp saacmc oo uu nn tt .S
o fi m
a p
el e t d al
interest d o e s n ' tc o m p o u n d , w h i c h means a
creditor will only pay interest on the prin
DEFINITIO

c i p a la m o u n t and a borrower would never ha

ve t o p a y m o r ei n t e r e s t o n t h e p r e v i o u s l y
accumulated inter
est

W HO BENEFITS FRO M A SIMP

LE INTEREST LO A N?
B e c a u s es i m p l e i n t e r e s t i s o f t e n c a l c u l a t e d on a da
ily
N

b a s i s , i t m o s t l y b e n e f i t sc o n s u m e r sw h o p a y t h e i r b i l l s
or loans on time or early each month.
K EY TA K EA W A Y S
Simple interest is calculated by multipl
ying the daily
i n t e r e s tr a t e b y t h e p r i n c i p a l , b y t h e number
of d a y s t h a t e l a p s eb e t w e e n p a y m e n
ts.
S i m p l ei n t e r e s t b e n e f i t s consumers who
pay their loans o n t i me o r
early e a c hm o n t h .
Auto loans and short-term personal loa
ns are usually simple interestloans.
 SIMPLE INTEREST
FORMULA

| = Prt
| = Interest
P = Principal (Initial
Value) r = Interest Rate
t = time (years)
EXAMPLES
FOR SIMPLE INTEREST
 A bank offers 0.50%. annual simple interest rate for a
Particular deposit: How much interest will be earned. if 6
million pesos is deposited in this Savings account for 3
years
Given:
P=6,000,000
r=0.50-- 0.50/100=0.005
t= 3 years
Find I=Prt
I=(6,000,000)(0.05)(3)
=(30,000)
(3)
=90,00
0
 F o r s e v e n y e a r s ,E t h a n w i l l i n v e s t 1 0 , 0 0
p e s o s .T h e r e i s a 9 % i n t e r e s t r a t 0
s e .v e n y e a r s ,h o w m u c h i n t e r e s t Awf ti e
l lrE
ea r tha n
n?

|=?
P= 10,000
r=9% / 100 = 0.09
t=7
| = Prt (10,000)
(0.09)(7)
= 6,300 pesos

Ethan will earn 6,300 pesos

in interest.
David deposited $20,000 in a bank that gives 10%. simple
interest.
How much interest he will receive after 3 years?
Given
P = 20.000
r = 0.10
t=3
I = Prt
Solution= (20,000) (0.107 (3)
= 6,000
David will receive 6,000 pesos in interest.
JONATHAN IMVEST 10,000 pesos IN A SAVING ACCOUNT WITH A INTEREST RATE OF 8% FOR
6 YEARS (A)HOW MUCH DID HE EARN IN INTERST ? (B) WHAT IS THE TOTAL VALUE OF HIS
SAVING AT THIS POINT

I = PRT
= (10,000)
(0.08)(6)
= 4800
10,000 + 4800 =
14,800
Aro deported $20.00 in a bank that gives 10 %simple
interest how much intenst she wil receive after 3
years? Given
P = 20,000
r = 10%=10/100 =0.10
t = 3 years
I = Prt
S olution= (20,000) (0.10)
(3)
=6,000
C OMpOUnd
Int er est
In this lesson, students will explore the importance
of compound interest as it applies to long-term
savings.
Students will examine factors that influence
compound interest and use them to formulate their
own savings strategies
Today's Agenda

Definition (Compound Interest)

When a loan is based on compound interest, interest is paid on the
principal and on all interest accrued so far. Compute the Interest,
maturity value, and present value in compound interest.

Al exAndrA SALLY
 Al exAndrA SALLY
MAYUYO

(C OMpOUnd
Int er est )
FORMULA
A = final amount
P = initial principal balance
r = interest rate
n = number of times interest
applied per time period
t = number of time periods
elapsed
 EXAMPLES
FOR COMPOUND
INTEREST
 Al exAndrA SALLY
Let 's SOLve MAYUYO

InvestingTOget HEr
an original $1000 at 5% compounded annually, how much would you
have after 7 years?

FORMULA

(
GIVEN
P=$10 0 0
SOLUTION
A 1 + 0 .0 5
)
(
7(1

1
t=7 =10 0 0

(
years
r = 5% =
A 1.0 5
(
7

5 ÷ 10 0
=10 0 0
=
A =10 0 0 x (1.0 5)=
0.05
n=1 1.40 7
Let 's SOLve TOget HEr
Kylie puts P25,000 in a savings account paying 5% annual
Interest compounded monthly. At this rate how much
money will be in the account after 5 years

(
GIVEN
P=25,0 0
(
=(25,000) 1 + 0.05 12(5
1
)
60
I = A-P
= 32,0 83.97 -
0 2
=(25,000)(1+0.00416666666) 25,0 0 0
t=5 = (25,0 0 0 ) 60
I = 7,0 83.97
years (1.0 0 416666666)
= (25,0 0 0 )
rA ==?5% = (1.28335867799)

(
5 ÷ 10 0 =
A =
0 .0 5P I+
(
nt
A=32,083.97
r n
n = 12 PINKY BURGOS
months
Let 's Sol ve
Toget HEr
Find the maturity value and interest if P 25,000 is inverted
at 6%
compound annually for 7 years

FORMULA
GIVEN Find maturity value
Ic= F-P
P=25,0 0 0
f= p(1+r) Ic= 37,590.75 - 25,000
t =7 7
years =(25,000) (1+0.06) Ic= 12,590.75
r = 6% = f= 37,590.75
6 ÷ 10 0 =
0 .0 6
 Let 's Sol ve
Toget
Jae HEr
borrowed the money for a 6,000 peso necklace. The bank loans Jae the money at 6.25%
compounded annually and would like Jae to pay off the necklace in 2 years. How much is
Jae's total payoff?

GIVEN
A= 6,0 0 0 (1+0 .0 625)
I = A-P
P=6,000 ² = 6,773.4 - 6 , 0 0 0
r=6.25/100= 0.0625 A= 1
I=773.4
t= 2 6,0 0 0 (1.0 625)²
A= 6,0 0 0 (1.1289)
years
n=1 A=
6,773.4
Let 's Sol ve
Toget HEr
Find the maturity value and interest if $40,000 is
compounded annually at an interest rate of 5% in
5years.

GIVEN
Maturity Value(F) Compound interest
P=40,000 F=P(1+r)t (Ic) Ic=F-P
r= 5% = F=(40,000)(1+0.05)5 Ic=51,051.26
0 .0 5
F= 51,051.26 Ic=P 11,051.26
t= 5years
QUIZ
TIME!
COMPOUND INTEREST AND SIMPLE INTERES
T
 I T T A K E
HOW LONG WO
MENT
IFNOVRESATN O
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F
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$
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3 ,5 0 0 T O Question
E ST E D
BEC $O4,M2E00 IF
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INAACCOUN
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T
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A
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N V
E A R N S #1
6C%OMPOUNDED
MONTHLY?
R
(
NT

A= P ( 1
N

COMPOUND
 in g e R Pl a c e in a T im e
o ne y S ho U l d a S
m
Question
How m U c h n de d
a y S 2. 2 % c o m Po U
k T h a T P
dePoSiT in a ban ,0 0 0 a f Te R
h a v e P 3 0 0
#3
T h a T M a ev e wil l
ann U a l l y S o
6 yeaRS?

COMPOUND
 in g e R Pl a c e in a T im e
o ne y S ho U l d a S
m
Question
How m U c h n de d
a y S 2. 2 % c o m Po U
k T h a T P
dePoSiT in a ban ,0 0 0 a f Te R
h a v e P 3 0 0
#2
T h a T M a ev e wil l
ann U a l l y S o
6 yeaRS?

COMPOUND INTEREST
 SIMPLE INTEREST
FORM ULA
:
I= Prt
QUESTION
HOW much interest is charged
when P 20,000 is borrowed For 2
years at an
annual simple interest
rate 15%?
 SIMPLE INTEREST
FORM ULA
:

QUESTION I= Prt

Smithville Bank is offering each of its customers

a record 3.4% Interest on new-savings accounts.
If Chase opens an account with $1,500, ow
much interest will he earn in 3 years?
than k y o u