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Week 12 Simple and Compound Int

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10 views

Week 12 Simple and Compound Int

Uploaded by

kaelahcaday4
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Solving Problems

Involving Simple
Interest
Learn about It!

Simple Interest
1 refers to an interest computed on the original principal during the whole
period or time of borrowing

Formula for Simple Interest


2 The formula for the simple interest is

where is the interest amount, is the principal, is the simple interest rate,
and is the time written in years.
Learn about It!

3 Formula for Principal, Rate of Interest, and


Time
If the principal, rate of interest, or the time is unknown in a given problem,
we can use the following triangle as a guide for the formula
Learn about It!

a. If the principal value (also known as the


present value) is unknown, the formula will
be

b. If the rate of interest is unknown, the


formula will be

c. If the time (also known as the term of


interest) is unknown, the formula will be
Learn about It!

Maturity Value or Future Value


4 refers to the sum of the principal and interest; sometimes called the future
value of the principal amount

Formula for Maturity Value


5 The formula for the maturity value is

Since , we have
Try It!

Example 1: If you invested ₱50 000 in a bank that


earns 2% simple interest, how much will you earn in 2
years and 6 months?
Try It!

Example 1: If you invested ₱50 000 in a bank that earns 2% simple interest, how
much will you earn in 2 years and 6 months?

Solution:
1. Identify the given from the problem.

Principal
Rate of Interest
Time 2 years and 6 months years
Try It!

Example 1: If you invested ₱50 000 in a bank that earns 2% simple interest, how
much will you earn in 2 years and 6 months?

Solution:
2. Write the formula to be used.

Since the problem is asking for the earnings, we are


looking for the amount of interest . The formula that
will be used is
Try It!

Example 1: If you invested ₱50 000 in a bank that earns 2% simple interest, how
much will you earn in 2 years and 6 months?

Solution:
3. Substitute the given values to the formula and solve.
Try It!

Example 1: If you invested ₱50 000 in a bank that earns 2% simple interest, how
much will you earn in 2 years and 6 months?

Solution:
3. Substitute the given values to the formula and solve.

Thus, you will earn ₱2 500 in 2 years and 6 months.


Try It!

Example 2: How much did Rowell borrow if, after 4


years and 9 months, he paid a 5% simple interest of ₱4
788?
Try It!

Example 2: How much did Rowell borrow if, after 4 years and 9 months, he paid a
5% simple interest of ₱4 788?

Solution:
1. Identify the given from the problem.

Time 4 years and 9 months


Rate of Interest
Amount of Interest
Try It!

Example 2: How much did Rowell borrow if, after 4 years and 9 months, he paid a
5% simple interest of ₱4 788?

Solution:
2. Write the formula to be used.

Since we are solving for the borrowed amount, we are


looking for the principal . The formula that will be
used is
Try It!

Example 2: How much did Rowell borrow if, after 4 years and 9 months, he paid a
5% simple interest of ₱4 788?

Solution:
3. Substitute the given values.
Try It!

Example 2: How much did Rowell borrow if, after 4 years and 9 months, he paid a
5% simple interest of ₱4 788?

Solution:
3. Substitute the given values.

Thus, the borrowed amount is ₱20 160.


Let’s Practice!

Individual Practice:

1. Vivian borrowed an amount of ₱45 000 from a lending


institution to finance her small business. If the loan is
to be paid in 30 months at a simple interest rate of
7.25%, how much will Vivian pay?
2. Dennis promised to pay an interest amounting to
₱487.50 on a loan that earns an interest rate of 3.25%
payable in 6 months. How much was the loaned
amount?
Compound Interest
Learn about It!

Compound Interest
1 interest calculated on the total of the principal and previously calculated
interests

Example:
This table shows the
compound interest if
pesos earns interest
compounded annually for
years.
Learn about It!

2 Compounding Period
the time interval it takes for money to earn interest in a year

Example:
Learn about It!

Nominal Rate
3 the annual interest rate that does not take into account the compounding
period

Example:

If a loan earns an interest of and is compounded


quarterly per annum, then is the nominal rate.
Learn about It!

Periodic Rate
4 the interest rate per compounding period; equal to the nominal rate divided
by the number of compounding periods in a year

Example:

If a loan earns an interest of and is compounded


quarterly per annum, then is the periodic rate.
Learn about It!

Compound Amount
5 the accumulated value of the principal and all interests from prior periods;
calculated using the formula , where is the principal amount, is the
nominal rate, is the frequency of the compounding period, and is the time
in years.

Example:
What is the compound amount of a pesos loan with an
interest rate of compounded semiannually in year?
Learn about It!

Example:
Try It!

Example 1: Jeff borrowed ₱ at compounded quarterly


for a year. Determine the amount Jeff has to pay at the
end of the loan term.
Try It!

Example 1: Jeff borrowed ₱ at compounded quarterly


for a year. Determine the amount Jeff has to pay at the
end of the loan term.
Solution:
The problem asks for the final amount to be paid, which
is the compound amount. Thus, we can use the formula

From the given problem, we have , (since the


compounding period is quarterly), and year.
Try It!

Substituting the above values into the formula, we have


the following.

Hence, Jeff has to pay a total of ₱ at the end of the loan


term.
Try It!

Example 2: How much will be the interest if ₱ is to be


invested for years at interest rate compounded
semiannually?
Try It!

Example 2: How much will be the interest if ₱ is to be


invested for years at interest rate compounded
semiannually?
Solution:
1. To find the interest, we need to calculate the
compound amount first.
,
,
(since the compounding period is semiannually), and
years.
Try It!

Substituting these values to the formula for the


compound amount, we have the following.
Try It!

2. Deduct the principal amount from the compound


amount.

Therefore, the investment will earn ₱ in interest after


years.
Let’s Practice!

Individual Practice:

1. Errol deposited his ₱ in a bank that offers interest


compounded quarterly. If he decided to invest the
money for years, how much will be the total amount
in his bank account?

2. How much will be the interest if ₱ is to be invested for


years at interest rate compounded monthly?
Solving Problems
Involving Compound
Interest
Try It!

Example 1: Rachel would like to have a total of ₱ in


years. How much should she invest to have the target
amount if she will deposit in a bank that offers interest
rate compounded semiannually?
Try It!

Example 1: Rachel would like to have a total of ₱ in


years. How much should she invest to have the target
amount if she will deposit in a bank that offers interest
rate compounded semiannually?
Solution:
1. List the given:
,
,
(since the compounding period is semiannually), and
years.
Try It!

2. Substitute the values into the formula for compound


amount. Then, solve for the value of .
Try It!

Therefore, Rachel should make an investment of ₱ to


raise the target amount after years.
Try It!

Example 2: At what rate compounded bimonthly should


Michael invest his ₱ so that he will have a total amount
of ₱ after years?
Let’s Practice!

Individual Practice:

1. A lending company lent capital money to a


businessman with an interest rate of compounded
semiannually. The businessman paid a total of ₱ after
years. Find the amount borrowed by the businessman.

2. At what rate compounded monthly should Leonard


invest his ₱ so that he will have a total amount of ₱
after a year?

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