2

U P
O
S
IC
T
A

R
M
E Bryan Tapnio
H
T

G
A
M Ryan Supan
S
S Noel Bonifacio
E
IN Jonalyn A. Villamor
S
U
B Belma B. Calipas
Mary Ann M. Reyes
Lean Gonzalez
Joey Manes
Mary Judith P. Mendoza
INTEREST
INTEREST
- is the amount paid for the use of
another amount of money, called the
principal amount or simply principal.
SIMPLE INTEREST
- refers to the amount earned for one
year calculated by multiplying the principal
by the interest rate.
COMPOUND INTEREST
- is the amount earned by one year
calculated by multiplying the principal by
the interest rate.
Illustration of Simple and Compound
Interest

EXAMPLE 1
Suppose you won P10,000 and you plan to
invest it 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?
Investment 1: Simple interest, with
annual rate r
Simple Interest Amount after t years
Time Principal Solution Answer (Maturity Value)
(t) (P)

1 (10,000)(0.02) 200 10,000 + 200 =

(1) 10,200.00
2 (10,000)(0.02) 400 10,000 + 400 =
10,000 (2) 10,400.00
3
Investment (10,000)(0.02)
2: Compound Interest, with600
annual10,000 + 600 =
rate r Amount at (3)
Compound Interest 10,600.00
Amount at the end of
Time
4 the (10,000)(0.02)
Solution 800
Answer 10,000 +year
800t=
(t) start of (4) (Maturity Value)
10,800.00
year t
5 (10,000)(0.02) 1000 10,000 + 1000 =
(5) 11,000.00
1 10,000 (10,000)(0.02) 200 10,000 + 200 =
(1) 10,200.00
2 10,200 (10,200)(0.02) 204 10,200 + 204=
(1) 10,404.00
3 10,404 (10,404)(0.02) 208.08 10,404 + 208.08=
(1) 10,612.08
SIMPLE INTEREST
- computing interest based on the
principal amount that ignoring the
effects of interest earned on previous
interest.
COMPOUND INTEREST
-computing interest on both
principal amount and future interest
earned