SIMPLE AND COMPOUND

INTEREST

Prepared by:

MARITES DOMINGO-PAQUIBULAN
TEACHER II
 CONTENT: Business Mathematics

CONTENT STANDARDS:
• The learner demonstrates understanding of…
1. key concepts of simple and compound interests, and simple
and general annuities.

PERFORMANCE STANDARDS:
• The learner is able to…
1. investigate, analyze and solve problems involving simple and
compound interests and simple and general annuities using
appropriate business and financial instruments.

12-2
 BUSINESS MATHEMATICS

LEARNING COMPETENCIES: The learner is able to… CODE

24. illustrates simple and compound interests. M11GM-IIa-1

25. distinguishes between simple and compound interests. M11GM-IIa-2

26. computes interest, maturity value, future value, and present value in M11GM-IIa-b-1
simple interest and compound interest environment.
27. solves problems involving simple and compound interests. M11GM-IIb-2
28. illustrates simple and general annuities. M11GM-IIc-1
29. distinguishes between simple and general annuities. M11GM-IIc-2
30. finds the future value and present value of both simple annuities and M11GM-IIc-d-1
general annuities.
31. calculates the fair market value of a cash flow stream that includes an M11GM-IId-2
annuity.
32. calculates the present value and period of deferral of a deferred M11GM-IId-3
annuity. 12-3
Learning Outcome(s):
At the end of the lesson, the learner is able
to…
24. illustrates simple and compound
interests.
• M11GM-IIa-1

25. distinguishes between simple and

compound interests.
• M11GM-IIa-2
12-4
 Activity:

Instruction: Group the students. For each group, write down a

starting amount of cash (e.g. P100,000.00)

Prepare some cards that give certain options options (e.g. invest in a
bank that offers 3% interest, buy clothes for P200.00 and so forth)
and even some possible real-life concerns (e.g. pay P100.00 for
water, pay P5,000.00 for medical bills)

After each group selects a card, compute the amount of money of

the group. End after 4 rounds. The point is to set the tone for
thinking about how to prepare for the future.

12-5
 Analysis:

1. Why do we need to save money ?

2. When we save money?
3. Is it saving or investing money good or not?
Why?
4. Where we can save or invest money?
5. Scenario: A child asked to his mother 20.00
pesos for his baon.
Question: What is the right term of the P20.00
(money or currency) ?
12-6
 Lesson Proper
Abstraction:

Definition of Terms:
• 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
12-7
 Definition of Terms

• 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 loan 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
12-8
 Definition of Terms

• Principal (P)- amount of money

borrowed or invested on the origin
date
• Rate (r)- annual rate, usually in percent,
charged by the lender, or rate of
increase of the investment

12-9
 Definition of Terms

• Interest (I)- amount paid or earned for

the use of money
• Simple interest (Is)- interest that is
computed on the principal and then
added to it

12-10
 Definition of Terms

• Compound interest (Ic)- interest is

computed on the principal and also on
the accumulated past interest
• Maturity value or Future value (F)-
amount after (t) years; that the lender
receives from the borrower on the
maturity date
12-11
 APPLICATION:
Borrower or Lender or Origin or Loan
Principal
debtor creditor date

Ms. Paquibulan borrowed money to

the Cooperative amounting
P500,000.00 dated Aug. 20, 2018, with
interest rate of 30% per annum for
3 years, the money borrowed or loan is
to be completely paid on
Aug. 20, 2021.
Maturity Date Time or term Interest rate
12-12
Illustration of Simple and Compound
Interest

Example:
Suppose you won P100,000.00 and you
plan to invest it for 5 years. A
cooperative offers 2% simple interest
rate per year. A bank offers 2%
compounded annually. Which will you
choose and why?
12-13
 Solution.
Investment 1: Simple interest, with
annual rate (r)
Time Principal Amount after (t)
(t) (P) Simple Interest years
Solution: Answer Maturity Value:
(P)(r)(t) (Is) (P+Is)
1 10,000 (10,000.00)(0.02)(1) 200 10,200.00
2 10,000 (10,000.00)(0.02)(2) 400 10,400.00
3 10,000 (10,000.00)(0.02)(3) 600 10,600.00
4 10,000 (10,000.00)(0.02)(4) 800 10,800.00
5 10,000 (10,000.00)(0.02)(5) 1,000 11,000.00

12-14
 Solution.
Investment 2: Compound interest, with
annual rate (r)
Time Amount at Amount at the
(t) the start of Compound Interest end of year
year
Solution: Answer Maturity Value:
(P)(r)(t) (Ic) (P+Ic)
1 10,000.00 (10,000.00)(0.02)(1) 200.00 10,200.00
2 10,200.00 (10,200.00)(0.02)(1) 204.00 10,404.00
3 10,404.00 (10,404.00)(0.02)(1) 208.08 10,612.08
4 10,612.08 (10,612.08)(0.02)(1) 212.24 10,824.32
5 10,824.32 (10,824.32)(0.02)(1) 216.49 11,040.81

12-15
 Compare the interest gained in the
two investments:

Simple Interest (Is):

Maturity Value (F): P 11,000.00
less: Principal 10,000.00
Simple Interest: P 1,000.00
Compound Interest (Ic)
Maturity Value (F): P 11,040.81
less: Principal 10,000.00
Compound Interest: P 1,040.81
12-16
 Assessment : (Generalization)

Instruction:
Let the students generalize the
procedures in finding simple and
compound interests.
Allow them to express these
generalizations using formulas.

12-17
 SIMPLE INTEREST

Learning Outcomes:
At the end of the lesson, the learner is able to (26.) computes
interest, maturity (future) value or present value in simple interest.
M11GM-IIa-b-1
Review:

Let the students recall from the previous

lesson how to find the interest and maturity
value of an amount earning simple interest.

Allow students to present their

generalizations or formulas

12-19
Lesson Proper
ABSTRACTION:

The procedure/formula in finding simple

interest.
An annual simple interest is based on the 3
factors:
a. Principal which is the amount invested or
borrowed
b. Simple interest rate, usually expressed in
percent
c. Time or term of loan, in years 12-20
Lesson Proper
Abstraction:

Annual Simple Interest: Is =Prt

where
Is = Simple interest
P = Principal
r = rate
t = term or time, in years 12-21
FORMULA: In finding Is, P, r, t

12-22
Maturity (Future) Value:
Method 1: F=P+Is
Method 2: F = P(1+rt)

where:
F = Maturity (Future) Value
P = Principal
Is = Simple Interest
r = rate
t = term/time, in years
12-23
APPLICATION:
Find Principal, Rate, Time & Interest
Instruction: Complete the table below by finding
the unknown?

Principal (P) Rate (r) Time (t) Interest

(Is)
(a) 2.5% 4 1,500.00
36,000.00 (b) 1.5 4,860.00
250,000.00 0.5% (c) 275.00
500,000.00 12.5% 10 (d) 12-24
 Solution:

12-25
 Solution:

12-26
Find Maturity Value:

Problem:
Find the maturity value if 1 million
pesos is deposited in a bank at an
annual simple interest rate of 0.25%
after (a) 1 year and
(b) 5 years?
• Use the Two (2) Methods 12-27
Solution:

Given: P =1,000,000.00,
r=0.25% or 0.0025
t = 1 year and 5 years

Find:
(a) Maturity (Future) Value after 1 year
(b) Maturity (Future) Value after 5 years
12-28
Solution: (a) When t = 1 year

Method 1: F = P+Is first, get the Is

Is = Prt = (1,000,000.00)(0.0025)(1) = 2,500.00

The Maturity Value (F) is given by F = P+Is
F = 1,000,000.00+2,500.00
F = 1,002,500.00

Method 2: F = P(1+rt)
F = 1,000,000(1+0.0025(1))
F = 1,002,500.00
12-29
Solution: (b) When t = 5 years

Method 1: F = P+Is first, get the Is

Is = Prt = (1,000,000.00)(0.0025)(5) = 12,500.00
The Maturity Value (F) is given by F = P+Is
F = 1,000,000.00+12,500.00

F = 1,012,500.00

Method 2: F = P(1+rt)
F = 1,000,000(1+0.0025(5))
F = 1,012,500.00
12-30
Assessment:
Seatwork 1.
Instruction. Find the unknown Principal,
Rate, Time and Interest by completing the
table.
Principal Rate Time Interest
10,000.00 8% 15 (1)
(2) 2% 5 10,000.00
360,000.00 (3) 2 3,600.00
500,000.00 10.5% (4) 175,500.00
880,000.00 9.25% 2.5 (5) 12-31
Assessment:
Seatwork 2.
Instruction. Solve the following problems on
simple interest.
1. What are the amounts of interest and
maturity value of a loan for P150,000.00
at 6.5% simple interest for 3 years?
2. At what simple interest rate per annum
will P25,000.00 accumulate to P33,000.00
in 5 years?
12-32
-Continuation-
Seatwork 2.
3. How long will P40,000.00 amount to
P51,200.00 if the simple interest rate is at
12% per annum?
4. In order to have P200,000.00 in 3 years,
how much should you invest if the simple
interest is 5.5%
5. Angel deposited P20,000.00 in a bank that
pays 0.5% simple interest. How much will be
her money after 6 yrs.? 12-33
ASSIGNMENT

Find the maturity value if 200,000

pesos is deposited in a bank at an
annual simple interest rate of
0.04% after (a) 18 mos. (b) 36
mos.?

12-34
 COMPOUND INTEREST

Learning Outcomes:
At the end of the lesson, the learner is able to
(26.) computes interest, maturity (future) value and
present value in compound interest environment.
M11GM-IIa-b-1 and b-2
ACTIVITY:

Group the students into two (2). Let

the groups to answer the following
situations and the first group can
justify their answer which of the two
have better investment, will be given
points.
12-38
Situation:

Cynthia and Lea each invest P10,000.00 for 2

years, but under different schemes.
Cynthia’s earns 2% of P10,000.00 the first year,
which is P200.00, then another P200.00 the
second year.
Lea earns 2% of P10,000.00 the first year, which
P200.00, same as Cynthia’s. But during the
second year, she earns 2% of the P10,00 and 2%
of the P200.00 also. 12-39
ANALYSIS:

1. What is the amount in Cynthia’s and

Lea’s respective accounts after two
years?
2. Why there is a difference amount of
their investment?
3. Which of them has a better
investment?
12-40
LESSON PROPER:
ABSTRACTION

Compound Interest (Ic) – interest is

computed on the principal and also
on the accumulated past interests

12-42
LESSON PROPER:
ABSTRACTION
•

12-43
LESSON PROPER:
ABSTRACTION
•

12-44
APPLICATION:

b. Compound Interest
Ic = F-P
Ic = 11,040.81 – 10,000.00
Ic = 1,040.81

12-45
APPLICATION:

12-46
EXERCISE #1:

Instruction: Find the unknown Principal, rate, time and

compound interest by completing the table.

PRINCIPAL RATE TIME COMPOUND MATURITY

INTEREST VALUE
10,000.00 8% 15 (1) (2)
3,000.00 5% 6 (3) (4)
50,000.00 10.5% 10 (5) (6)
(7) 2% 5 (8) 50,000.00
(9) 9.25% 2.5 (10) 100,000.00
12-47
EXERCISE #2:

1. What are the amounts of interest and maturity

value of a loan for P20,000.00 at 6% compound
interest for 3 years?
2. In order to have P50,000 in 5 years, how much
should you invest if the compound interest is 5%
3. A savings account in a bank yields 0.25%
compound interest annually. Accumulate (find
the future value of) P25,000 for 4 years in this
savings account. How much interest will be
gained? 12-49
EXERCISE #2:

4. In a certain bank, Marife invested P88,000.00 in a

time deposit that pays 0.5% compound interest in a
year. How much will be her money after 6 years?
How much interest will she gain?

5. On the 7th birthday of her daughter, Angelie

deposited an amount in a bank peso bond fund that
pays 1.0% interest compounded annually. How much
should she deposit if she wants to have P100,000 on
her daughter’s 18th birthday? 12-50
 ASSESSMENT

Learning Outcome:
At the end of the lesson, the learner is able to
(27.) solves problems involving simple and
compound interests.
M11GM-IIb-2
EXERCISE # 1:

Instruction: Match the terms in Column A with the correct

definitions in Column B. You may choose more than one
answer from Column B.
COLUMN A COLUMN B
(1)Interest Rate A. Amount added by the lender, to be received
on repayment date
(2) Maturity Value B. Amount paid or earned for the use of money
(3) Interest C. Amount of money borrowed or invested
(4) Principal D. Amount received on repayment date

(5) Term E. Percentage of increase of investment

F. Time money is borrowed 12-53
EXERCISE # 2: SIMPLE INTEREST

Instruction: Complete the table by finding the unknown.

PRINCIPAL RATE TIME INTEREST MATURITY

VALUE
60,000.00 4% 15 (1) (2)

(3) 12% 5 15,000 (4)

50,000.00 (5) 2 (6) 59,500.00

(7) 10.5% (8) 157,500 457,500.00

1,000,000 0.25% 6.5 (9) (10)

12-54
MATURITY VALUE and PRESENT VALUE

EXERCISE # 3. Find the maturity value and

interest if P50,000.00 is invested at 5%
compounded annually for 8 years.

EXERCISE # 4. What is the present value of

P50,000.00 due in 7 years if money is
worth 10% compounded annually?
12-56