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Simple and Compound Interest-Notes

This document defines and provides examples of simple and compound interest. Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal plus accumulated interest from previous periods. The key formulas are provided: for simple interest, Interest = Principal x Rate x Time. For compound interest, the Amount = Principal x (1 + Rate/Periods compounded)Periods x Time. Several examples are worked out calculating simple and compound interest in various scenarios involving different principal amounts, interest rates, time periods, and compounding frequencies.

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Trexie Meriveles
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235 views30 pages

Simple and Compound Interest-Notes

This document defines and provides examples of simple and compound interest. Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal plus accumulated interest from previous periods. The key formulas are provided: for simple interest, Interest = Principal x Rate x Time. For compound interest, the Amount = Principal x (1 + Rate/Periods compounded)Periods x Time. Several examples are worked out calculating simple and compound interest in various scenarios involving different principal amounts, interest rates, time periods, and compounding frequencies.

Uploaded by

Trexie Meriveles
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 PDF, TXT or read online on Scribd
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SIMPLE & COMPOUND

INTEREST
Objectives:

• Define simple and compound interest


• Determine the components of simple and compound
interest
• Solves problem involving simple and compound
interest
SIMPLE INTEREST

Simple interest is the


interest calculated on
the principal portion of a
loan or the original
contribution to a savings
account.
SIMPLE INTEREST
Formula

𝐈𝐬 = 𝐏𝐫𝐭
I = 𝐬𝐢𝐦𝐩𝐥𝐞 𝐢𝐧𝐭𝐞𝐫𝐞𝐬𝐭
P = 𝐩𝐫𝐢𝐧𝐜𝐢𝐩𝐚𝐥
r = 𝐫𝐚𝐭𝐞
t = 𝐭𝐞𝐫𝐦 𝐨𝐫 𝐭𝐢𝐦𝐞, 𝐢𝐧 𝐲𝐞𝐚𝐫𝐬
Complete the table below by finding the unknown.
Note: When solving for t, we are finding the portion of a year, not the number of days.

P R I N C I PA L ( P ) R AT E ( r) T I M E ( t) I N T E RE ST ( I )

500 000 12.5% 10 a.)

250 000 0.5% b.) 275

36 000 c.) 18 mos. 4 860

d.) 2.5% 4 1 500


a.

b.
c.

d.
Problems Involving
Simple Interest
Example 1
A bank offers 0.25% annual simple
interest rate for particular deposit.
How much interest will be earned if 1
million pesos is deposited in his savings
account for 1 year?
Example 2

How much interest is charged


when P50,000 is borrowed for 9
months at an annual simple
interest rate of 10%?
SOLVING
PRINCIPAL
RATE
TIME
When invested at an annual interest rate
of 7%, an amount earned P11,200 of
simple interest in 2 years. How much
money was originally invested?
If an entrepreneur applies for a loan
amounting to P500,000 in a bank, the
simple interest of which is P157,500 for 3
years, what interest rate is being charged?
You decide to pay off an 8% P5,000 loan
early. The bank tells you that you owe a
total of P82.19 interest. Assuming that the
bank uses a 365-day year, for how many
days are you being charged interest?
Solution:

Given:
P= 5000
r= 8% = .08
I= 82.19
Find: t
Answer:
𝐼 𝟖𝟐.𝟏𝟗
𝑡=
𝑃𝑟 = = .205475
(𝟓𝟎𝟎𝟎)(𝟎.𝟎𝟖)

.205475 x 365 = 74.998375 = 75 days


COMPOUND
INTEREST
Compound interest
(or compounding interest)
is interest calculated on the
initial principal, which also
includes all the
accumulated interest of
previous periods of a
deposit or loan.
COMPOUND INTEREST
FORMULA
annual interest
Principal rate
(amount at (as a decimal)
start)
time
amount at (in years)
the end

number of times per


year that interest is
compounded
Compound Interest
Period Interest Times Rate per
Credited Credited compounding
per year period
Annual year 1 R
Semiannual 6 months 2

Quarterly quarter 4

Monthly month 12
Find the amount that results from 500,000 invested at
8% compounded quarterly after a period of 2 years.

4 (2)
500,000 .08
A=585,829.69
4
Example 1
You deposit P1,500 into an account that
earns 2.4% interest compounded
semiannually. Find the balance after 6
years.
SEATWORK TRY
THIS!
Example
P32,000 is invested at 10% for
2 years.
Find the interest compounded
yearly, semiannually,
quarterly, and monthly.
Example
• P32,000 is invested at 10% for 2 years.
• Find the interest compounded yearly,
semiannually, quarterly, and monthly.
YEARLY:

SEMIANUALLY:
• QUARTERLY:

MONTHLY:

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