GENERAL MATHEMATICS – GRADE 11

SIMPLE AND COMPOUND INTEREST

I. Introduction

This learner’s packet will help you illustrate and distinguish simple and compound
interest as this may serve as your guide in making decisions in the planning of investing or
borrowing money in the future. This also provides tasks and exercises that you will perform
for you to be equipped with the necessary skills and knowledge needed.

II. Learning Objectives

At the end of this learner’s packet, you will be able to

(a) illustrate simple and compound interest (M11GM-IIa-1);
(b) distinguish simple and compound interest (M11GM-IIa-2)
(c) compute interest, maturity value, future value, and present value in a simple interest
environment, and solve problems involving simple interest. (M11GM-IIa-b-1)
(d) compute interest, maturity value, future value, and present value in a compound
interest environment and solve problems involving compound interest. (M11GM-IIa-b-
1)

III. Learning Activities

Lesson 1: Illustrating and Distinguishing Simple and Compound Interest

If you borrow money or make a loan, you return an amount that is higher than what
you have borrowed. If you save or invest your money in a bank or any financial institution, the
amount returned will be higher than your savings or investment. The difference between the
amount you paid or received and the amount you borrowed or invested is called the interest.
Most of us view interest as “the amount paid by the lender for the use of money”.
There are two types of interest, simple interest, and compound interest. The most
common measure of interest is simple interest.

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 While both types of interest talk about growing your money, we will be focusing first
on illustrating simple and compound in this lesson. Here is an example.
Example 1: Mr. Cruz is planning to invest his PhP 10 000. Two banks offer him a 3%
interest rate. Determine which of the two banks is offering him a better deal.

Bank A Bank B
Bank A offers a 3% simple Bank B offers a 3% interest
interest payable for 5 years. compounded annually payable for 5
years.

Bank A:

Principal Interest(Is) Maturity Value

Time (t)
(P) Solution Answer (A)
1 (10,000)(0.03)(1) 300 Php10,300
2 (10,000)(0.03)(2) 600 Php10,600
3 Php10 000 (10,000)(0.03)(3) 900 Php10,900
4 (10,000)(0.03)(4) 1200 Php11,200
5 (10,000)(0.03)(5) 1500 Php11,500

Bank B:

Maturity Value
Time Principal Interest(Ic)
(A)
(t) (P)
Solution Answer
1 Php10 000.00 (10,000)(0.03)(1) 300 Php10,300
(10,000)(0.03)(1) +
2 Php10,300.00 300 + 309 = 609 Php10,609
(10,300)(0.03)(1)
(10,000)(0.03)(1) +
300 + 309 + 318.27
3 Php10,609.00 (10,300)(0.03)(1) + Php10,927.27
= 927.27
(10,609)(0.03)(1)
(10,000)(0.03)(1) +
300 + 309 + 318.27
(10,300)(0.03)(1) +
4 Php10,927.27 + 327.82 = Php11,255.09
(10,609)(0.03)(1) +
1,255.09
(10,927.27)(0.03)(1)
(10,000)(0.03)(1) +
(10,300)(0.03)(1) 300 + 309 + 318.27
5 Php11,255.09 +(10,609)(0.03)(1) + + 327.82 + 337.65 Php11,592.74
(10,927.27)(0.03)(1) = 1,592.74
+(11,255.09)(0.03)(1)
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 In the illustration above, bank A offers PhP 900.00 simple interest (PhP 10 900 – PhP
10 000 = PhP 900) for 3 years, while Bank B offers PhP 927.27 interest compounded annually(
PhP 10 927.27 – PhP 10 000= PhP 927.27) for 3 years. Thus, Bank B is the better option for
Mr. Cruz to invest his money since it offers higher interest.
Let us have another example.
Example 2: Elisha is planning to open a clothing store in Naga City but needs additional funds
thus decided to borrow money worth PhP 50 000. Two financial institutions offer her a good
deal. ABC Bank offers a 2.5% interest rate while ECQ Bank offers the same interest rate, 2.5%
but compounded annually. Both are payable for 5 years. Which is a better offer for Elisha and
why?
ABC Bank:

Principal Interest (Is) Maturity Value

Time (t)
(P) Solution Answer (A)
1 (50,000)(0.025)(1) 1,250 Php 51,250
2 (50,000)(0.025)(2) 2,500 Php 52,500
3 Php 50 000 (50,000)(0.025)(3) 3,750 Php 53,750
4 (50,000)(0.025)(4) 5,000 Php 55,000
5 (50,000)(0.025)(5) 6,250 Php 56,250

ECQ Bank:

Comparing the two, the interest gained after 5 years in ABC Bank is PhP 6 250 (56
250 – 50 000) while in ECQ Bank is PhP 6 570.41 (56 570.41 – 50 000). Thus, ABC Bank
would be a better option for Elisha. Since it is borrowed money, the bank that offers the least
interest is the best option.

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 Let’s take a closer look at another illustration
where the final amount or maturity value is written as
a function of time.

Column A Column B
1. A(t) = 3000(1+0.03t) ; t = 2 1. A(t) = 3000(1+0.03)t ; t = 2
2. A(t) = 2000(1+0.02t) ; t = 4 2. A(t) = 2000(1+0.02)t ; t = 4
3. A(t) = 1500(1+0.06t) ; t = 3 3. A(t) = 1500(1+0.06)t ; t = 3

Now, it’s your turn to dig deeper and look for other things which make Simple Interest
different from Compound Interest!

ACTIVITY 1.1

Determine the given principal amount or interest, rate, and time in each problem as
required.
1. In a certain bank, Angel invested PhP 88 000 in a time deposit that pays 0.5% simple
interest for 3 years.
2. On the 10th birthday of her daughter, Sheina deposited Ph P150, 000 in a bank that
pays 1.2% interest compounded quarterly which she plans to withdraw after 15 years.
3. An amount of PhP 30 000 was deposited by fifteen – year old students in a bank that
pays 0.7% compounded daily and plans to withdraw after 10 years.
4. Ron invested PhP 25 000.00 at 16% interest for 6 years.

ACTIVITY 1.2

A. Read the problem carefully and answer each of the following questions.
Ms. Lovely purchased goods amounting to PhP 12 000.00. She used two credit cards to
pay PhP 6 000.00 each. Credit card P charges a 3% interest rate per annum while credit card
Q charges a 3% interest rate per annum compounded semi-annually.
1. What kind of interest does credit card P illustrate?
2. What kind of interest does credit card Q illustrate?
3. Which credit card will Ms. Lovely have less to pay? Why?

B. Illustrate the given problem below by creating scenarios illustrating either simple or
compound interest.
1. A = PhP 55 000; r = 3.9% simple interest; t = 2 ½ years
2. P = PhP 150 000; r = 2.5% interest compounded annually; t = 12 years

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 ACTIVITY 1.3

Direction. Answer each of the following.

Using the same illustration in example 1 in the learning activities, sketch a graph of the
difference between simple and compound interest using the Maturity Value as Y and the
no. of years or time as X.

Simple Interest:

Principal Interest(Is) Maturity Value

Time (t)
(P) Solution Answer (A)
1 (10,000)(0.03)(1) 300 PhP10,300
2 (10,000)(0.03)(2) 600 PhP10,600
3 Php10 000 (10,000)(0.03)(3) 900 PhP10,900
4 (10,000)(0.03)(4) 1200 PhP11,200
5 (10,000)(0.03)(5) 1500 PhP11,500

Compound Interest:
Maturity
Time Principal Interest(Ic) Value
(t) (P) (A)
Solution Answer
1 PhP10 000.00 (10,000)(0.03)(1) 300 PhP10,300
2 PhP10,300.00 (10,000)(0.03)(1) + (10,300)(0.03)(1) 300 + 309 = 609 PhP10,609
(10,000)(0.03)(1) + (10,300)(0.03)(1) + 300 + 309 + 318.27 =
3 PhP10,609.00 PhP10,927.27
(10,609)(0.03)(1) 927.27
(10,000)(0.03)(1) + (10,300)(0.03)(1) + 300 + 309 + 318.27 +
4 PhP10,927.27 PhP11,255.09
(10,609)(0.03)(1) + (10,927.27)(0.03)(1) 327.82 = 1,255.09
(10,000)(0.03)(1) + (10,300)(0.03)(1) 300 + 309 + 318.27 +
5 PhP11,255.09 +(10,609)(0.03)(1) + (10,927.27)(0.03)(1) 327.82 + 337.65 = PhP11,592.74
+(11,255.09)(0.03)(1) 1,592.74

1. What is the graph of the function that illustrates a simple interest? (Hint: Choose either
linear, exponential, or quadratic?). How about compound interest? (Hint: Choose either linear,
exponential, or quadratic?).
2. Write a function for the simple interest and compound interest.

Lesson 2: Simple Interest

In depositing or investing my money in a bank, I will gain interest. Whereas,
borrowing any amount from a bank will cost me interest. In real-life, like investing and
borrowing a certain amount of money, we must know how to compute interest,
maturity value, and present value in a simple interest environment, and be able to
solve problems involving simple interest.

This learner’s packet will help you learn how to compute the interest,
maturity/future value, and present value in a simple interest environment in the
simplest way.
Here are some definitions or concepts that will help you compute simple
interest, maturity/future value, present value, rate of interest, and time.

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 Definition Formula Terms used
Simple Interest (Is) – interest that is computed on Is = Prt or P =principal
the principal and then added to it. I=F–P Is = simple interest
F = future value/
Principal (P) – amount of money borrowed or P = 𝐼𝑠 or
invested on the origin date. 𝑟𝑡 maturity value
P=
𝐹 r = rate
1+ 𝑟𝑡 t = time
Rate (r) – annual rate, usually in percent, charged r=
𝐼𝑠
by the lender, or rate of increase of the 𝑃𝑡
investment.
Maturity value/Future value – amount after t F = P + Is or
years that the lender receives from the borrower F = P(1 + rt)
on the maturity date.
Time or term (t) – the amount of time in years the
money is borrowed or invested; length of time t = 𝐼𝑠
between the origin and maturity dates. 𝑃𝑟

Remember:
For you to easily memorize the formula, you can use the triangular figure below with
the important variables( Is, P, r & t) used in simple interest.

WasLearn how to solve problems involving simple interest from the succeeding examples.
Sample Problems:
Example 1:
A Cooperative offers 3% annual simple interest rate for a particular share.
How much will be earned if 150,000 pesos is invested for 2 years?
Solution: Is = Prt
= (150 000)(0.03)(2)
= PhP 9 000.00

Example 2:
A businessman invested a certain amount of money in a bank that offers 6%
simple annual interest. After five years his total investment is PhP 130 000.00 which
gives him an interest of PhP 30 000.00. How much did the businessman invest at
the start?

Given: F = PhP 130 000.00

Is = PhP 30 000.00
t = 5 years
r = 6% or 0.06

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 𝐼𝑠 𝐹
Solution 1: Using the formula P = Solution 2: Using the formula P =
𝑟𝑡 1+ 𝑟𝑡
Substitute the given to the formula Substitute the given to the formula
30 000
P = (0.06)(5) P=
130 000
1+ (0.06)(5)
30 000
= =
130 000
0.3
1.3
= 100 000 = 100 000

Therefore, the businessman had invested PhP 100 000.00 or the

principal amount invested by the businessman was PhP 100 00.00

Example 3
A Cooperative offers 3% annual simple interest rate for a particular share. If
you invested PhP 150 000.00 for 2 years, what is the future value of your investment?

Example 4:
Complete the table by finding the unknown.

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

(P) (year)
1 (a) 1.5% 3 1,350
2 24,000 (b) 2 1,440
3 250,000 0.5% (c) 6,250
4 500,000 3% 4 (d)

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Solutions:
𝐼 𝐼
a. 𝑃 = 𝑟𝑡𝑠 b. 𝑟 = = 𝑃𝑡𝑠
1,350 1,440
𝑃= (0.015)(3)
𝑟= (24,000)(2)
1,350 1,440
𝑃 = 0.045
𝑟= 48,000
𝑃 = 𝑃ℎ𝑃 30 000.00 𝑟 = 0.03 𝑜𝑟 3%
𝐼𝑠
c. 𝑡 = d. 𝐼𝑠 = 𝑃𝑟𝑡
𝑃𝑟
6,250
𝑡 = (250,000)(0.005)
𝐼𝑠 = (500,000)(0.03)(4)
6,250
𝑡 = 1,250
𝐼𝑠 = ₱ 60,000
𝑡 = 5 𝑦𝑒𝑎𝑟𝑠

Let us test your understanding!

ACTIVITY 2.1
Answer the following questions.
1. Jenai is investing PhP 24 000.00 in a cooperative giving 5% simple annual interest.
How much interest will she earn after 2 years?
For items 2-3: Use the problem below to answer the following questions.
A teacher made an investment in a bank that offers 3.5% interest rate per
annum. After 5 years, she earned a total interest of PhP 7000.00.

2. How much was her original investment?

3. What will be her total amount of money after 5 years?
For items 4-5: Use the problem below to answer the following questions.
Teacher Jonah got a loan of PhP 150 000 to buy a used car. The simple
interest rate is 7.5% per annum and she paid an interest of PhP 33 750.00.

4. How many years did it take her to pay off her loan?
5. What is the annual interest?

ACTIVITY 2.2

Compute the unknown in each of the following.

1. Mark borrowed ₱ 8, 500.00 with a 5% annual simple interest rate. How much interest
will be earned if Mark pays after 3 years?
Answer: The interest earned was __________.

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 2. When invested at an annual interest rate of 6%, an amount earned PhP 11,500.00
simple interest in two years. How much money was originally invested?
Answer: The amount invested was __________.
3. If an entrepreneur applies for a loan amounting to PHP 400,000.00 in a bank, the
simple interest of which is the 125,500.00 for 9 months, what interest rate is being
charged?
Answer: The bank charged an annual simple interest rate of __________.
4. How long will a principal amount earn interest equal to half of it at 4% simple interest?
Answer: It will take __________ years for a principal to earn half of its value at a 4%
simple annual interest rate.

ACTIVITY 2.3
Solve the following problems. Show your solutions.
1. Sophia invested a certain amount at a 10% annual rate. After a year, the interest she
received amounted to PHP 1,500.00. How much did she invest?
2. If you deposit PHP 7,500 in a bank at an annual rate of 0.5%. How much money will
you have after 15 years?
3. How much money should you deposit in a bank so that it will accumulate to PhP
100,000.00 at 1% simple interest for 10 years?

Lesson 3: Compound Interest

Many bank savings accounts pay in COMPOUND INTEREST. In this scheme, the
interest is added to the account at regular intervals, and the sum becomes the new basis for
computing interest. Consequently, the interest earned at a certain time interval is automatically
reinvested to bring in more interest.
Here the sample problems in finding compound interest, when compound interest is
computed once a year, its maturity value and present value are presented.

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Sample Problems:

Example 1:
Miss Jane Alvinia invested PhP 150 000.00 in a Cooperative that offers 3%
interest rate compounded annually. How much interest will she earn if she will
invest the money for 2 years?
Given:
P = PhP 150 000.00
r = 3% or 0.03
t = 2 years
a. Solve for the future value F first, since the formula in finding the compound interest
requires the future value F and it was not given in the problem.
F = P(1 + r)t
= 150 000 (1+ 0.03)2 substitute the given
= 150 000 (1.0609) simplify
= 159 135.00 simplify
b. Find the compound interest Ic
Ic =F–P
= 159 135.00 - 150 000.00
= 9 135.00
Therefore, Miss Jane Alvinia will earn an interest of PhP 9 135.00.

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 Example 2:
Miss Johanna borrowed PhP 40 000.00 at 7.5% compounded annually at
a bank. How much interest will be charged if she applies for a 3-year loan?

Given: P = PhP 40 000.00

r = 7.5% or 0.075Bank
t = 3 years
Solution:
a. Solve for the future value F first, since
the formula in finding the compound
b. Find the compound interest Ic
interest requires the future value F and
Ic = F – P
it was not given in the problem.
F = P(1 + r)t = 49 691.88 – 40 000.00
= 40 000(1 + 0.075)3
= 9 691.88
= 40 000 (1.075)3 = 49 691.88

Therefore, Miss Johanna shall pay an interest of PhP 9 691.88.

Example 3:
A businessman aims to have his savings grow to Php 1 000 000.00 in 5
years. How much should be his initial deposit in an account that pays 6% interest
rate compounded annually?

Given: F = PhP 1 000 000.00

r = 6% of 0.06
t = 5 years
𝐹
Solution 1: Using the formula P = (1+ t
Solution 2: Using the formula P = F(1+r)-t
𝑟)
Substitute the given to the formula Substitute the given to the formula
1 000 000 P = 1 000 000 (1 + 0.06)-5
P = (1+ 0.06) 5
= 1 000 000 (1.06)-5
1 000 000
= 5
(1.06) = 747 258.17
=747 258.17
Therefore, the businessman should have an initial deposit of PhP 747 258.17.

Example 4:
JV lends his friend PhP 400 000.00 at 4% compounded annually. How much did
his friend owe him after 4 years?

Substitute the given to the formula

Given: P = PhP 400 000.00 F = P(1 + r)t
r = 4% or 0.04 = 400 000 (1 + 0.04)4
t = 4 years = 400 000 (1.04)4
= 467 943.42

Therefore, JV’s friend owes him PhP467 943.42.

Let us test your understanding!

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 ACTIVITY 3.1: What’s my Interest?

Solve the following questions.

1. Jon Bernie is investing PhP 75,000.00 in a cooperative that gives 5% compound
interest per annum. How much interest will he earn after 4 years?

For items 2-3: Use the problem below to answer the following questions.
A bank offers 4% compound interest per annum for an investment. After
5 years, Ednard’s total investment grows to PhP 97 332.23.

2. How much was his original investment?

3. How much interest did he earn for 5 years?
For items 4-5: Use the problem below to answer the following questions.

Miss Janine got a 5-year loan amounting to PhP 300 000.00. The loan
is due for 5% interest rate compounded annually.

4. What is the future value of her loan?

5. How much interest will she pay after 5 years?

ACTIVITY 3.2: My Present, My Interest and My Future!

Answer the following questions.

For items 1-3: Use Problem A below.
My friend invited me to invest PhP 50 000.00 for 10 years in a food corporation.
The investment will be earning 7% compound interest annually.

1. What is the present value of investment? (Find the Present Value / Principal)
2. What will be the interest of investment after 10 years? (Find the Interest)
3. How much will you get from this investment after 10 years? (Find the Future Value)

For items 4-6: Use Problem B below.

After 3 years, the loan that I got from a Private Lending Institution, which offers
6.5% compound interest per annum, had accumulated to PhP 301 987.41.

4. What is the present value of the loan? (Find the Present Value / Principal)
5. What will be the interest of the loan after 3 years? (Find the Interest)
6. How much will you pay after 3 years? (Find the Future Value)

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 ACTIVITY 3.3: Give My Present and My Future!
____ ___________
Answer the following questions.

1. A depositor will have PhP 125,000 in a time deposit in a bank at 2% compounded

annually after 2 years.
a. How much did a depositor place in this time deposit in the bank? (Give My
Present Value)
b. What is the future amount of this investment? (Give My Future Value)
2. A businessman had accumulated PhP 60,000 after a 5-year investment in a
cooperative that offers 5% interest compounded yearly.
a. How much did the businessman invest in the cooperative? (Give My Present
Value)
b. What is the future amount of his investment? (Give My Future Value)
3. After 6 years, Johanna shall pay PhP 100 000.00 for her loan that earns an interest
of 4% compounded annually.
a. What is the principal amount of Johanna’s loan? (Give My Present Value)

b. What is the future amount of her loan? (Give My Future Value)

- End of Practice Tasks -

IV. Reflection

1. How can simple or/and compound interest be applied in

your current situation? What is its implication to the less
fortunate group in our country?
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
________________________________________

2. Give your insight(s) about the importance of understanding

the concept of simple interest especially if your family is applying
for a loan.
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________

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