Scribd
Upload
45 views11 pages

Simple Interest and Compound Interest

The document discusses simple interest and compound interest formulas. It provides examples of calculating simple interest using the basic formula of Interest = Principal x Rate x Time. It also explains the compound interest formula of Future Value = Principal x (1 + Rate/Periods)^(Periods x Time) and provides an example of calculating compound interest over a period of 5 years at a 7% interest rate compounded semi-annually.

Uploaded by

Ong Karl
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
45 views11 pages

Simple Interest and Compound Interest

The document discusses simple interest and compound interest formulas. It provides examples of calculating simple interest using the basic formula of Interest = Principal x Rate x Time. It also explains the compound interest formula of Future Value = Principal x (1 + Rate/Periods)^(Periods x Time) and provides an example of calculating compound interest over a period of 5 years at a 7% interest rate compounded semi-annually.

Uploaded by

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

SIMPLE INTEREST and

COMPOUND INTEREST
SIMPLE INTEREST
Examples:
1. A certain bank offers 5% annual interest
for their time deposit account. Ariel invested
P 100,000 for 5 years. How much will Ariel
have at the end of the term?
given:
r = 5% = 0.05
P = P 100,000
t = 5 years
F=?

solution:
I = Prt = (100,000)(0.05)(5) = P25,000
F = P + I = 100,000 + 25,000 = P 125,000
2. Rica borrowed P 20,000 for an annual
interest of 10% for 9 months. At the end of
teh term, how much is the interest and the
total amount paid by Rica?

given:
P = P 20,000
r = 10% = 0.10
t = 9 months = 0.75 yr
I =?
F=?
solution:
I = Prt = (20,000)(0.10)(0.75)
I = P 1,500

F = P + I = 20,000 + 1,500 = P 21,500


3. An enterpreneur loans P500,000 payable
in 3 years. How much is the interest rate of
the bank if he pays a total interest of
P150,000?

given:
P = P 500,000
t = 3 years
I = P 150,000
r=?
solution

I = Prt
150,000 = (500,000)(r)(3) = 1,500,000r
r = 150,000
1,500,000
r = 0.10 = 10%
Compound interest Formula

F = P(1 + r )n
Ic = F - P
where:
F = future value or maturity value
P = present value or principal amount
Ic = compound interest
r = interest rate per compounding period = i /m
t = term in years
n = total number of compounding periods = m*t

values of m:
m = 1 (annual)
m = 2 ( bi-annual or semi-annual)
m = 4 (quarter)
m = 12 ( monthly)
1. P100,000 was invested at an interest rate of
7% compounded semi-annually. How much is the
maturity value of the investment at the end of the
period?
given:
P = 100,000
i = 5% = 0.05
m = 2(semi-annual)
t = 5 yrsm

solution:
r = I / m = 0.07/2 = 0.035
n = m*t = 2*5 = 10
F = P(1+r)n = 100,000(1+0.035)10
F = P 141,059.88

You might also like