Unscramble the following words in
Business Mathematics
1. TSERTEIN INTEREST
Amount paid or earned for the use of money.
RATE
2.TEAR
annual rate, usually in percent, charged by the lender, or
rate of increase of the investment .
PRINCIPAL
3. CRPINIPLA
amount of money borrowed or invested on the origin date
4. MILPES RITNESTE SIMPLE INTEREST
interest that is computed on the principal and then added to it .
5. OPOMCNUD TRSEENIT COMPOUND INTEREST
interest is computed on the principal and also on the accumulated
past interests.
6. IRTUAMYT EVLUA MATURITY VALUE
amount after t years that the lender receives from the borrower on
the maturity date.
7. YAPMRENTE ADTE REPAYMENT DATE
Date on which the money borrowed, or loan is to be completely
repaid.
8. IGIRNO ORIGIN
date on which money is received by the borrower .
9. TBEROD DEBTOR
person (or institution) who owes the money or avails of the
funds from the lender.
CREDITOR
10. TDIRORCE
person (or institution) who invests the money or makes the
funds available .
TERM
11. RETM
amount of time in years the money is borrowed or invested; length of
time between the origin and maturity dates
Example 1: A bank offers a cash loan for an annual interest rate of 6%. Mr. Dela Cruz borrowed
₱50 000 from the bank. After three years, Mr. Dela Cruz paid the bank a total of ₱59 000.
principal (P)
amount is ₱50 000,
rate (r)
6%.
term (t)
3 years.
interest (I)
₱9 000
Example 1 illustrates Simple Interest
Example 2:
Suppose your father deposited in your bank account ₱10,000 at an annual
interest rate of 0.5% compounded yearly when you graduated from
Kindergarten and did not get the amount until you finished Grade 12.
principal (P)
₱10,000
rate (r)
0.5% = 0.005
term (t)
12 years.
Example 2 illustrates Compound Interest
Simple Interest
is a type of interest in which only the principal bears interest for
the entire term. The amount of interest paid for each period
remains the same.
Example 1:
Ms. Reyes invests ₱20 000 in a savings account. She earns an interest
of 5% (or ₱1 000) every month. After four months, she earned ₱4 000 in
interest.
Example 2:
An entrepreneur applied for a loan amounting to ₱500 000 in a bank.
The bank charges a 7% interest rate (or ₱35 000) annually. After two
years, he paid ₱70 000 for the interest alone.
Compound Interest
is a type of interest applied to both the original
principal and the accumulated interest at the end of
each period. This means that the amount of interest to
be paid increases every period.
Example 1:
Mrs. Flores invests ₱10 000 in a stock portfolio that earns 5% interest
monthly. Interest that is not withdrawn is considered as an additional
investment. For the first three months, she earns ₱500, ₱525, and
₱551.25 in interest, respectively, for a total of ₱1 576.25.
Example 2:
Peter borrowed ₱100 000 at 8% interest rate annually. For the first two
years, he paid ₱8 000 and ₱8 640 in interest, respectively, for a total of
₱16 640.
Generally, simple interest paid or
received over a certain period is a fixed
percentage of the principal amount that
was borrowed or lent. While, compound
interest accrues and is added to the
accumulated interest of previous periods,
so borrowers must pay interest on
interest as well as principal.
Activity 1
Analyze the following situations. Identify whether it shows SIMPLE
INTEREST or COMPOUND INTEREST.
1. Michael borrowed ₱150 000 from the bank at 4% interest. He paid
the bank ₱6 000 every year, for a total of ₱30 000 in 5 years.
Ans : Simple Interest
2. Elsa borrowed ₱50 000 for the renovation of her house at 3.5%
monthly interest rate for 6 months. She paid the interest of ₱1 750 for
the first month, another ₱1 750 for the second month, for a total of ₱10
500 interest in 6 months.
Ans : Simple Interest
3. Sarah deposited in her bank account ₱50,000 at an annual interest
rate of 1% compounded yearly. She earned an interest of ₱2 550.50
after 5 years.
Ans : Compound Interest
4. Sandy invested ₱240 000 in a stock portfolio that earns 7% interest
per month. She earned ₱16 800 after the first month and ₱17 976 after
the second month, for a total of ₱34 776 for 2 months.
Ans : Compound Interest
5. For 3 years, Mr. Santos paid ₱3 000 in interest every year for the
loan he got from the local farmers’ cooperative amounting to ₱30 000 at
10% interest annually.
Ans : Simple Interest
Questions:
1. How is compound interest different from simple interest?
2. Suppose you won ₱10,000 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?
Thank you !
Prepared by:
CHERRY MAE B.
CABRERA
Mathematics
Teacher
