SIMPLE

AND
COMPOUND
INTEREST
 What is Interest
If you DEPOSIT money in a bank account then
the bank will pay you a percentage as
INTEREST

If you LEND money in a bank then you will pay

an INTEREST in a bank.

The RATE of interest is given as a percentage

per annum (per annum is another phrase for per
year)
 In business, capital is very important.
However, not all business owners always
have enough capital to sustain their
business. More often than not, they have
to borrow money for use in the business.
It is in this context that interest plays an
important role. Borrowers need to pay
interest on the money that they borrow.
When we deposit money in the bank, we
are in effect, lending our money to the
bank. The bank usually uses our money
to grant loans to borrowers. The bank
pays the depositor interest on money
deposited. Similarly, when we go to the
bank and borrow money, we are the ones
paying interest to the bank for the money
that we borrow.
 IMPLE INTEREST
FORMULA

Interest paid Annual interest rate

I = PRT Time (in years)

Principal
(Amount of
money invested
or borrowed)
If you invested $200.00 in an account that paid
simple interest, find how long you’d need to
leave it in at 4% interest to make $10.00.
enter in formula
as a decimal I = PRT

10 = (200)(0.04)T
1.25 yrs = T
 Find the interest earned
• Ray has ₱17 500 in a savings account that
pays 3% simple interest. How much
interest will he earn in 4 years?
I = 17 500 x 3% x 4
I = ₱2 100

Ray will earn ₱ 2 100 interest in 4 years.

 Find the interest paid
• Cory borrows ₱1,200 from the bank for a
riding lawn mower. The interest rate is 8%
per year. How much simple interest will he
pay if he takes 2 years to repay the loan?

I = 1,200 x 8% x 2

Cory will pay ₱ 192 interest in 2 years.

 Find the interest earned.
• Kate’s bank offered 4% simple interest on
her deposit. She has ₱1,500 to invest. How
much interest will she earn in 30 months?
30 months is how many years? 30/12 = 2.5 years

I = 1,500 x 4% x 2.5
Kate will earn ₱ 150 interest in 30 months.
 Find the total paid
Henry charged ₱16 000 TV on his credit card
with an interest rate of 21%. How much
money will he owe after 9 months?
9 months is how many years? 9/12 = .75 years

I = 16 000 x 21% x .75 = ₱ 2 520 interest

Amount paid ₱ 16 000 + 2 520 = ₱ 18 520
Maturity/Future Value (F)

F=P+I

F = P + Prt

F = P(1 + rt)
Tessa borrowed ₱ 2 000 at 12% interest
for 2 years. Find the interest(I) and the
maturity ₱ value (F).

A. Interest B. Maturity Value

I = Prt F = P(1+rt)
I = ₱ 2 000 x .12 x 2 F = 2000[1+.12(2)]
I = ₱ 480 F = 2000(1.24)
F = ₱ 2 480
Eunice lent ₱ 3 000 at 14% for 6 months.
How much will she get at the end of the
term? How much interest did she earn?

F = P(1+rt)
= 3000[1 + .14(.5)]
= ₱ 3 210

I = ₱ 3210 – 3000
= ₱ 210
 COMPOUND INTEREST
FORMULA
annual interest
Principal rate
(amount (as a decimal)
at start) nt
 r time
amount at
the end A  P 1   (in years)

 n
number of times per
year that interest is
compounded
 Find the amount that results from $500 invested at
8% compounded quarterly after a period of 2 years.
4nt(2)
 r
.08 
A  500
P 1   A  $585.83
 n
4

Find the effective rate of interest for the problem above.

I = Prt 585.83=(500)r(2)
r = 0.5858 = 58.58%
 Assignment
Find the compound amount if ₱ 2900 is
deposited at 5% interest for 10 years if
interest is compounded daily.
 answer
Find the compound amount if ₱ 2900 is
deposited at 5% interest for 10 years if
interest is compounded daily.

A  P (1  nr )^ nt
 2900(1  5% 3650
365 )
 4781.13