GENERAL MATHEMATICS
(2nd Quarter Examination)
Illustrating Simple and Compound Interest
Lender or creditor - person (or institution) who owes the money or avails of the funds from the lender
Borrower or debtor - person (or institution) who owes the money or avails of the funds from the lender
Origin or loan date - date on which money is received by the borrower
Repayment date or maturity date - date on which the money borrowed or loan is to be completely
repaid
Time or term (t) - amount of time in years the money is borrowed or invested on the origin date
Rate(r) - annual rate, usually in percent, charged by the lender, or rate of increase of the investment
Interest (I) - amount paid or earned for the use of money
Simple Interest ( I s) - interest that is computed on the principal and then added to it
Compound interest ( I c) - interest is computed on the principal and also on the accumulated past
interests
Maturity value or future value (F) - amount after t years that the lender receives from the borrower on
the maturity date
Simple Interest
I s = Prt
where I s = simple interest
P = principal, or the amount invested or borrowed
r = simple interest rate
t = terms or time in years
Maturity (Future Value)
F = P + Is or F = P + Prt or F = P(1+rt)
Is
P= or P = F - I s
rt
Is
t=
Pr
number of months
t=
12
Compound Interest
Maturity (Future) Value and Compound Interest
F = P(1+r )t
Ic = F – P
Present Value P at Compound Interest
P
P= t
(1+r )
Maturity Value, Compounding m times a year
r mt
F = P (1+ )
m
Present Value P at Compound Interest
F
❑
P= r where
(1+ ) mt
m
P = principal or present value
F = maturity (future) value
R = interest rate
M = frequency of conversion
T = term/time in years
SIMPLE INTEREST
1. Tony borrowed P100,000 in a bank to finance his new business venture. How much interest will
Tony pay, if the bank charged him a 4% simple interest rate for the loan payable for two years?
I = Prt
= (100, 000) (0.04)(2)
I = 8,000
2. Steve place his money worth P150,000 in an investment that earns 6% simple interest rate per
year. How much will his money be after 4 years?
I = Prt F = P + Is
= (150,000)(0.06)(4) = 150,000 + 36,000
I = 36,000 F = 186,000
3.
P r t I
a.) 2.5% 4 1,500
36,000 b.) 1,5 4,860
250, 000 0.5% c.) 275
300,000 12.5% 10 d.)
I
a,) P =
rt
1500
=
(0.025)(4)
P = 15,000
I
b.) r =
Pt
4,860
=
(36,000)(1.5)
r = 0.09 or 9%
I
c.) t =
Pr
275
=
( 250,000 )( 0.005 )
t = 0.22 years
d.) I = Prt
= (500,000)(0.125)(10)
I = 625,000
4. Natasha currently has P2,000,000. She wants to buy a house in an exclusive subdivision worth
P4,500,000. If she wants to loan the money in a bank to complete the payment for the house, how
will she pay the bank if the interest rate charged by the bank is 2.4% simple interest and the term
of interest is 5 years and 6 months?
I = Prt
= (2,500,000)(0.024)(5.5)
I = 330,000
P=F–I
= 4,500,000 – 2,000,000
P = 2,500,000
F=P+I
= 2,500,000 + 330,000
F = 2,830,000
5. A bank offers 0.25% annual simple interest rate for a particular deposit. How much
interest will be earned if 1 million pesos is deposited in this savings account for 1
year?
Given: P = 1,000,000 I = 0.25% = 0.0025 t = 1 year
Solution: I s = Prt
I s = (1,000,000)(0.0025)(1)
I s = 2,500
6. How long will a principal earn an interest equal to half of it at 5% simple interest?
Given: r = 5% ≈ 0.05 Is = ½ P = 0.5
I
t=
Pr
0.5
=
( P)(0.05)
t = 10 years
7. How much interest is charged when P50,000 is borrowed for 9 months at an annual
interest rate of 10%?
9
Given: P = 50,000 r = 10% = 0.10 t= year = 0.75 year
12
Solution: I s = Prt
9
I s = (50,000)(0.10)( )
12
I s = (50,000)(0.10)(0.75)
I s = 3,750
8. How much money will you have after 4 years and 3 months if you deposited
P10,000 in a bank that pays 0.05% simple interest?
Given: P = 10,000 r = 0.005 t = 4.25 years
F = P(1+ rt)
= (10,000)[(1+ 0,005(4,25)]
F = 10,212.25
9. How much should you invest at the simple interest is 7.5% in order to have
P300,000 in 2 years?
Given: r = 0.075 F = 300,000 t=2
F 300,000
P= =
1=rt 1.15
300 , 000
= P = 260, 869.57
1+ ( 0.075 )( 2 )
300,000
=
1+0.15
10. How long will a principal earn an interest equal to half of it at 5% simple interest?
1
Given: P r = 5% = 0.05 I s = P = 0.5P
2
Is
Solution: t=
Pr
0.5 P
=
( P ) (0.05)
t = 10 years
P r t I
10,000 8% 15 ?
? 2% 5 10,000
360,000 ? 2 3,600
500,000 10.5% ? 17,500
1. Given: P = 10,000 r = 8% t = 15 I=?
I = Prt
= (10,000)(0.08)(15)
I = 12,000
2. Given: P=? r = 2% t = 5 I = 10,000
I
P=
rt
10,000
=
(0.02)(5)
10,000
=
0.1
P = 100,000
3. Given; P = 360,000 r=? t = ? I = 3,600
I
r=
Pt
3,600
=
( 360,000 ) (2)
3,600
=
720,000
r=
