General Mathematics

Quarter 2 Simple and

Compound
What interest remains constant throughout the investment term?

a. simple c. annuity due

b. compound d. ordinary annuity

1. It is an interest computed based on the principal amount.

a. Simple c. annuity due
b. compound d. ordinary annuity

2. What is the difference between simple and compound interest?

a. Simple yields higher interest than compound interest.
b. Simple interest has a shorter term than compound interest.
c. Simple interest is always better than compound interest.
d. Simple interest is computed based on the principal while compound interest is
computed based on the principal and also on the accumulated past interests.
3. If you would like to invest money, which bank offer would you prefer if you do
not plan to withdraw your money in 2 years?
a. 5% simple interest per annum
b. 4% compounded interest per annum
c. 3% compounded interest semi-annually
d. 2% compounded interest quarterly

4. Which of the following statement is true about the borrower or debtor?

a. It is the amount of money borrowed or invested on the origin date.
b. It is the interest is computed on the principal and also on the
accumulated past interests
c. It refers to the person (or institution) who owes the money or avails of the fund
from the lender.
d. It refers to the person (or institution) who invests the money or makes the funds
available.

5. Which of the following statements is/are true?

I. Compound interest of a loan favors the borrower.
II. Simple interest remains constant throughout the investment term.
III. In compound interest, the interest from the previous year also earns interest.
a. I only c. II and III
b. I and II d. I and III
6. Which of the following formulas can be used to solve for the simple interest?
a. I = Prt c. A= P(1 + rt)
Prt
b. SI = d. All of the above
100
 7. It is an amount after t years that the lender receives from the borrower on the
maturity date.
a. loan date c. maturity value
b. maturity date d. term

8. Which of the following describes time or term?

a. It is the date on which money is received by the borrower.
b. It is the amount paid or learned for the use of money.
c. It is the date on which the money borrowed or loan is to be completely repaid
d. It is the amount of time in years the money is borrowed or invested; the length of
time between the origin and maturity dates

9. In the formula, I= Prt, what is r?

a. revenue c. repaid
b. real value d. rate of interest

10. It is the amount of money borrowed or invested on the origin date.

a. future value c. maturity value
b. principal value d. repayment value

11. A person (or institution) who invests the money or makes the funds available.
a. Lender c. Both a and b
b. Creditor d. None of the choices.

12. It refers to an interest that is computed based on the principal and interest
accumulated every conversion period.
a. simple c. annuity due
b. compoundd. ordinary annuity

13. It refers to the amount after years that the lender receives from the borrower on the
maturity date.
a. present value c. interest
b. future value d. ordinary annuity

14. Which of the following formulas can be used to solve for the compound interest?
a. A = P(1 + r )t c. C = P(1 + r)n – 1 n

b. A = P(1 +r)nt d. Both a and b

n

Simple Interest
It’s quite difficult to pursue our dreams, especially during these trying times that our country
is experiencing the COVID-19 pandemic. Dream is just a dream until you decide to make it
happen. We can realize our dreams through perseverance, patience, and determination. For
now, continue to acquire new knowledge, develop your skills, and cultivate your talents
because these will be your weapon to succeed in life.
I hope that you somehow encountered some math of investment terms like simple interest,
loans, savings, investments, maturity value, money, resources, and the like. This lesson will
help you understand simple interest. Different terminologies about the simple interest
that you can use for the succeeding lesson once you go deeper on the problem solving about
simple interest.

the definition of the following terms:

Simple Interest ( ) – interest that is computed on the principal. The interest remains
constant throughout the term.

Lender or creditor – person (or institution) who invests the money or makes the funds
available
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; length of
time between the origin and maturity dates
Principal (P) – amount of money 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
Maturity value or future value (F) –amount after t years that the lender receives from
the borrower on the maturity date
To solve the problem in the Simply Saving activity which is a common scenario among
Filipino working students wherein many can relate.

You can solve this problem using the simple interest formula

=𝑃

where:
Is = Simple Interest
P = Principal or amount invested or borrowed r =
simple interest rate t = term of time in years
Here are the steps to find the simple interest:
Step 1: Identify the given and the unknown

P = ₱10,000.00 r = 2.75% or 0.0275 t =0.5 or (6 months), 1 (1

year), 1.5 or (18 months) Is = ?

Step 2: Substitute the given to the formula
Is = Prt

For 6 months For 1 year

Is = (₱10,000.00) (0275) (0.5) Is = (₱10,000.00) (0275) (1)
= ₱137.50 = ₱275.00

For 18 months
 Is = (₱10,000.00) (0275) (1.5)
= ₱412.50
Notice that the time is divided into 12 since there are 12 months in a year. You will also do the
same if the given is in days, the divisor will be 360 for ordinary interest or 365 if you are
looking for exact interest. Don’t worry because it will be indicated in the problem if you will
compute for the ordinary or exact interests but if not indicated always use the ordinary
interest which consists of 360 days. In case that the given time is in years then multiply it as
is.
Now that you have the idea of how to solve simple interest study the example below.
Example
Problem Solving: Due to COVID-19 pandemic Miss Dada a female resident of Brgy. May
Pagkakaisa somewhere in Quezon Province thinks of a business that can provide for her
needs as well as the need of her neighbors so she can be of help even in this trying time.
Since she doesn’t have money on hand, she decided to borrow from a bank as the start-up
capital of ₱50,000.00 at 7% simple interest rate payable within 5 years.
Compute for the interest yield.
Solution.
Simple Interest
Time Principal Interest Simple Interest Amount after (t) years
(t) (P) Rate (r) Solution Answer (Maturity Value)

(50,000)(0.07) 50,000 + 3,500 =

1 50,000 7% 3,500
(1) 53,500
50,000 7% (50,000)(0.07) 50,000 + 7,000 =
2 7,000
(2) 57,000
50,000 7% (50,000)(0.07) 50,000 + 10,500 =
3 10,500
(3) 60,500
50,000 7% (50,000)(0.07) 50,000 + 14,000 =
4 14,000
(4) 64,000
50,000 7% (50,000)(0.07) 50,000 + 17,500 =
5 17,500
(5) 67,500
Notice the simple interest remains constant throughout the year and you only multiply with
the term that you are computing. Therefore, if you are a borrower make sure that the interest
on your loan is not too high. Try to compute it first before you apply for a loan. Compare first
the interest and the term of the different lending institutions before you decide to consider a
loan or investment.
Solve the following problems.
A couple with three children are peacefully living in a barangay near the City proper. The
husband is a government employee while the wife is a rug sewer. They always remind their
children about this: “Bilhin and kailangan at huwag kailanganin ang hindi kayang bilhin”.
Because of this teaching, the children open a joint account to a certain cooperative to have a

the cooperative to help their parents. Their total earnings amounting to ₱5,000.00 will earn
better investment. The total amount they earned in selling rugs, was put in their account in

an interest rate of 7.5% per year. Help them to compute for the simple interest earned and
maturity value, if their money will be invested in 3 years
A typhoon severely damaged a certain place in Quezon Province. The wealthiest family in that
area who happened to have large businesses have thought of a way to help SME’s or the
small business enterprises to recover, as well as those poor families affected by the said
typhoon. The family then decided to allot funds to lend to those who are victims of calamity
by giving a simple interest loan for only 10% per annum. If the family was able to lend
₱1,500,000.00, how much interest would be earned after 5 years? Use a model table
discussed in this lesson to show the simple interest earned. What do you think about Filipino
values being shown in this situation? Can you think of other means to help the community
use simple interest?

COMPOUND INTEREST

understand another type of earning interest, compound interest. If you understood the simple
interest in the previous lesson, this lesson will give you knowledge of how simple interest
differs from compound interest. This will lead you to compare your investment in the future
from different options. It will also help you to make wise decisions if you will apply for loans
from a bank to start your own business or if you need funds for emergency purposes. Being
financially literate is also a skill that will help you succeed in handling money and eventually
lead you to a good life.
 Be hospitable and helpful, please!
Read and analyze each item and write the word GENEROUS if your answer is true and write
HELPFUL if otherwise. These two words will remind you of Filipino values, to be kind and
generous even in the most difficult situation if you see someone on difficult (false) situation.

Compound interest () is the interest computed on the principal and also on the
accumulated past interest, so compound interest is a way to earn money because you don’t
just earn using your original money, but also the interest you earned.

To give you a deeper concept of compound interest, reflect on the following questions: Have
you ever lend money to someone like a friend, sibling, or relative? If so, would you let them
pay more than, less than or just equal the amount that you lent to them? Since you consider
to help them, probably you will answer just an equal amount is ok even though your money
has been used for a period of time. But, I’m sure some will answer that you should receive
more than the amount they borrowed and no one will say that you should receive less than
the amount they borrowed. I know you have your own reasons but let us see if compound
interest will change your view in life regarding loans or borrowings, savings, and investment.

Are you familiar with credit cards? We have what we call “Perma-Debt” which means a
continuous outstanding balance of a credit card where they pay the monthly minimum that
fits in their budget to lessen the burden of interest monthly but tries to add some debt again
on the following month so the debts never end. So why did I tell you this? If you are a debtor,
compound interest is not good for you. Better yet pay your debt in full the soonest possible so
that the burden of interest will not be on your shoulder. Conversely, if you are an investor,
compound interest is your best buddy and it is better to invest in a long period of time for you
to have a greater return of your investment through interest earned. So, if you have the
means or a way to save and invest early, you must consider it as soon as possible for you to
gain more money in the future.
Now, that you already know how to solve simple interest. Study the example below and
compare this to the example given in Lesson 1. (Note: Same problem was given here to
compare the interest earned in simple and compound interests)
Example
Problem Solving: Due to COVID-19 pandemic Miss Dada a female resident of Brgy. May
Pagkakaisa somewhere in Quezon Province thinks of a business that can provide for her
needs as well as the need of her neighbors so she can be of help even in this trying time.
Since she doesn’t have money on hand, she decided to borrow from a bank with a start-up
capital of ₱50,000.00 at 7% interest rate compounded annually and payable within 5 years.
Compute for the interest yield.
Solution.
Compound Interest
Amount at Compound Interest Amount at the end
Time Interest
the start of year t (Maturity
(t) Rate (r) Solution Answer Value)
of year t
(50,000)(0.07) 50,000 + 3,500 =
1 50,000 7% 3,500
(1) 53,500
53,500 7% (53,500)(0.07) 53,500 + 3,745 =
2 3,745
(1) 57,245
3 57,245 7% (57,245)(0.07) 4,007.15 57,245 + 4,007.15 =
 (1) 61,252.15
61,252.15 7% (61,252.15)(0.0 61,252.15 +
4 7)(1) 4,827.65 4,827.65 =
66,079.80
66,079.80 7% (66,079.80)(0.0 66,079.80 +
5 7)(1) 4625.59 4,625.59 =
70,705.39
Compound interest includes the interest from the current year and added on the principal at
the start of the following year, which means that the previous interest earns interest as well,
together with the principal until fully paid. So the interest yielded on simple interest is lower
than the compound interest. The amount at the end of 5 years in simple interest is
₱67,500.00 while in compound interest it is ₱70,705.39. Therefore, if you are a borrower make
sure that the interest on your loan is not too high if you will find a lender that offers simple
interest better grab it that a lender who offers compound interest. On the other hand, if you
are an investor learn to invest your money to an interest that will yield higher returns like
compound interest. If you will be a lender in the future, I hope that you will not be abusive
regarding the interest, be reasonable, and act generously by helping others who needed you
the most.

Notice that the formula to find the future value in a compound interest is given by= (1 + )

where:

= future value

= principal amount

= compound interest rate

= time or time in years

Also, to find the compound interest just deduct the principal (P) from the computed future
value (F). In the next module, you will encounter a situation where interest will be
compounded more than once a year
Complete the table below to help your father.
Amount at Compound Interest
Time Interest Amount at the end of
the start of
(t) Rate (r) Solution Answer year t (Maturity Value)
year t
1 500,000 8% (500,000)(0.08)
(1)
2 540,000 8% 43,200

8% (583,200)(0.08) 583,200 + 46,656 =

3
(1) 629,856
8% 629,856 + 50,388.48
4 50,388.48
= 680,244.48
5 680,244.48 8% 54,419.56

1. Which interest is computed on the principal and then added to it?

a. simple c. annuity due
b. compound d. ordinary annuity
The simple interest formula is I = Prt. What does the t represent?
c. principle c. interest
d. time d. percent rate
2. All of the following are used to find simple interest, EXCEPT?
a. principal c. time
b. rate of interest d. future value
3. It is the amount after t years that the lender will receive from the borrower.
a. future Value c. interest
b. present Value d. principal
4. Which of the following describes rate (r)?
a. It is the amount of money borrowed or invested on the origin date.
b. It is the amount paid or earned for the use of money.
c. It is charged by the lender, or rate of increase of the investment
d. It is computed on the principal and also on the accumulated past interests.
5. Rate of interest must be converted into ________ before substituting to the formula of
finding the interest.
a. fractions c. mixed numbers
b. decimals d. percentage
6. The principal in the formula I = Prt is ___________________.
a. the amount of money borrowed or deposited
b. the percent interest for his year
c. the amount taxed
d. the amount the bank owes you for being a customer at their bank
7. The interest from the previous year also earns interest, which of the following describes
the statement?
a. simple c. rate
b. compound d. time
8. Variable P in simple interest formula when you are the creditor stands for?
a. Original Amount borrowed c. Maturity Amount Borrowed
b. Original Amount invested d. Maturity Amount invested
c. 10. The following statements are true EXCEPT ________.
a. The amount invested to a compounded interest yields to greater maturity value
than to a simple interest.
b. The amount borrowed from a simple interest yields to a smaller maturity value
than a compound interest
c. The simple interest yields interest only from initial principal amount.
d. The interest in a compound account yields interest only from initial principal
amount.
11. Compound interest is favorable to the following except?
a. investor of a retirement fund
b. person who saves in bank
c. investor of stocks
d. borrower of a loan
12. Which of the following will yield a higher interest?
a. Investing in a bank that offers a simple interest rate of 10% annually for 2
years
b. Investing in a cooperative that offers an interest rate of 10% compounding
annually for 2 years
c. Saving money in a piggy bank for 2 years
d. Both a and b
13. What formula can be used to find maturity (future) value of a compound interest?

b. F = (1 + )
a. F = P + I c. Both a and b
d. None of the choices.
14. What interest is computed on the principal and also on the accumulated past interests?
a. simple c. annuity due
b. compound d. ordinary Annuity
15. Which of the following can be used to find compound interest?
 F
a. I = F – P c. P = t
(1+r) )

b. F= P(1+r)t d. I = P