MATHEMATICS PROJECT

TOPIC 1
MEANING OF INTEREST IN MATHEMATICS

Interest, in the context of mathematics, refers to the additional amount of money earned or
paid on an initial investment or loan. There are two main types of interest: simple interest and
compound interest.

Simple interest is calculated based on the initial principal amount, the interest rate, and the
time period. It remains constant throughout the duration of the investment or loan.Compound
interest, on the other hand, takes into account both the initial principal and the accumulated
interest from previous periods. It grows exponentially over time.

THE DIFFERENT SOURCES IF INTEREST

There are several different sources of interest that exist in various contexts. Here are some
common sources of interest:

Financial Institutions: Banks, credit unions, and other financial institutions provide interest
on deposits such as savings accounts, fixed deposits, and certificates of deposit (CDs). This
interest is a form of compensation for depositing money with the institution.

Loans and Credit: When individuals or businesses borrow money, they typically pay interest
to the lender as a cost of borrowing. This interest compensates the lender for the risk of
lending money and serves as a profit for the lender.

Investments: Interest can be earned through various investment vehicles such as bonds,
government securities, and corporate bonds. These investments pay interest as a return to the
investor for lending their funds to the issuer.

Mortgages and Real Estate: When individuals obtain a mortgage to finance the purchase of a
property, they pay interest to the lender over the term of the loan. The interest compensates
the lender for the risk and opportunity cost of lending the funds.
Credit Cards: Credit card issuers charge interest on the outstanding balance when cardholders
do not pay their balance in full each month. This interest is a cost for borrowing money
through the credit card.

Business Profit: Businesses generate profits through their operations, and the owners or
shareholders receive a share of these profits as a return on their investment.

These are just a few examples of the different sources of interest. In various financial and
economic transactions, interest serves as a way to compensate for the time value of money,
risk, and opportunity costs associated with borrowing, lending, and investing

DESCRIBE THE DIFFERENCE BETWEEN THE SIMPLE AND COMPOUND

INTEREST

The main difference between compound interest and simple interest lies in how the interest is
calculated and added to the principal amount.

Simple Interest:

•Simple interest is calculated only on the initial principal amount.

•The interest remains constant throughout the entire duration of the investment or loan.

•The formula for calculating simple interest is I = P * R * T, where I is the interest, P is the
principal amount, R is the interest rate, and T is the time period.

•Simple interest does not take into account any accumulated interest over time.

Compound Interest:

•Compound interest takes into account both the initial principal amount and the accumulated
interest from previous periods.
•The interest is added to the principal, and future interest calculations are based on the
updated amount.

•Compound interest grows exponentially over time due to the compounding effect.

•The formula for calculating compound interest is A = P * (1 + r/n)^(n*t), where A is the

total amount, P is the principal, r is the interest rate, n is the number of compounding periods
per year, and t is the time in years.

•Compound interest is commonly used in financial investments, savings accounts, and loans.

•Compound interest leads to higher overall returns compared to simple interest, as the interest
earned is reinvested and contributes to the growth of the investment

DEFINE ALL TERMS RELATED TO COMPOUND INTEREST

Here are the key terms related to interest calculations:

Principal: The initial amount of money on which interest is calculated. It is the original
investment or loan amount.

Interest Rate: The percentage charged or earned on the principal amount. It determines the
rate at which interest is calculated.

Time Period: The duration for which interest is calculated. It is usually measured in years or
fractions of a year.

Simple Interest: The interest calculated only on the principal amount. It remains constant
throughout the entire duration and does not take into account any accumulated interest.
Compound Interest: Interest that is calculated on both the principal amount and any
accumulated interest from previous periods. It grows exponentially over time due to the
compounding effect.

Compound Frequency: The frequency at which compounding occurs in a given time period.
It can be annually, semi-annually, quarterly, monthly, or even daily.

Compounding Period: The length of time between each compounding occurrence. It is

determined by dividing the time period by the compound frequency.

Total Amount: The sum of the principal and the accumulated interest over the specified time
period. It represents the final value of an investment or the amount to be repaid on a loan.

Future Value: The value of an investment or loan at a specified future date, taking into
account the interest earned or paid.

Present Value: The current value of an investment or loan, taking into account the interest it
will earn or incur in the future. It is often used in discounted cash flow calculations

CALCULATION OF COMPOUND INTEREST BY STEP BY STEP METHOD AND

FORMULA METHOD

Let’s go through an example of calculating compound interest using both the step-by-step
method and the formula method.

Example:
Suppose you invest ₹5,000 in a savings account with an annual interest rate of 4%
compounded annually. You plan to keep the money invested for 3 years.

Step-by-Step Method:
Step 1: Calculate the interest for each year separately.

Year 1: Interest = Principal * Interest Rate = ₹5,000 * 4% = ₹200

Year 2: Interest = (Principal + Year 1 Interest) * Interest Rate = (₹5,000 + ₹200) * 4% =
₹208
Year 3: Interest = (Principal + Year 2 Interest) * Interest Rate = (₹5,000 + ₹208) * 4% =
₹216.32
Step 2: Calculate the total amount by adding the principal and the accumulated interest.
Total Amount = Principal + Sum of Yearly Interest
Total Amount = ₹5,000 + (₹200 + _₹208 + ₹216.32) = ₹5,624.32

Formula Method:
The formula for compound interest is A = P * (1 + r/n)^(n*t), where A is the total amount, P
is the principal, r is the interest rate, n is the compounding frequency, and t is the time period.

Using the formula:

A = ₹5,000 * (1 + 0.04/1)^(1*3)
A = ₹5,000 * (1 + 0.04)^3
A = ₹5,000 * (1.04)^3
A = ₹5,000 * 1.124864
A = ₹5,624.32

In both methods, the total amount after 3 years is calculated to be ₹5,624.32. This represents
the initial principal of ₹5,000 plus the accumulated compound interest.

Note: The step-by-step method breaks down the calculation into individual yearly interest
amounts, while the formula method directly calculates the total amount using the compound
interest formula

CASE STUDY
TAKE CERTAIN PRINCIPAL AND CALCULATE SIMPLE AND COMPOUND
INTEREST FOR A FIXED PERIOD OF TIME AND COMPARE THEIR DIFFERENCE

Let’s consider a case study to calculate the simple and compound interest for a fixed period
of time and compare their differences.
Let’s assume we have an initial principal amount of ₹10,000, and we will calculate the
interest for a period of 3 years. The interest rate is fixed at 5% per annum.

Simple Interest:
The formula to calculate simple interest is:
Simple Interest = (Principal) x (Interest Rate) x (Time)
Using the given values, we can calculate the simple interest as follows:
Simple Interest = ₹10,000 x 0.05 x 3 = ₹1,500

Therefore, the simple interest for a period of 3 years is ₹1,500.

Compound Interest:
The formula to calculate compound interest is:
Compound Interest = Principal x (1 + Interest Rate)^Time – Principal
Using the given values, we can calculate the compound interest as follows:
Compound Interest = ₹10,000 x (1 + 0.05)^3 - ₹10,000

Calculating the compound interest:

Compound Interest = ₹10,000 x (1.05)^3 - ₹10,000 = ₹10,000 x 1.157625 - ₹10,000 =
₹1,576.25

Therefore, the compound interest for a period of 3 years is approximately ₹1,576.25.

Difference between Simple and Compound Interest:

To calculate the difference, we subtract the simple interest from the compound interest:
Difference = Compound Interest – Simple Interest
Difference = ₹1,576.25 - ₹1,500 = ₹76.25

Therefore, the difference between the compound interest and simple interest for a period of 3
years is approximately ₹76.25.
This example illustrates how compound interest, which takes into account the accumulated
interest over time, can result in a higher return compared to simple interest, which only
considers the Initial principal amount

CONCLUSION

The project highlights the importance of understanding the concepts of simple and compound
interest, as they have practical applications in various financial scenarios. Whether it’s
calculating interest on loans or determining the growth of investments, a clear understanding
of these concepts is essential.

By gaining insights into simple and compound interest, we can make informed financial
decisions, plan for the future, and appreciate the power of compounding over time. This
project has provided a valuable opportunity to explore and comprehend these fundamental
mathematical concepts related to interest, enhancing our mathematical knowledge and
financial literacy.

Bibliography

Write on your own

TOPIC 2
Here is a template for your math project on starting a lemonade or potato chips business:

Title: Analysis of a Lemonade or Potato Chips Business Venture

The items/raw materials required:

a. Lemonade:
•Lemons
•Sugar
•Water
•Ice cubes
•Glasses or cups
 b. Potato Chips:
•Potatoes
•Cooking oil
•Salt or seasoning
•Cost price of each item required:

a. Lemonade:
•Lemons: ₹3 per lemon
•Sugar: ₹60 per kg
•Water: Negligible cost
•Ice cubes: Negligible cost
•Glasses or cups: ₹0.50 each

b. Potato Chips:

•Potatoes: ₹0.40 per potato

•Cooking oil: ₹200 per liter
•Salt or seasoning: ₹10 per packet

-Cost of one glass of lemonade or a packet of chips:

Lemonade: Total cost of ingredients + Cost of glass/cup

Potato Chips: Total cost of ingredients
Money needed to start the business/loan taken:

Determine the total cost of purchasing the required items and initial setup expenses.
Profit sharing ratio between you and your friend:

Decide on the percentage or ratio of profit distribution between you and your friend.
Selling price to make a profit of 25% on the cost price:

Calculate the cost price of one glass of lemonade or packet of chips.

Add a 25% profit margin to the cost price to determine the selling price.
Interest amount to be paid in two months:

Calculate the loan amount borrowed.

Use the compound interest formula to determine the interest amount for two months at a 4%
annual interest rate compounded annually.
Analysis of buying potato chips vs. making them:

Compare the cost and quality of store-bought potato chips with homemade ones.
Consider factors like taste, cost-effectiveness, and potential profit margin to determine the
more profitable option.
Conclusion:

Summarize the findings and lessons learned from the project, including insights about
running a small business, financial calculations, and decision-making.
Bibliography:

List the sources of information, references, and citations used for the project.
Remember to gather relevant data, perform necessary calculations, and present the
information in a clear and organized manner. Customize the template by filling in the specific
details of your project. Good luck with your math project!