Business Math

Simple and Compound Interest

Kumustahan
Most Essential Topic

Applying a solution in
computing Interest on
Personal Loans and Installment
Purchases.
 Learning Target
I can define simple and compound interest
I can illustrate the simple interest and compound
interest
I can illustrate how interest is computed
specifically as applied to mortgage,
amortization, and on services/utilities and on
deposits and loans.
 Wholeheartedness

The learners will become good

decision makers and problem
Body

solvers.
Concept Map
 Focus Question

How helpful are the interests in

solving real-life problems?
Body
Simple Interest
 Objectives

Define simple interest.

Understand and use the formula
for calculating simple interest.
Solve various simple interest
problems in real-life contexts.
 Simple Interest
The interest calculated on the principal amount of a
Definition
loan or deposit for a specified period at a given rate.

Formula I=P×r×t
Where:
I = Interest
P = Principal amount
r = Rate of interest per year (in decimal form)
t = Time in years
 Example
1 John invests $2,000 in a savings
account that offers an interest rate
of 3% per year. How much interest
will John earn after 4 years?
 Example
2 Lisa borrows $1,500 for 6 months
at an annual interest rate of 6%. How
much interest will she owe at the end
of the loan period?
 Example
3 Calculate the simple interest on a
loan of $3,000 at an interest rate of
5% per year for 18 months.
 Example
4 A student deposits $800 in a
savings account with a 4% annual
interest rate. How much interest
will the student earn in 3 years?
 Activity

Direction: Tell whether the

following are simple or compound
interest
 Activity
1. Can be defined as when the sum principal amount exceeds
the due date for payment, along with the rate of interest for
a period of time
2. The return is much higher.
3. The growth remains quite uniform in this method.
4. The interest charged on is for the principal amount.
5. The interest charged on it is for the principal and
accumulated interest.
Compound Interest
 Objectives

Define compound interest.

Understand the difference between
simple and compound interest.
Use the formula for calculating compound
interest.
Solve compound interest problems in real-
life contexts.
 Compound Interest
The interest calculated on the initial principal and also
Definition
on the accumulated interest from previous periods.
nt
Formula A = P(1+(r/n))
Where:
A = Amount of money accumulated after n years, including interest.
P = Principal amount
r = Annual nominal interest rate (as a decimal)
n = Number of times that interest is compounded per year
t = Time the money is invested or borrowed for, in years
 Example
1 Emma invests $1,000 in an account
that compounds interest annually at
a rate of 5%. How much will her
investment be worth after 3 years?
 Example
2 A bank offers a certificate of
deposit (CD) that compounds
interest quarterly at a rate of 4% per
year. If $2,500 is invested, what will
be the amount after 5 years?
 Example
3 Calculate the future value of
$1,200 invested at 6% interest
compounded semi-annually for 3
years.
 Example
4 Determine the compound interest
earned on a $5,000 investment at
5% compounded monthly for 4
years.
 Activity

Direction: Answer the following

problem.
 Activity
Simple Interest

1. RF decided to invest ₱200,000 in a cooperative that offers

3% simple interest per year. How much is the future value of
his investment after 3 years? How much is the total interest
that he will earn after 3 years?
2. A pensioner invested ₱100,000,000 in a bank that offers an
annual simple interest of 5%. How much is the future value
of the investment after 10 years?
 Activity
Compound Interest

1. A pensioner deposits ₱70,000,000 in a bank.

a. If the bank gives 4% interest, compounded quarterly, how
much will be his money after 10 years?
b. Suppose the bank gives 4% interest, compounded monthly,
how much will be his money after 10 years?
c. What is the difference between the two future values in
terms (a) and (b)?
 Interest in
Mortgage and
Amortization
 Objectives

Define mortgage and amortization.

Understand how interest is calculated in
mortgage payments.
Apply the amortization formula to real-
world scenarios.
 Mortgage
A mortgage is a type of loan used to purchase property,
Definition
where the property itself serves as collateral.
n n
Formula M = P × r × (1+r) (1+r) - 1
Where:
M = Monthly payment
P = Principal loan amount
r = Monthly interest rate (annual interest rate divided by 12)
n = Total number of payments (loan term in years multiplied by 12)
 Amortization
Amortization is the process of paying off a debt over time
Definition through regular payments. Each payment covers interest
costs and reduces the
n n
Formula M = P × [r (1 + r) ] [(1 + r) -1]
Where:
M = Monthly payment
P = Loan principal
r = Monthly interest rate (annual rate divided by 12)
n = Number of payments (total number of months)
 Example
1 Calculate the monthly payment on
a $250,000 mortgage with a 4%
annual interest rate over a 30-year
term.
 Example
2 Create an amortization schedule
for the first 3 months of the above
mortgage.
 Example
3 Calculate the monthly payment on
a $150,000 mortgage with a 3.5%
annual interest rate over 20 years.
 Example
4 Create an amortization schedule
for the first 2 months of a $200,000
mortgage with a 5% interest rate
over 25 years.
 Activity

Direction: Answer the following

problem.
 Activity
Mortgage and Amortization

Compute the monthly payment and create a 3-

month amortization schedule for the following:
1. $100,000 mortgage at 4% for 15 years.
2. $300,000 mortgage at 6% for 30 years.
 Interest in
Services/Utilities,
Deposits, and Loans
 Objectives

Understand how interest is applied to

services and utilities.
Calculate interest on deposits and loans.
Apply learned concepts to real-world
situations.
 Interest in Services and Utilities
1 Scenario: Utility companies may
charge interest on overdue bills. For
example, a company charges 1.5%
interest on overdue amounts.
 Interest in Services and Utilities
2 Example: A bill of $200 is overdue
by one month. Calculate the
interest.
 Interest on Deposits
3 Scenario: A bank offers an interest
rate of 2% per year on a savings
account. Calculate the interest
earned on a $5,000 deposit after 1
year.
 Loans and Interest Calculation
4 Scenario: A personal loan of
$10,000 is offered at an interest rate
of 7% per year. Calculate the total
interest to be paid if the loan is repaid
over 3 years with simple interest.
 Additional Example
1 A utility bill of $150 is overdue by 2
months, with an interest rate of 1.5%
per month. Calculate the interest
charged.
 Additional Example
2 A deposit of $8,000 earns 1.8%
annual interest. How much interest
will be earned after 2 years?
 Additional Example
3 A loan of $5,000 is repaid over 4
years with an interest rate of 6% per
year. Calculate the total interest to
be paid.
 Recap

What is the Simple and

Compound Interest?
 Focus Question

How helpful are the interests in

solving real-life problems?
Body
 Learning Target
I can define simple and compound interest
I can illustrate the simple interest and compound
interest
I can illustrate how interest is computed
specifically as applied to mortgage,
amortization, and on services/utilities and on
deposits and loans.
 Wholeheartedness

The learners will become good

decision makers and problem
Body

solvers.
Most Essential Topic
I can define simple and compound interest
I can illustrate the simple interest and
compound interest
I can illustrate how interest is computed
specifically as applied to mortgage,
amortization, and on services/utilities and on
deposits and loans.
Thank you!