If you are born poor it’s not your mistake, but

if you die poor it’s your mistake.

–Bill Gates
Learning Outcomes

1. Apply the different concepts of mathematics of

finance in making wise decisions related to
personal finance; and
2. Support the use of mathematics in financial aspects
and endeavors in life.
 SIMPLE INTEREST
Formula
I = PRT
Objective:
Solve for one of the variables in the formula for simple
interest:

I=PRT.
 I = PRT

 I = interest earned (amount of money the bank pays you)

 P = Principal amount invested or borrowed.

 R = Interest Rate usually given as a percent (must

changed to decimal before plugging it into formula)
 T = Time (must be measured in years) or converted to years
by dividing by 12 months
 Converting
 Change % to decimal  Answers

1) 12% 1) .12 Move 2 places

2) 5% 2) .05 to left & drop % sign
3) 2 ½ % 3) .025
4) 8.5% 4) .085

 Change from decimal to %

5) .098 5) 9.8%
6) .455 6) 45.5%
Move 2 places
to right & add % sign
I = PRT
Solve for one of variables:
 Solving for I  Solving for other
 Plug in numbers for P, variables
R, & T.  Plug in what you know.
 Then multiply  Multiply the numbers
that are on same side
then divide by that
answer.
1. A savings account is set up so that the simple interest earned on the investment is moved
into a separate account at the end of each year. If an investment of P5,000 is invested at
4.5%, what is the total simple interest accumulated in the checking account after 2 years.

I = PRT  Interest paid by bank is

I= (5,000)(.045)(2) unknown
I=PhP450  Principal (invested)
 Rate changed to
decimal
 Time is 2 years
 Multiply
2. A savings account is set up so that the simple interest earned on the investment is moved
into a separate account at the end of each year. If an investment of P7,000 is invested at
7.5%, what is the total simple interest accumulated in the checking account after 3 years.

I = PRT  Interest paid by bank is

I= (7,000)(.075)(3) unknown
I=Php1575  Principal (invested)
 Rate changed to decimal
 Time is 3 years
 Multiply
3. When invested at an annual interest rate of 6% an account earned P180.00
of simple interest in one year. How much money was originally invested in
account?

I = PRT  Interest paid by bank

180= P (.06) (1)  Principal (invested) is
180 = .06P unknown
.06 .06  Rate changed to
Php3,000 = P decimal
 Time is 1 year
 Multiply
 Divide
4. When invested at an annual interest rate of 7% an account earned P581.00 of
simple interest in one year. How much money was originally invested in account?

I = PRT  Interest paid by bank

581= P (.07) (1)  Principal (invested) is
581 = .07P unknown
.07 .07  Rate changed to
Php8,300 =P decimal
 Time is 1 year
 Multiply
 Divide
5. A savings account is set up so that the simple interest earned on the investment is
moved into a separate account at the end of each year. If an investment of P7,000
accumulate P910 of interest in the account after 2 years, what was the annual simple
interest rate on the savings account?

I = PRT  Interest paid by bank

910= (7,000)(R)(2)  Principal (invested)
910 = (7,000)(2)R  Rate is unknown
910 = 14,000 R  Time is 2 years
14,000 14,000  Regroup & Multiply
0.065 = R  Divide
6.5% = R  Change to %
6. A savings account is set up so that the simple interest earned on the investment is
moved into a separate account at the end of each year. If an investment of P2,000
accumulate P360 of interest in the account after 4 years, what was the annual simple
interest rate on the savings account?

I = PRT  Interest paid by bank

360= (2,000) (R)(4)  Principal (invested)
360 = (2,000)(4)R  Rate is unknown
360 = 8,000 R  Time is 4 years
8,000 8,000  Regroup & Multiply
0.045 = R  Divide
4.5% = R  Change to %
7. Sylvia bought a 6-month P1900 certificate of deposit. At the end of 6 months, she
received a P209 simple interest. What rate of interest did the certificate pay?

I=PRT  Interest paid by bank

209= 1900(R) (6/12)  Principal (invested)

209=(1900)(6/12)R  Rate is unknown

209= 950R  Time is 6 months

950 950 (divide by 12)

0.22 = R  Regroup & Multiply

22% = R  Divide

 Change to %
8.A savings account is set up so that the simple
interest earned on the investment is moved into
a separate account at the end of each year. If
an investment of P2,000 accumulated P360 of
interest in the account with a 4.5% interest
rate, how long was the investment made?
I= PRT
360 = (2,000) (.045) T
360 = 90 T
360 = 90 T
90 90

4=T
T = 4 yrs
The Banker’s Rule

The Banker’s rule treats every month like it has 30 days, so it uses
360 days in a year. They claim that the computations are easier to do.
 For example, on a $5,000 loan at 8% on 90 days, the interest
would be:
 I=Prt
 =($5,000)(0.08)(90/365)
 =$98.63
 Using the Banker’s rule
 I=Prt
 =($5,000)(0.08)(90/360)
 =$100.00
Example:

Find the simple interest on a $1,800 loan at 6% for 120 days.

Use the Banker’s rule.
 Solution:
 P= $1,800 r= 6% = 0.06 t=120/360
 I= Prt
 =($1,800)(0.06)(120/360)
 =$36
 The interest using the Banker’s rule is $36.
FINDING THE TRUE RATE
OF A DISCOUNTED LOAN
Example:
A student obtained a 2 year $4,000 loan for college tuition. The
rate was 9% simple interest and the loan was a discounted loan.

 A. Find the discount

 B. Find the amount of money the student received
 C. Find the true interest rate
 D. Discuss whether this seems like a deceptive practice.
Solution:
 A. The discount is the total interest of the loan.
 P=$4,000 r=9%= 0.09 t=2 years
 I=Prt
 =($4,000)(0.09)(2)
 =$720
 The discount is $720.
Solution:
 B. The student received $4,000 - $720 = $3,280.
 C. The true interest rate is calculated by finding the rate on a $3,280 loan with
$720 interest.
 I=Prt
 $720=($3,280)r(2)
 $720=$6,560r
 r= $720/$6,560
 =0.1098 (rounded)
 The true interest rate is approximately 10.98%
Solution:

 D. If you’re being quoted a loan at 9% and the actual percentage you’re

paying is almost 11% that surely qualifies as a deceptive lending practice.
Buyer beware.
I = PRT

P = I/RT

R = I/PT

T = I/PR
INTEREST

Interest is the cost for the use of money. When

you deposit money in a bank, it will earn interest but
when you borrow money from a bank, you will pay
interest.

The amount deposited in a bank or borrowed

from a bank is called the principal, the percent used
to determine the amount of interest is called the
interest rate, and the duration of deposit or loan is
called the time.
 SIMPLE INTEREST
 The interest paid on the original principal is called simple
interest, and the unit of time is usually expressed as annual
interest rates. This means that we will assume the interest
rate to be annual unless specified. When the duration of a
loan is less than a year, the t shall have a value of a fraction
of a year. For example, the interest rate of a loan payable
in 2 years is 2.5%, the value of t shall be 2 while a loan
that is due in nine months with an interest rate of 1.7% shall
 have a t value of . A daily/monthly interest rate shall
 have a daily/monthly unit of time. For instance, a two-year
loan of Php 2,500 bears an interest rate of 0.05% monthly.
In this example, the t shall have a value of 24 since there
are 24 months in two years.
SIMPLE INTEREST FORMULA

In the computation of simple interest, we will use the

formula I = Prt where

I – is the amount of interest

P – is the principal amount
r – the rate of interest that must be expressed in
decimal
t – is the time
 Example: You have deposited Php 5,000 in a
Savings Bank on January 1, 2016 with an interest
rate of 3% and have withdrawn it on January 1,
2017. Calculate the simple interest.
Solution: Calculate the interest
I= Prt
I= (Php 5,000)(0.03)(1)
I= Php 150
 Example: A loan of Php3,000 bears an interest rate of
2% per month. If the loan shall be paid in 4 months,
how much is the interest?
Solution: In this example, Php 3,000 is the principal
amount (P), 2% is the interest rate (r), and the time (t) is
4 since the interest rate is monthly.
Calculate the interest.
I= Prt
I= (Php 3,000)(0.02)(4)
I= Php 240
 Example: Your savings deposit of Php 7,000 earns a
simple interest of 5%. How much is the interest for 9
months?
Solution: Here, Php7,000 is the Principal (p), 5% is the
interest rate (r), and the time (t) is . It is since the
interest rate is annual, and the duration of the savings is 9
months.
Calculate the interest
I= Prt
I= (Php 7,000)(0.05)( )
I= Php 262.50
The time shall be measured in the same period as the
interest rate. Now if the interest rate is annual and
the time is in days, we need to express the time as a
fractional part of a year. We can use either the
exact method or the ordinary method.
 In exact method,

while in ordinary method,

In most business, ordinary method is used unless

otherwise stated.
MATURITY OR FUTURE VALUE
 The maturity or future value is the sum of the principal and the
interest. The formula is A=P+I. If we substitute Prt to I, we will
have A= P+Prt or A = P(1+rt).
 Example: A cooperative released a Php 9,000-emergency loan
to Ana with a simple interest of 4.5%. If she intends to pay it in 2
years, what amount will she pay back to the cooperative?
 Solution: to compute for the amount she will pay back after 2
years,
A=P+Prt
A=Php 9,000+(Php 9,000)(0.045)(2)
A=Php 9,000+Php 810
A=Php 9,810
PRESENT VALUE
 The interest on loans may be deducted in advance from
the principal amount, so if a borrower applies for a
loan of Php 10,000, he will receive an amount of less
than Php 10,000 since the interest is deducted from the
principal loan before it is released to him, the borrower.

 For example, if you borrow Php 10,000 from a credit

cooperative that charges 4% simple interest deducted
in advance, the interest would be Php 400 for a year.
Out of your Php 10,000 loan application, you will
receive Php 9,600. This is called present value (S) of
the loan. The formula for present value is S = P – I. If
we substitute Prt to I, then S = P(1 – rt)
Kleah wants to apply for a loan to buy a laptop worth P25,000. The
Youth Cooperative lends money to students at 8% per year for 2 years
but deducts the interest outrightly. How much loan should Kleah apply
for to buy the laptop?
 Solution: In this example, the interest is deducted in
advance. This means that Kleah should apply for a
loan of more than what she needs now. We will
calculate the principal amount. The Php 25,000 is the
present value, the interest of 8%, and the time is 2
years. The formula is S = P(1- rt).
Php 25,000 = P(1-(.08)(2))
Php 25,000 = P(1- 0.16)
Php 25,000 = P(0.84)
=P
 P = Php 29, 761. 90
 Kleah should apply for a loan of Php29, 761. 90
for her to receive Php 25,000 which she needs to
buy a laptop.
Exercises: Write your solutions on yellow pad paper first, then answer the exercises in
ACTIVITY M- SIMPLE INTEREST.

1. Ryan deposited ₱2,000 in a savings account at the interest rate of 4% per year.
How much simple interest will he earn in 5 years?
A. ₱800 B. ₱1,000 C. ₱450 D. ₱400

2. Garcia borrowed ₱4,000 from his cousin Susan at the rate of 8% per annum. He
repaid the amount after two years. How much did he repay?
A. ₱640 B. ₱6,640 C. ₱4,640 D. ₱3,360

3. Tracy put ₱3,500 into an investment yielding 4.5% annual interest. She left the
money for 8 years. How much interest does she get in those 8 years?
A. ₱1,260 B. ₱P4,760 C. ₱2,240 D. ₱1,860

4. Jerry invested ₱1,500 in an account that paid him 8.25% simple interest, what will
the balance of his account be after 6 years?
A. ₱742.50 B. ₱2,242.50 C. ₱2,150 D. ₱3,256.55

5. Anna invested ₱2,500 at an annual rate of 5%. How long will it take until Anna
earns ₱1,125 in interest?
A. 5 years B. 8 years C. 10 years D. 9 years
6. Mr. Peterson wrote a check of ₱7,820 to pay off a loan, which was given to him at a
rate of 5% simple interest for 3 years. How much money did he borrow originally?
A. ₱5,400 B. ₱6,800 C. ₱3, 240 D. ₱14,620

7. If ₱3,840 is invested in an account at 5% annual simple interest, how long will it take
the account balance to grow to ₱4,800?
A. 12 years B. 6 years C. 5 years D. 8 years

8. Principal (p)= ₱1500, Rate (r)= 7%, Time (t)= 8 years. Calculate the interest.
A. ₱840 B. ₱1,200 `C. ₱2,340 D. ₱660

9. Jack deposited ₱1,400 in his bank account. After 3 years, the account is worth
₱1,694. Find the simple interest rate the account earned.
A. 5% B. 8% C. 7.25% D. 7%

10. Principal (P)= ₱360, Interest = ₱17.55, Time = 9 months. Calculate the interest rate.
A. 6% B. 7.65 C. 6.5% D. 5.5%

Thank you for making your output presentable, orderly, neat, and correct!
COMPOUND INTEREST
Objectives:
At the end of the lesson:
a) The learner is able to compute interest, maturity value, and
present value in compound interest environment, and
b) Solve problems involving compound interest.
What is Compound Interest?
Compound
Interest
Compound interest refers to the phenomenon
whereby the interest associated with a bank account,
loan, or investment increases exponentially—rather than
linearly—over time. The key to understanding the
concept is the word “compound.”
Maturity (Future Value)
Formula:
F= P(𝟏 + 𝒓)𝒕
Where:
P = principal or present value
F= maturity (future) value at the end of the term
r= interest rate
t= term/time in years
The compound interest Ic is given by
Ic = F − P
 Example:
Find the maturity value and the compound interest if P10,000 is compounded
annually at an interest rate of 2% in 5 years.
Given:
P= 10,000 r= 2% or 0.02 t=5 years

Find:
(a) Maturity value F
(b) Compound interest Ic
Solution:
(a) F = P(1 + 𝑟)𝑡
F= (10,000)(1 + 0.02)5
F= 11,040.81

(b) Ic = F − P
Ic=11,040.81-10,000
Ic=1,040.81

Answer: The future value F is P11,040.81 and the compound interest is P1,040.81
 Example:
Find the maturity value and the compound interest if P50,000 is invested at 5%
compounded annually for 8 years.
Given:
P= 50,000 r=5% or 0.05 t=8 years

Find:
(a) Maturity value F
(b) Compound interest Ic
Solution:
(a) F= P(1 + 𝑟)𝑡
F= (50,000)(1 + 0.05)8
F= 73,872.77

(b) Ic = F-P
Ic= 73,872.77 -50,000
Ic=23,872.77

Answer: The future value F is P 73,872.77 and the compound interest is P

23,872.77
Present Value P at Compound
Interest
𝐹
𝑃= 𝑡
= F(1 + 𝑟)−𝑡
(1 + 𝑟)
Where:
P is the principal or present value.
F is the maturity (future) value at the end of the term.
r is the interest rate
t is the term or time in years
 Example:
What is the present value of P50,000 due in 7 years if money is worth 10%
compounded annually?
Given:
F= 50,000 r=10% or 0.1 t=7 years

Find:
(a) Present value P
Solution:
𝐹
𝑃=
(1+𝑟)𝑡
50,000
𝑃=
(1+0.1)7
𝑃 = 25,657.91

Answer: The present value is P25,657.91

Compounding More than Once a
Year
 Formula:
𝒓 𝒏𝒕
𝑭=𝑷 𝟏+
𝒏

Where:
F is the future value (principal + interest).
r is the yearly interest rate in decimal point.
n is the number of times per year the interest is compounded.
t is the term of the investment in years.
 Example:
Find the maturity value and interest if P10,000 is deposited in a bank at 2%
compounded quarterly for 5 years.
Given:
P= 10,000 r = 2% or 0.02 t = 5 years n=4

Find:
(a) Maturity value F
(b) Compound interest Ic
 Solution: 𝒓 𝒏𝒕
𝑭=𝑷 𝟏+
𝒏

𝟒 𝟓
𝟎. 𝟎𝟐
𝑭 = 𝟏𝟎, 𝟎𝟎𝟎 𝟏+
𝟒

𝑭 = 𝟏𝟏, 𝟎𝟒𝟖. 𝟗𝟔

𝑰=𝑭−𝑷
𝑰 = 𝟏𝟏, 𝟎𝟒𝟖. 𝟗𝟔 − 𝟏𝟎, 𝟎𝟎𝟎
𝑰 = 𝟏, 𝟎𝟒𝟖. 𝟗𝟔

Answer: The future value F is P11,048.96 and the compound interest is P1,048.96
Present Value P at Compound Interest

F
P= 𝐧𝐭
𝐫
𝟏+𝐧

Where:
P = principal or present value
F = maturity (future) value at the end of the term
r = interest rate
t = term/time in years
n is the number of times per year the interest is compounded
 Example:
Find the present value of ₱50,000 due in 4 years if money is
invested at 12% compounded semi-annually.

Given: F = 50,000 r = 12% = 0.12 t = 4 years n=2

Find: P
 𝐹
𝑃= nt
r
1+n

50,000
P= (2)(4)
0.12
1+ 2

𝑷 = 𝟑𝟏, 𝟑𝟕𝟎. 𝟔𝟐

Answer: The present value at Compound Interest is ₱ 𝟑𝟏, 𝟑𝟕𝟎. 𝟔𝟐

Finding Time in Compound Interest

Example:
If you want to save $5,000 before buying your first new car, and
you have $3,000 right now to invest at a 3% interest compounded monthly,
how long will you have to wait?

Given: F = $5,000 r = 3% = 0.03 n = 12

Find: t
 𝑟 𝑛𝑡
𝐹 =𝑃 1+
𝑛
12𝑡
0.03
5,000 = 3,000 1 +
12

𝑡 ≈ 17 Answer: Better figure out a way to save

more money unless you’re okay with waiting
for 17 years.

Solution:
𝑭
𝐥𝐨𝐠
t= 𝑷
𝒓
𝐥𝐨𝐠(𝟏+𝒏)
÷ 𝒏 log
5
3
t= .03 ÷ 12
log(1+ 12 )

t = 17.04879634 ≈ 17
What Is an Effective Annual Interest Rate?

An effective annual interest rate is the real return on a savings

account or any interest-paying investment when the effects of
compounding over time are taken into account. It also reflects the
real percentage rate owed in interest on a loan, a credit card, or
any other debt.
 Finding Effective Interest Rate

Example:
Find the effective interest rate when the stated rate is 4% and the interest is
compounded weekly, then describe what your result means.

Let r = 0.04 (rate is 4%) and n = 52 (compounded weekly) and then substitute into the
formula.
 𝒓 𝒏
𝑬= 𝟏+ −𝟏
𝒏

𝟎.𝟎𝟒 𝟓𝟐
= 𝟏+ −𝟏
𝟓𝟐
The effective rate is 4.08%. This tells us that
≈ 𝟎. 𝟎𝟒𝟎𝟖 = 𝟒. 𝟎𝟖% an account at 4% compounded weekly will
earn the same amount of interest in 1 year
as a simple interest account at 4.08%
 Comparing the Effective Rate of Two Investments

Example:
Which savings account is a better investment: 6.2% compounded daily or
6.25% compounded semiannually?
 Find the effective rates of both account and compare them

6.2% daily 6.25% semiannually

r = 0.062, n = 365 r = 0.0625, n = 2

𝒓 𝒏 𝒓 𝒏
𝑬= 𝟏+ −𝟏 𝑬= 𝟏+ −𝟏
𝒏 𝒏
= 𝟏. 𝟎𝟔𝟑𝟒𝟕 − 𝟏
𝟎.𝟔𝟐 𝟑𝟔𝟓
= 𝟏 + 𝟑𝟔𝟓 −𝟏
≈ 𝟎. 𝟎𝟔𝟑𝟓 = 𝟔. 𝟑𝟓%

= 𝟏. 𝟎𝟔𝟑𝟗𝟓 − 𝟏

≈ 𝟎. 𝟎𝟔𝟒𝟎 = 𝟔. 𝟒𝟎%

The 6.2% daily investment has a slightly better effective rate than 6.25% semiannually.
 ACTIVITY N – COMPOUND INTEREST

COMPOUND INTEREST 4.
The principal that amounts to PhP 4913 in 3 years at 6¹/₄ % per annum
(use yellow pad paper, copy the compound interest, compounded annually, is ___.
problem, show the solution) (a) PhP 3096
(b) PhP 4076
(c) PhP 4085
1. The compound interest on PhP 50000 at 8 % per (d) PhP 4096
annum for 2 years, compounded annually, is ___.
(a) PhP 8000 5.
(b) PhP 8250 If the simple interest on a sum of money at 5% per annum for 3 years is
(c) PhP 8350 PhP 1200, then the compound interest on the same sum for the same
(d) PhP 8640 period at the same rate will be ___.
(a) PhP 1225
2. At what rate per cent per annum will a sum of PhP (b) PhP 1236
7500 amount to PhP 8427 in 2 years, compounded (c) PhP 1248
annually? (d) PhP 1261
(a) 4 %
(b) 5 % 6.
(c) 6 % A certain sum of money gives PhP 510 as compound interest 12¹/₂ %
(d) 8 % per annum for 2 years. Find the simple interest on the same sum of
3. Ben deposits PhP 30000 in a bank at 7% per money at the same rate for the same period of time.
annum compound interest for a certain time is PhP (a) PhP 400
4347. The time is __. (b) PhP 450
(a) 2 years (c) PhP 460
(b) 2¹/₂ years (d) PhP 480
(c) 3 years
(d) 4 years
7. 9.
On a sum of PhP 15000 for 2 years, if the You lend out PhP5500 at 10%
difference between compound interest and compounded monthly. If the debt is
simple interest is PhP 96. Find the rate of repaid in 18 months, what is the total
interest per cent per annum. owed at the time of repayment?
(a) 6 a) PhP 2,145.16
(b) 8 b) PhP 3,875.34
(c) 10 c) PhP 6, 386.12
(d) 12 d) PhP 3,586.11

8. 10.
What principal will amount to PhP 1750 if What principal will amount to PhP 2000
invested at 3% interest compounded quarterly if invested at 4% interest compounded
for 5 years? semi-annually for 5 years?
a) PhP 1507.08 a) PhP 1,640.70
b) PhP 2,143 b) PhP 1,287.54
c) PhP 4,549.75 c) PhP 1, 534
d) PhP 2, 156 d) PhP 1, 489