Interest (I)- amount paid or earned for the use of money
Simple Interest (IS)- interest that is computed on the principal and then added to it.
Compound Interest (IC)- interest computed on the principal and on the accumulated past
interest.
Principal (P)- Amount of money borrowed or invested on the origin date.
Rate(r)- the annual rat, usually in percent, charged by the lender, or rate of increase of the
investment.
Time/ Term- amount of time in years the money is borrowed or invested, length of time
between the origin and maturity dates.
Maturity Value or Future Value- amount after t years that the lender receives from the borrower
on the maturity date.
Origin or Loan Date- date on which the money is received by the borrower.
Maturity Date- date on which the money or loan is to be completely repaid.
Lender or Creditor- the one who invest the money or make the funds available.
Borrower or Debtor- the one who owes the money or avails the fund fro the lender.
Simple Interest
Formula: I= Prt
1. Antonette borrows P10,000 at 10.25% interest rate a year.
a. What is the principal (P)? Answer: P= P10,000
b. What is interest rate (r)? Answer: r= 10.25% or 0.1025
c. What is the time or borrowing period (t)? Answer: t= 1 year
d. What is the interest after a year? I= Prt =(P10,000)(0.1025)(1)= P1,025
2. Kara David deposits P111,110 in her bank account at 5.2% interest rate. How much interest will she
earn in 5.25 years? Given: P= P111,110; r= 5.2%; t= 5.25 years
I=Prt
= (111110)(0.052)(5.25)
= (111110)(0.273)
= P30,333.03
3. If Carlo borrowed P125,500 at an annual simple interest rate of 7 3/4% for 42 months, how much
interest should he pay? Given: 1 year=12 months; P= P125,500; r= 7 3/4%; t= 42 months
I= Prt
= (125500)(0.0775)(42/12t)
= (125500)(0.0775)(3.5)
= P34,041.88
A. Maturity Value with Simple Interest- refers to the total repayment.
Formula: F= P+I
= P+ Prt
= P (1+rt)
1. How much should Micaela pay for a P10,000 loan, if charged at 16.5% at the end of 1 year and 6
months? Given: P= P10,000; r= 16.5%; t= 1 6/12 year; F=?
F= P (1+rt)
= (10000)[1+(0.165)(1.50)]
= (10000)[1+0.2475]
= (10000)[1.2475]
= P12,475.00
2. Six years and nine months ago, Bianca borrowed P25,000 from Michelle with the promise that
Bianca will pay Michelle the principal amount plus accumulated interest at 9 5/8% simple interest
now. What amount is due? Given: P= P25,000; r= 9 5/8%= 9.625%= 0.09625; t= 6 9/12= 6.75 years;
F=?
F= P (1+rt)
= (25000)[1+(0.09625)(6.75)]
= (25000)[1+0.6496875]
= (25000)[1.6496875]
= P41,242.19
B. Present Value, Rate and Time
Working Equation Formula: F= P(1+rt)
Present Value: P= F/(1+rt)
Rate: r= F-P/Pt or I/ PT
Time: t= F-P/Pt or I/Pr
1. Marvin and Alyssa want to invest now in preparation for their daughter’s debut. Hence, they want
to have P150,000 after 10 years. How much should they invest at an investment paying 15% for 5
years? Given: F= P150,000; r= 15% or 0.15; t= 5 years; P?
P= F/(1+rt)
= 150000/ [1+(0.15)(5)]
= 150000/ [1+0.75]
= 150000/ [1.75]
= P85,714.29
Checking:
F= P (1+rt)
= 85714.29 [1+(0.15)(5)]
= 85714.29 [1+0.75]
= 85714.29 [1.75]
= P150,000.0075
2. At what rate will the amount of P20,000 investment yields P85,000 in 15 years at simple interest?
Given: F= P85,000; P= P20,000; t= 15 years; r=?
r= F-P/ Pt
= 85000-20000/ (20000)(15)
= 65000/300000
= 0.216667
= 0.2167 or 21.67%
Checking:
F= P (1+rt)
= 20000[1+(0.216667)(15)]
= 20000[1+3.25]
= 20000[4.25]
= P85,000
3. How long will an investment of P543,200 yields P876,500 at simple interest rate of 5% annually?
Given: P= P543,200; F=P876,500; r= 5% or 0.05; t=?
t= F-P/Pt
= 876500-543200/(543200)(0.05)
= 333300/27160
= 12.27172 year
= 12.27 years
Checking:
F= P (1+rt)
= 543200[1+(0.05)(12.27172)]
= 543200[1+0.613586]
= 543200[1.613586]
= P876,499.92
Compound Interest
Formula: IC= F- P where IC= Compound Interest, P= Principal and F= Maturity (Future Value)
Principal (P) Rate (r) Time (t) Maturity/ Future Interest (I)
Value (F)
P20,000 20%= 0.20 1 year P24,000 P4,000
P24,000 20%= 0.20 1 year P28,800 P4,800
P28,800 20%= 0.20 1 year P34,560 P5,760
Compounded Interest P14,560
Maturity Value with Simple Interest
Formula: F= P (1+r) where; F= Maturity/ Future Value; P= Principal; t= time; r= rate
a. F= P (1+r)t
F= 20000(1+0.20)3
= 20000(1.20)3
= 20000(1.728)
= P34,560
b. IC= F- P
= 34560-20000
= p14,560
1. Find the maturity value and compound interest on the principal P30,000 if borrowed at 4.5%
compounded annually for 3 years? Given: P= P30,000; r= 4.5% or 0.045; t= 3 years; F=?; IC=?
a. F= P(1+r)
t
= 30000(1+0.045)3
= 30000(1.045)3
= 30000(1.141166125)
= P34,234.98
b. IC=F-P
= 34234.98-30000
= P4,234.98
2. How much money will you have in a bank after 5 years, when your mother deposited P15,000 at an
annual interest rte of 1 1/4% compounded yearly? Given: P= P15,000; r= 1 1/4% or 1.25% or 0.0125;
t= years; F?
F= P (1+r)t
= 15000(1+0.0125)5
= 15000(1.0125)5
= 15000(1.064082154)
= P15,961.23
3. Daniel Padilla invested P123,450 in a bank at 2 3/4% compounded annually for 69 months. Find a.
maturity/ future value, b. compounded interest. Given: P= P123,450; r= 2 3/4%= 2.75%= 0.0275; t= 69
months= 69/12 years= 5.75 year; F=?; IC=?
a. F= P (1+r)
t
= 123450(1+0.0275)5.75
= 123450(1.0275)5.75
= 123450(1.168814325)
= P144,290.13
b. IC=F-P
= 144290.13-123450
= P20,840.13
Present Value at Compound Interest
Formula: P= F/(1+r)t
1. Find the present value of P34,500 due in 3 years and 3 months, if money is worth 3.45%
compounded annually? Given: F= P34,500; r=3.45%= 0.0345; t= 3 3/12= 3.25 years; P?
P= F/(1+r)t
= 34500/(1+0.0345)3.25
= 34500/ 1.116539544
= P30,899.04
2. How much Manilyn should put in a time deposit in a bank that pays 2.15% compounded annually so
that she will have P876,500 after 81 months? Given: P876,500; r=2.15%=0.0215; t=81/12=6.75 years;
P=?
P= F/(1+r)t
= 876500/(1+0.0215)6.75
= 876500/ (1.0215)6.75
= 876500/ 1.15440714
= P759,264.19
Compounding more than once a Year
Compounding/ Conversion Frequency Number of Compounding (s) or Conversion (s)
per Year
Annually 1
Semi- annually 2
Quarterly 4
Monthly 12
Weekly 52
Daily 365
n= mt where
n= total number of conversion periods for the while term
m= number of conversion periods per year
t= timer period (term) of the loan or investment
j= im/m where
j= rate of interest for each conversion period
im= annual rate of interest
m= frequency of conversion
Finding the Maturity/ Future Value in Compound Interest
Formula:
F= P(1+j)n
F=P(1+im/m)mt
1. Find the maturity value of P565,565 invested for 2 years and 6 months at 5.25% compounded
quarterly. Given: P= P565,565; im=i4=5.25%=0.0525; t= 2 years and 6 months= 2 6/12= 2.5 years; m= 4;
F=?
F= P(1+j)n
F=P(1+im/m)mt
= 565565(1+0.0525/4)(4)2.5
= 565565(1.013125)10
= 565565(1.139279603)
= P644,336.67
Finding the Present Value in Compound Interest
Formula:
F= P(1+j)n
F=P(1+im/m)mt
1. A financial obligation of P25,500 is due January 6,2019. What is the value of this obligation on July
6, 2013 at 9% compounded semi-annually? Given: F= P25,500; im=i2=9%=0.09; t= 07/06/2013-
01/06/19(5 years and 6 months)= w6 6/12= 5.5 years; m=2; P=?
F= P(1+j)n
F=P(1+im/m)mt
= 25500/(1+0.09/2)2(5.5)
= 25500/ (1.045)11
= 25500/ 1.622853046
= P15,713.07
Formula
Type Formula Meaning / Notes
Name
Simple Interest is computed only on
Interest (I) I=Prt
Interest the principal.
Maturity
F=P+I=P(1 Total amount due (loan) or
Value / Future
+rt) total savings (investment).
Value (F)
Present
How much is
Value / P=F/1+rt
invested/borrowed today.
Principal (P)
Percent charged/earned per
Rate (r) r=F−P/Pt
year.
Time money is
Time (t) t=F−P/Pr
borrowed/invested.
Compou Future Value / Interest is compounded;
nd Maturity F=P(1+r)t grows faster than simple
Interest Value (F) interest.
Present
Amount invested/borrowed
Value / P=F/(1+r)t
at present.
Principal (P)
Compound Difference between total
IC=F−P
Interest (IC) value and original principal.
Future Value Where imi_m = nominal
with n F=P(1+im/ annual rate, mm = number
compounding m)mt of compounding periods per
periods year.
Present Value
Present equivalent of a
with n P=F/(1+im/
future amount under
compounding m)mt
compounding.
periods
