MODULE 6

Simple and Compound Interest

A. Learning Outcome

Content Standard
The learner demonstrates understanding of Key concepts of
simple and compound interests.

Performance Standard
The learner is able to investigate, analyze and solve problems
involving simple and compound interests using appropriate
business and financial instruments

Learning Competencies

After using this module, you are expected to:

1. illustrate simple and compound interest.

2. distinguish between simple and compound interests.
3. compute interest, maturity value, future value and present
value in simple interest and compound interest environment.
4. solve problems involving simple and compound interest.

Essential Understanding
Learners will understand that the concepts of simple and
compound interests have wide applications in real life and are
useful tools to develop critical thinking and problem solving
skills.

Essential Question
How does the concepts on simple and compound interests
facilitate in finding solutions to real-life problems and develop
critical thinking skills?

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EXPLORE Your Understanding

You start with exploratory activities that will present you

the basic concepts of simple and compound interests.

Activity 1

Read the following situations and do the indicated tasks then answer
the questions that follow.
Gina invested her money worth Php 10,000.00 to a certain
financial company that gives her Php 200.00 interest per year.
Complete the table below
Number 1 2 3 4 5 6
of years
Amount 10,200 10,400 10,600
of money

Karen invested her money worth Php 10,000.00 to a bank that

gives 2% interest on the first year and 2% interest on
succeeding years plus the 2% of the interest of the previous
year.
Complete the table below
Number 1 2 3 4 5 6
of years
Amount 10,200 10,404 10,612.08
of money
Questions:
1. How much will be Gina’s money after ten years?
____________________________________________

2. How much will be Karen’s money after ten years?

____________________________________________

3. Whose investment is earning at a simple interest rate?

____________________________________________

4. Whose investment is earning at a compound interest rate?

____________________________________________

5. If given a chance to invest, which will you chose and why?

____________________________________________
____________________________________________
____________________________________________
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FIRM UP Your Understanding

Now you will step on! Appreciate learning more about

the concepts of simple and compound interests. You will
meet interesting activities that will help you.

Simple Interest Compound Interest

Definition Interest that is computed Interest is computed on the
on the principal and principal and also on the
added to it accumulated past interests
Interest I= Prt, where I=interest, I= F – P, where I= interest,
formula P=principal, r=rate, F=maturity/future value ,
t=term/time in years P=principal
𝑟
Maturity/ F= P(1+rt) F=P(1+ )mt
𝑚
Future where F=maturity/future where F=maturity/future
Value value, P=principal, value, P=principal, r=rate,
formula r=rate, t=term/time in m=frequency of conversion,
years t=term/time in years
))

Time or term refers to the amount of time in years the money

is borrowed or invested.
Principal is the amount of money borrowed or invested on the
origin date.
Rate is the annual rate usually in percent, charged by the lender
or rate of increase of the investment.
Interest refers to the amount paid or earned for the use of
money.
Maturity/Future value is the amount after t years, that the
lender receives from the borrower on the maturity date.
Frequency of conversion is the number of times the interest
is compounded in a year.
The values of m or frequency of conversion
Compounded annually m=1 Compounded quarterly m=4
Compounded semi-annually m=2 Compounded daily m=360
Compounded monthly m=12
Examples:
1. A bank offers 2.5% annual simple interest rate for a
particular deposit.
a. How much interest will be earned if 1 million pesos is deposited
in this savings account for 3 years?
b. What is the future value if 1 million pesos is deposited in the bank
after 5 years?
c. How many years will it for the 1 million pesos deposted in the
bank to have a 100,000 interest?

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Answers:
a. Given: P= 1,000,000 r=0.025 t=3
Required: interest
Formula to be used: I=Prt
Solution: I = (1,000,000)(0.025)(3)
I = 75,000
Therefore the interest of the savings with 1 million pesos in the
account after 3 years is Php 75,000.00.
b. Given: P= 1,000,000 r=0.025 t=5
Required: Future Value
Formula to be used: F=P(1+rt)
Solution: F = (1,000,000)(1+(0.025)(5))
F = (1,000,000)(1+0.125)
F = (1,000,000)(1.125)
F = 1,125,000
Therefore the future value of the savings with 1 million pesos in
the account after 5 years is Php 1,125,000.00
c. Given: P= 1,000,000 r=0.025 I=100,000
Required: Time or term
Formula to be used: I=Prt
Solution: 100,000 = (1,000,000)(0.025)(t)
100,000 = (25,000)(t)
4=t
Therefore the time needed for the savings with 1 million pesos
in the account to have an interest of Php 100,000 is 4 years.
2. Juan Dela Cruz wants to borrow Php 50,000 and promises to
pay after 3 years. Three banks give an offer to him.
a. What is the maturity value of the borrowed money if bank A
gives 8% interest compounded annually?
b. What is the frequency of conversion given by bank B if the
maturity value is Php59,780.91 with 6% compounded interest?
c. What is the intest rate given by bank C if it gives a maturity
value of Php 58,080.55 that is compounded monthly?
d. Which bank Juan would choose? Why?

Answers:
a. Given: P=50,000 r=0.08 t=3 m=1
Required: Maturity Value
𝑟
Formula to be used: F=P(1+𝑚)mt
0.08 (1)(3)
Solution: F=(50,000)(1+ )
1
F=(50,000)(1+0.08)3
F=(50,000)(1.08)3

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 F=(50,000)(1.259712)
F=62,985.60
Therefore the maturity value of the borrowed money worth Php
50,000 from bank A is Php 62,985.60
b. Given: P=50,000 r=0.06 t=3 F=59,780.91
Required: Frequency of conversion (m)
𝑟
Formula to be used: F=P(1+𝑚)mt
0.06 (m)(3)
Solution: 59,780.91=(50,000)(1+ )
𝑚
𝑚+ 0.06 3m
59,780.91=(50,000)( )
𝑚
𝑚+ 0.06 3m
1.1956182=( )
𝑚
The possible values of m are 1,2,4,12 and 360
Lets try m=1 Lets try m=2
1+ 0.06 (3)(1) 2+ 0.06 (3)(2)
1.1956182=( ) 1.1956182=( )
1 2
1.1956182=1.063 1.1956182= 1.036
1.1956182≠1.191016 1.1956182≠1.1940523
Lets try m=4
4+ 0.06 (3)(4)
1.1956182=( )
4
1.1956182=1.01512
1.1956182=1.1956182
Therefore the the borrowed money worth Php 50,000 from bank
B is with 6% interest compounded quarterly.
c. Given: P=50,000 t=3 m=12
F=58,080.55
Required: interest rate
𝑟
Formula to be used: F=P(1+𝑚)mt

Solution:
58,080.55 =(50,000)(1+ )(12)(3)
𝑟
12
12+𝑟 36
1.161611 =( )
12
12+𝑟
√1.161611 =
36
12
12+𝑟
1.0041699991=
12
12(1.0041699991) =12+r
12.05 = 12+r
0.05 =r
Therefore the interest rate given by the bank C to the borrowed
money worth Php 50,000 is 5%.
d. Juan Dela Cruz would choose Bank C. It is because it offers
the smallest interest among the three banks.

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Activity 2

Read the given situation and answer the question that follow.
Juana would like to invest her money. Financial Company A
offers a simple interest of 5%. Financial Company B offers
5% interest compounded quarterly.
Questions:
1. What is the difference between the offer of Financial Company
A and Financial Company B?
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________
2. Which do you believe give the better offer? Why?
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________

Activity 3

I. SIMPLE INTEREST. Complete the table by finding the

unknowns.
Principal (P) Rate Time Interest (I) Maturity Value
(r) (t) (F)
50,000 5 10,000 60,000
120,000 5% 3 138,000
12% 4 38,400 118,400
210,000 6% 8 100,800
150,000 2.5% 37,500 187,500
II. COMPOUND INTEREST. Complete the table by finding the
unknowns.
Principal Rate Time Maturity Value Frequency of
(P) (r) (t) (F) conversion (m)
4% 3 112,616.24 Compounded semi-
annually
60,000 4 76,229.35 Compounded monthly
200,000 5% 2 220,897.22
40,000 2% 42,471.34 Compounded monthly
250,000 1.2% 8 Compounded quarterly

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DEEPEN Your Understanding

You take more challenging activities about simple and

compound interest by solving problems.

Activity 4

I. Simple Interest. Solve the following problems.

1. What are the amounts of interest and maturity value of a loan for
Php 200,000 at 2.5% simple interest for 4 years?
Solution: Answers:
____________________________ interest:___________
____________________________ Maturity value:
____________________________ _________________
____________________________
____________________________
____________________________
2. How long will Php 50,000 amount to Php 51,500 if Banco De Oro
(BDO) gives a simple interest rate of 0.25% per annum?
Solution: Answer:___________
____________________________
____________________________
____________________________
____________________________
____________________________
____________________________
3. In order to have Php 206,795 in 4 years, how much should you
invest if Metrobank offered a simple interest of 4.5%?
Solution: Answer:____________
____________________________
____________________________
____________________________
____________________________
____________________________
4. At what simple interest rate per annum will Php 30,000
accumulate to Php 31,800 in 6 years?
Solution: Answer:____________
____________________________
____________________________
____________________________
____________________________
____________________________
____________________________

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II. Compound Interest. Solve the follwong problems.
1. What are the amounts of interest and maturity value of a loan for
Php 50,000 at 5% compounded annually for 4 years?
Solution: Answers:
____________________________ interest:___________
____________________________ Maturity value:
____________________________ _________________
____________________________
____________________________
____________________________
2. A savings account in BPI yields 0.25% interest compounded
quarterly. Find the future value of Php 120,000 for 5 years in this
savings account. How much interest will be gained?
Solution: Answers:
____________________________ interest:___________
____________________________ Future value:
____________________________ _________________
____________________________
____________________________
____________________________
3. In Chinabank, Cardo invested Php 45,000 in a time deposit that
pays 0.5% interest compounded semi-annually. How much will
be his money after 7 years? How much interest will he gain?
Solution: Answers:
____________________________ interest:___________
____________________________ Future value:
____________________________ _________________
____________________________
____________________________
____________________________
____________________________
4. On the sixth birthday of her daughter, Amihan wants to
deposit an amount in a bank peso bond fund that pays 1.0%
interest compounded annually. How much should she
deposit if she wants to have Php 150,000 on her daughter’s
18th birthday?
Solution: Answers:
____________________________ Principal:_________
____________________________
____________________________
____________________________
____________________________
____________________________
____________________________
____________________________

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TRANSFER Your Understanding

Here is another activity that will help you apply your

learning about concepts of simple and compound
interests in real life situations.

Write a journal. Create real-life situations where knowledge of

simple and compound interests can be applied.

Rubrics for Scoring

Criteria 5 3 1
Explanation of Exemplary Adequately explained No attempt
explanation. the application of the No examples have
the use of Detailed and clear, concept. been provided
concepts examples may have
been provided.
Organization The reader can follow The reader can almost Ideas are not
the flow of the follow the flow of the organized.
concept. concept.
Grammar Proper use of There are few A lot of errors
punctuation marks mistakes.
and follow the subject-
verb agreement.

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