Republic of the Philippines

Division of Davao City

TOYOZU TECHNICAL SCHOOL FOUNDATION INC.
#25 Dacudao Avenue Agdao, Davao City

GENERAL
MATHEMATICS
SENIOR HIGH SCHOOL
(Grade 11 - Second Quarter)
WEEK 1
(December 1, 2020 – December 4, 2020)

MODULE 1
S.Y. 2020 - 2021
General Mathematics
Lesson 15: Interest

Content Standard
The learner demonstrates understanding of key concepts of simple and compound
interest.

Learning Competency
The learner should able to define interest and illustrate simple compound interest and
distinguish between simple and compound interest.

Specific Learning Outcomes

At the end of this lesson, the learners will be able to:
1. Define interest
2. Illustrate simple and compound interest
3. Distinguish between simple and compound interest

ABSTRACTION

Interest

Paying interest has been part of human activities and has been regarded as
legitimate commercial practice as far back as the ancient period. But during the Middle
Ages, religious and secular laws branded interests as usury and prohibited charging interest
in any business transaction. However, with the rapid growth of commerce and industry and
the development of banking system, the concept of usury became limited to exorbitant
interest. Government started to regulate and set limits on interest rates.

Interest is the amount paid for the use of another amount of money called the
principal amount or simply principal. Interest is expressed in terms of percent and is stated
as rate of the principal involved per annum.

The description of interest suggests that three elements play important role in the
computation of interest:
i. Principal is the base in which interest is computed. If an amount is loaned or
borrowed, this amount is referred to as principal.
ii. Term is the unit of time for which the principal is loaned or the length of time the
principal is borrowed.
iii. Interest rate is the multiplier expressed as percent of the principal to be paid each
term.

Simple interest is an interest that is computed on the principal and then added to it.
While compound interest is an interest is computed on the principal and also on the
accumulated past interest date.
 The maturity value or simply the amount is the sum of the principal and the interest
that accumulates over the agreed term. This agreed term is usually expressed in years or a
fraction of a year (quarterly, semi-annually or monthly). Interest may be calculated as simple
or compound interest.
Illustration of Simple and Compound Interest

Example 1:
“Suppose you won 10,000 pesos and you plan to invest it for 5 years. A cooperative
group offers 2% simple interest rate per year. A bank offers 2% compounded annually.
Which will you choose and why?”

Solution:
Investment 1: Simple Interest
Time Principal Interest Simple Interest Amount after t years
(t) (P) Rate (r) Solution Answer (Maturity Value)
1 2% (10000)(0.02)(1) 200 10,000 + 200 = 10,200.00
2 2% (10000)(0.02)(2) 400 10,000 + 400 = 10,400.00
3 10,000 2% (10000)(0.02)(3) 600 10,000 + 600 = 10,600.00
4 2% (10000)(0.02)(4) 800 10,000 + 800 = 10,800.00
5 2% (10000)(0.02)(5) 1000 10,000 + 1000 = 11,000.00

Investment 2: Compound Interest (Annual)

Time Principal Interes Compound Interest Amount after t years (Maturity
(t) (P) t Value)
Rate Solution Answe
(r) r
1 10,000 2% (10000)(0.02)(1) 200 10,000 + 200 = 10,200.00
2 10,200 2% (10200)(0.02)(1) 204 10,200 + 204 = 10,400.00
3 10,404 2% (10404)(0.02)(1) 208.08 10,404 + 208.08 = 10,612.08
4 10,612.08 2% (10612.08)(0.02)(1) 212.24 10,612.08 + 212.24 = 10,824.32
5 10,824.32 2% (10824.32)(0.02)(1) 216.49 10,824.32 + 216.49=
11,040.81.00

Simple interest remains constant throughout the investment item. In compound

interest, the interest from the previous year also earns interest. Thus, the interest grows
every year.
ACTIVITY 15.0
Direction: Answer the following question briefly.

1. What is interest?

2. What are three elements play important role in the computation of interest?

3. Differentiate the simple and compound interest?

General Mathematics
Lesson 16: Simple Interest

Content Standard
The learner demonstrates understanding of key concepts of simple interest.

Learning Competency
The learner should able to investigate, analyze and solve problems involving simple
interest using appropriate business and financial instruments.

Specific Learning Outcomes

At the end of this lesson, the learners will be able to:
4. Illustrate simple interest
5. Compute for the interest, maturity value, future value and present value in simple
interest environment
6. Solve problem involving simple interest

ABSTRACTION

Simple Interest

It refers to the amount earned for one year calculated by multiplying the principal by
the interest rate. Only the principal, no more no less is considered for the computation of
interest. This kind of interest is applied for transactions that usually last only for less than a
year. It is also important to note that simple interest I is directly proportional to the principal
P, interest rate r, and the term t. in symbols,
I = Prt

Illustrative example:
A. If the simple interest for a principal in 4 months is ₱100, the simple interest for the
same principal in 8 months is ₱200.
B. If the simple interest for a principal at 3% is ₱500, the simple interest for the same
principal at 6% is ₱1,000.
C. If the simple interest on the principal amounting to ₱100,000 is ₱500 over a contract
term, the simple interest on the principal amounting to ₱500,000 is ₱2,500 over the
same contract term.

Example 1: An amount of ₱150,000 is invested for 9 months at 4%. Find:

a. The interest b. The maturity value

Solution:
a. Given: principal P = ₱150,000
rate r = 4% or 0.04
term t = 9 months or 9/12 = 0.75
 The interest I is
I = Prt
I = (₱150,000)(0.04)(0.75)
I = ₱4,500

b. The maturity value or the amount A is the sum of the principal and the interest.
Hence,
A=P+I
A = ₱150,000 + ₱4,500
A = ₱154,000

Example 2: A dollar investment of $1,200 is transacted for 5 months at 6%. Find:

a. The interest b. The maturity value

Solution:
a. Given: principal P = $1,200 term t = 5 months or 5
rate r = 6% or 0.06 12
The interest I is
I = Prt
I = ($1,200)(0.06)(5/12)
I = $30

b. The maturity value A is

A=P+I
A = $1,200 + $30
A = $1,230

Note that the maturity value A is given by A = P + I

But I = Prt.
Thus, A = P + Prt
A = P(1 + rt)

Example 3: An amount of ₱1,000,000 is invested in a financial institution.

a. How long will it take for the amount to reach ₱1,001,000 at 2% simple interest?
b. At what interest rate will it earn ₱1,000 in 10 months?

Solution:
a. Given: principal P = ₱1,000,000
rate r = 2% or 0.02
maturity value A = ₱1,001,000
interest I = A – P
I = ₱1,001,000 - ₱1,000,000 = ₱1,000
The value of the term t can be derived from I = Prt.
 I = Prt
t=I
Pr
t= ₱1,000
(₱1,000,000)(0.02)
t = 0.05

Since there are 12 months in a year, it will take (12)(0.05) = 0.6 month,
or approximately (0.6)(30 days) = 18 days for ₱1,000,000 to amount to
₱1,001,000 at 2% simple interest.

b. Given: principal P = ₱1,000,000

interest I = ₱1,000
term t = 10 months = 10 = 5 year
12 6
The rate r can be derived from I = Prt

I = Prt
r= I
Pt
r= ₱1,000
(₱1,000,000)(5/6)
r = 0.0012 or 0.000012%

Term: Ordinary Time and Exact Time

The time or term for which a certain amount is lent or borrowed is important in any
financial transaction. The process of computing the term, if only inclusive dates of
transaction are indicated, depends on the agreement between parties involved. There are
two ways by which a term is determined:
i. Ordinary time is based on 30-day month computation. This means that a 6-month
transaction covers (6)(30 days) = 180 days.
ii. Exact time is based on the exact number of inclusive dates of transaction.

Interest: Ordinary Interest and Exact interest

The choice of whether to adopt ordinary (or approximate) time or exact time in
financial transaction affects the computation of interest.
There are two ways of computing for the term. The two choices for the divisor for the
term result in four ways of computing simple interest, as shown below.

Exact Time Ordinary Time

360 days Ordinary interest with Ordinary interest with ordinary
exact time (Bankers’ Rule) time
 365 days Exact interest with exact Exact interest with ordinary
time time

The most commonly used method is the Bankers’ Rule. The other methods are
seldom used. If there is no mention to be used, the Bankers’ Method applies.

Example 4: Find the exact interest and the ordinary interest given the following values:
₱5,000 for 120 days at 5%.

Solution:
a. The exact interest is:
I = Prt
I = (₱5,000)(0.05)(120/365)
I = ₱82.19

b. The ordinary interest is:

I = Prt
I = (₱5,000)(0.05)(120/360)
I = ₱83.33

Promissory Note

It is a legal written statement issued by a person who owes a certain amount from
another person or company. The person who borrowed is bound to pay a certain amount on
a specific date.

Example 5: Mr. Seniro issued a Promissory Note on May 8, 2015 to BPI amounting to
₱100,000 with interest at 6%. The due date is October 8, 2015. Determine the maturity
value to be paid.

Solution: Since no method is specific, used the Banker’s Rule.

Given: Principal P = ₱100,000
Rate r = 6% or 0.06
Term t:
23 days – May 9, 2015 to May 31, 2015
30 days – June 1, 2015 to June 30, 2015
31 days – July 1, 2015 to July 31, 2015
31 days – August 1, 2015 to August 30, 2015
30 days – September 1, 2015 to September 30, 2015
+ 8 days – October 1, 2015 to October 8, 2015
153 days total
T = 153
360
 The maturity value A to be paid is
A = P(1 + rt)
A = (₱100,000)[1 + (0.06)(153/360)]
A = ₱102,550

Example 6: Find the ordinary interest where the amount or principal is ₱543,000 at 6% for
60 days.

Solution:
Given: P = ₱543,000
R = 6% or 0.06
T = (60/360) or (1/6)

The ordinary interest is:

I = Prt
I = (₱543,000)(0.06)(1/6)
I = ₱5,430

Note that the computed ordinary interest (₱5,430.00) is obtained by merely moving
the decimal point of the principal (₱543,000.00) two places to the left. This observation is
referred to as 6%-60-day method.

60%-60-Day Method

The ordinary simple interest I on principal P at 6% for 60 days is I = P(0.01). This

method can be used to calculate the ordinary simple interest using appropriate multiplication
and division.

Example 7: Compute for the ordinary interest where the principal is ₱180,000 at 5% for 75
days.

Solution:
 Interest at 6% for 60 days = ₱180,000(0.01) = ₱1,800
 Interest at 1% for 60 days = ₱1,800 ./. 6 = ₱300
 Interest at 5% for 60 days = ₱1,800 - ₱300 = ₱1,500
 Interest at 5% for 75 days = ₱1,500 + ₱375 = ₱1,875

Installment Payments

In many cases, payments for borrowed money are made on installment basic. To
determine the amount due at the time final payment, any of the two rules of thumb is
applied, depending on the agreement reached by all parties involved.

Paying on Installment Basis Rule No.1

 Payment received must be deducted first from the amount with interest due. The
balance, the amount due after deducting the payment, is then subjected to the agreed
interest is computed from the date of the last payment and the balance of the principal.

Example 8: Mr. Torres borrowed ₱200,000 from the Manila Teachers Savings and Loan
Association (MTSLA) on May 1, 2015 with interest at 6%. On June 15, 2015, she paid
₱60,000. Determine the amount Mr. Torres should pay MTSLA on September 5, 2015, the
due date agreed by both parties.

Solution:
The principal = ₱200,000.00
Interest due from May 1 to June 15
(₱200,000)(0.06)(46/360) = + ₱1,533.33

Balance before June 15 = ₱201,533.33

Payment made on June 15 = - ₱60,000.00
Balance after June 15 = ₱141,533.33
Interest on balance from
June 16 to September 5
(₱141,533.33)(0.06)(83/360) = + ₱1,957.88
₱143,491.21

Paying on Installment Basis Rule No.2

The interest for the entire term of the principal amount is added to the maturity value.
If installment payments are made, these payments plus the interest on each installment
payment from the date that payment is made to the due date are subtracted from the
computed maturity value to obtain the amount due. Paying on Installment Basis Rule No.2 is
known as the Merchant’s Rule.

Example 9: Apply the Merchant’s Rule in determining the amount Mr. Torres should pay the
MTSLA.

Solution:
Given: P = ₱200,000
R = 6% or 0.06
Since there are 128 days from May 1 to September 5, the value of T is (128/360).
A = P(1 + rt)
A = ₱200,000[1 + (0.06)(128/360)]
A = ₱204,266.67

Payments on June 15 = ₱60,000.00

Interest from June 15 to September 5 = + ₱2,766.67
Total credits = ₱62,766.67
Therefore, the amount due on September 5 is:
₱204,266.67 - ₱62,766.67 = ₱141,500.00
ACTIVITY 16.1
Direction: Find the simple interest and the maturity value.
1. ₱150,000 at 5% for 8 years
2. ₱240,000 at 6% for 5 years
3. ₱780,000 at 4% for 13 years
4. ₱186,000 at 5% for 7 years
5. ₱120,000 at 3% for 10 years

ACTIVITY 16.2
Direction: Find the exact interest and the ordinary interest on the following:
1. ₱40,000 for 120 days at 5%
2. ₱50,000 for 150 days at 3%
3. ₱54,000 for 90 days at 4%
4. ₱800,000 for 240 days at 5.5%
5. ₱25,000 for 80 days at 6.2%

ACTIVITY 16.3
Direction: How long will the given principal P take to reach the given maturity value A at the
given simple interest rate r?
1. P = ₱150,000; A = ₱151,000; r = 4%
2. P = ₱800,000; A = ₱801,000; r = 3%
3. P = ₱750,000; A = ₱750,500; r = 2%
4. P = ₱400,000; A = ₱401,000; r = 3.5%
5. P = ₱90,000; A = ₱95,000; r = 4.5%