1st Semester

Grade 12
Quarter 2

INTEREST
A. Basic Concepts

Principal - is the amount borrowed

Rate(interest rate)- is the cost of using money expressed as a percentage of the principals for a
given period of time, which is usually per year.

Cost of credit - It is generally regarded as the cost of borrowing or lending out money.

Simple interest
• The amount of money charged for the use of borrowed money is interest expense from the point of
view of the borrower;
• The amount of money earned on invested money or money lent is interest income from the point
of view of the creditor.
• Interest computed on the original principal for any time period or length of time money is borrowed
or lent/invested is termed as simple interest.

Formula

 The maturity value F that the lender receives from the debtor on the maturity date of the loan is
equal to the sum of the principal P and the simple interest I.

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 1st Semester
Grade 12
Quarter 2

Example #1:

Tessa borrowed ₱2,000 at 12% interest for 2 years. Find the interest and maturity value.

Given: P = ₱2,000
r = 12%
t = 2 years
Find: I and M

Solutions:
a. Interest (I)
I = Prt
= ₱2,000 x (12%)/(𝑦𝑟.) x 2 years
= ₱2,000 x 0.12 x 2
= ₱480.00
b. Maturity Value (F)
F=P+I
= ₱2,000 + ₱480
= ₱2,480

F = P(1 + rt)
= ₱2,000[1+(12%)(2)]
= ₱2,000[1+(.12)(2)]
= ₱2,000[1+0.24]
= ₱2,000[1.24]
= ₱2,480

Example #2:

Eunice lent P3 000.00 at 14% for 6 months. How much will she get at the end of the term? How much
interest did she earn?

Given:
P = P3,000
r = 14%
t = 6 months

Find: a. F
b. I

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1st Semester
Grade 12
Quarter 2

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 1st Semester
Grade 12
Quarter 2

Installments

 Cash price is the price paid at time of purchase.

 Down payment is the initial partial payment done by the consumer or borrower in purchasing
goods.
 Amount financed is the total amount paid usually done in regular payments to pay off the balance.
 Finance charge includes the interest and any fee associated with an installment loan.
 Installment price is the sum of all installment payments, finance charge if there is any and down
payment.

IP = total of installment payments + down payments + finance charge

Example:

Finance Inc. purchased a printer for their department on an installment plan with ₱500 down
payment and 12 payments of ₱1,000. Find the installment price of the printer if there’s an
additional finance charge of ₱ 200.

Given:
Total of installment payments = ₱ 12,000
Down payment = ₱500
Finance charge = ₱200

Solution:
IP = total of installment + D.P. + finance charge
IP = 12 (1,000) + 500 + 200
IP = ₱12,700

Mortgages

• Mortgage loan is when you use your property as collateral for a loan from a financial institution.
• At the most basic level, a property mortgage involves payment of the purchase price for the
property and interest loan.
• The down payment is usually a certain percent of the purchase price of the property. This is
generally called the buyer’s equity.

Example:
Assume that you wish to purchase a second car worth ₱ 312, 500.00 and the seller requires a 20%
down payment.

Given:
Purchase Price = ₱ 312, 500
Down payment % = 20%
Find: Down payment and Mortgage Loan

Solution:
Down payment = Purchase price x Down payment %
= ₱ 312, 500 x 20%
= ₱ 62, 500

Mortgage Loan = Purchase Price – Down payment

= ₱ 312, 500 - ₱ 62, 500
= ₱ 250, 000

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 1st Semester
Grade 12
Quarter 2

Term of the Loan: Total Number of Payments

The installment payment on the loan is termed amortization. The schedule prepared showing the
installment payments for the period of payment (term of the loan) is called amortization table.

Monthly Payment
Assume that the bank will charge you 5% annually. The 5% is what is termed as the annual
percentage rate or APR. Since you are to make monthly payments, we have to convert the 5% APR to
monthly rate. To determine the monthly payment, we use the following formula

Amortization Schedule

Amortization Schedule is a table or chart showing each monthly payment on amortizing loan indicating how
much of each payment goes to interest and how much goes to principal.

As the amount goes to interest decreases as payment is made, the amount that goes to the principal increases.

Given:

Mortgage loan = P250,000

Monthly payment = P1,342.11

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 1st Semester
Grade 12
Quarter 2

Total number of payments = 360

Month Monthly Principal Payment Interest Ending Balance

Payment
(monthly payment – (previous balance x (previous balance -
interest) 0.004167 ) principal payment)

P250,000

1 P1,342.11 P300.36 P1,041.75 P249,699.64

2 P1,342.11 P301.61 P1,040.50 P249,398.03

3 P1,342.11 P302.87 P1,039.24 P249,095.16

4 P1,342.11 P304.13 P1,037.98 P248.791.03