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    Simple Interest and Compound Interest

    Uploaded by

    Ong Karl
    The document discusses simple interest and compound interest formulas. It provides examples of calculating simple interest using the basic formula of Interest = Principal x Rate x Time. It also explains the compound interest formula of Future Value = Principal x (1 + Rate/Periods)^(Periods x Time) and provides an example of calculating compound interest over a period of 5 years at a 7% interest rate compounded semi-annually.

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    © All Rights Reserved
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    Simple Interest and Compound Interest

    Uploaded by

    Ong Karl
    8 views11 pages
    The document discusses simple interest and compound interest formulas. It provides examples of calculating simple interest using the basic formula of Interest = Principal x Rate x Time. It also explains the compound interest formula of Future Value = Principal x (1 + Rate/Periods)^(Periods x Time) and provides an example of calculating compound interest over a period of 5 years at a 7% interest rate compounded semi-annually.

    Original Title

    INTEREST

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    The document discusses simple interest and compound interest formulas. It provides examples of calculating simple interest using the basic formula of Interest = Principal x Rate x Time. It also explains the compound interest formula of Future Value = Principal x (1 + Rate/Periods)^(Periods x Time) and provides an example of calculating compound interest over a period of 5 years at a 7% interest rate compounded semi-annually.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    8 views11 pages

    Simple Interest and Compound Interest

    Uploaded by

    Ong Karl
    The document discusses simple interest and compound interest formulas. It provides examples of calculating simple interest using the basic formula of Interest = Principal x Rate x Time. It also explains the compound interest formula of Future Value = Principal x (1 + Rate/Periods)^(Periods x Time) and provides an example of calculating compound interest over a period of 5 years at a 7% interest rate compounded semi-annually.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 11

    SIMPLE INTEREST and

    COMPOUND INTEREST
    SIMPLE INTEREST
    Examples:
    1. A certain bank offers 5% annual interest
    for their time deposit account. Ariel invested
    P 100,000 for 5 years. How much will Ariel
    have at the end of the term?
    given:
    r = 5% = 0.05
    P = P 100,000
    t = 5 years
    F=?

    solution:
    I = Prt = (100,000)(0.05)(5) = P25,000
    F = P + I = 100,000 + 25,000 = P 125,000
    2. Rica borrowed P 20,000 for an annual
    interest of 10% for 9 months. At the end of
    teh term, how much is the interest and the
    total amount paid by Rica?

    given:
    P = P 20,000
    r = 10% = 0.10
    t = 9 months = 0.75 yr
    I =?
    F=?
    solution:
    I = Prt = (20,000)(0.10)(0.75)
    I = P 1,500

    F = P + I = 20,000 + 1,500 = P 21,500


    3. An enterpreneur loans P500,000 payable
    in 3 years. How much is the interest rate of
    the bank if he pays a total interest of
    P150,000?

    given:
    P = P 500,000
    t = 3 years
    I = P 150,000
    r=?
    solution

    I = Prt
    150,000 = (500,000)(r)(3) = 1,500,000r
    r = 150,000
    1,500,000
    r = 0.10 = 10%
    Compound interest Formula

    F = P(1 + r )n
    Ic = F - P
    where:
    F = future value or maturity value
    P = present value or principal amount
    Ic = compound interest
    r = interest rate per compounding period = i /m
    t = term in years
    n = total number of compounding periods = m*t

    values of m:
    m = 1 (annual)
    m = 2 ( bi-annual or semi-annual)
    m = 4 (quarter)
    m = 12 ( monthly)
    1. P100,000 was invested at an interest rate of
    7% compounded semi-annually. How much is the
    maturity value of the investment at the end of the
    period?
    given:
    P = 100,000
    i = 5% = 0.05
    m = 2(semi-annual)
    t = 5 yrsm

    solution:
    r = I / m = 0.07/2 = 0.035
    n = m*t = 2*5 = 10
    F = P(1+r)n = 100,000(1+0.035)10
    F = P 141,059.88

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