Example 1
A bank offers a cash loan for
an annual interest rate of 6%.
Mr. Dela Cruz borrowed
₱50 000 from the bank. After
three years, Mr. Dela Cruz paid
the bank a total of ₱59 000.
EXAMPLE 2
Suppose your father deposited in your
bank account ₱10,000 at an annual
interest rate of 0.5% compounded
yearly when you graduated from
Kindergarten and did not get the
amount until you finished Grade 12.
SIMPLE INTEREST
Simple interest is a type of interest
in which only the principal bears
interest for the entire term. The
amount of interest paid for each
period remains the same.
SIMPLE INTEREST
• Example 1:
Ms. Reyes invests ₱20 000 in a savings account. She
earns an interest of 5% (or ₱1 000) every month.
After four months, she earned ₱4 000 in interest.
• Example 2:
An entrepreneur applied for a loan amounting to
₱500 000 in a bank. The bank charges a 7% interest
rate (or ₱35 000) annually. After two years, he paid
₱70 000 for the interest alone.
COMPOUND INTEREST
Compound interest is a type of
interest applied to both the original
principal and the accumulated interest
at the end of each period. This means
that the amount of interest to be paid
increases every period.
COMPOUND INTEREST
• Example 1:
Mrs. Flores invests ₱10 000 in a stock portfolio that earns
5% interest monthly. Interest that is not withdrawn is
considered as an additional investment. For the first
three months, she earns ₱500, ₱525, and ₱551.25 in
interest, respectively, for a total of ₱1 576.25.
• Example 2:
Peter borrowed ₱100 000 at 8% interest rate annually.
For the first two years, he paid ₱8 000 and ₱8 640 in
interest, respectively, for a total of ₱16 640.
Activity 1
• 1. Michael borrowed ₱150 000 from the bank
at 4% interest. He paid the bank ₱6 000 every
year, for a total of ₱30 000 in 5 years.
• 2. Elsa borrowed ₱50 000 for the renovation
of her house at 3.5% monthly interest rate for
6 months. She paid the interest of ₱1 750 for
the first month, another ₱1 750 for the second
month, for a total of ₱10 500 interest in 6
months.
Activity 1
3. Sarah deposited in her bank account ₱50,000 at an
annual interest rate of 1% compounded yearly. She
earned an interest of ₱2 550.50 after 5 years.
4. Sandy invested ₱240 000 in a stock portfolio that
earns 7% interest per month. She earned ₱16 800
after the first month and ₱17 976 after the second
month, for a total of ₱34 776 for 2 months.
5. For 3 years, Mr. Santos paid ₱3 000 in interest every
year for the loan he got from the local farmers’
cooperative amounting to ₱30 000 at 10% interest
annually.
ACTIVITY 2
• Refer to Activity 1. In each given
situation, identify the Principal
(P), Rate (r), Interest (IS or IC),
and term (t).
SIMPLE INTEREST
Example 1. A bank offers 0.25%
annual simple interest rate for a
particular deposit. How much
interest will be earned if 1 million
pesos is deposited in this savings
account for 1 year?
Example 2. How much
interest is charged when
₱50,000 is borrowed for 9
months at an annual interest
rate of 10%?
