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General Mathematics
Quarter 2 – Module 1:
Introduction to Simple and
Compound Interest
Learning Area – Grade 11
Alternative Delivery Mode
Quarter 2 – Module 1: Introduction to Simple and Compound Interest
First Edition, 2020

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Editor: Lady Anne R. Bayan, PhD.
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 What I Need to Know

This module was designed and written for the learners. After going
through this module, the learner is expected to:
1. illustrate simple and compound interests (M11GM-IIa-1); and
2. distinguish between simple and compound interests (M11GM-IIa-2).

What I Know

Pre-Test: Choose the letter of the correct/best answer. Write your

answers on separate sheet/s of paper.

1. The amount earned or paid for the use of money is called _________.
a. interest c. principal
b. compound d. period
2. The original amount borrowed or invested is called the _________.
a. principal c. period
b. rate d. interest
3. What kind of interest is computed on the principal and also on the
accumulated past interests?
a. simple c. principal
b. compound d. add-on
4. What kind of interest is computed on the principal and then added to it?
a. simple c. principal
b. compound d. periodic
5. Which of the following situations illustrates the use of simple interest?
a. Mark pays ₱400 a month for six months as interest for his bank loan.
b. Manuel pays ₱120, ₱134, and ₱151 as interest for his personal loan.
c. Mikko pays different amounts of interest each period for his car loan.
d. Molly pays an increasing rate of interest for her bank loan.

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 Lesson
Introduction to Simple
1 and Compound Interest
Depositing money in a bank is like lending money to the bank in
return for which the bank pays interest. By contrast, borrowing money from
banks or lending institutions requires payment of interest. In this module, we
will study the different types of interests.

What’s In

Before we proceed to our new lesson, let us recall converting percent to

decimal and vice versa.

Rule in Converting Percent to Decimal

To convert a percent to decimal, drop the percent sign and move the
decimal point two places to the left.

When the number in the percent is a whole number, the decimal point
is understood to be stated at the right of the last digit. For example, to convert
12% to decimal, drop the percent sign and move the decimal point two places
to the left to get 0.12.

To convert ½% to decimal, convert ½ first into decimal (1/2 =0.5), and

then follow the rule in converting percent into decimal. Thus, ½% = 0.5% =
0.005.

Rule in Converting Decimal to Percent

To convert a decimal to percent, move the decimal point two places
to the right.
.
To convert 0.025 to percent, move two decimal places to the right to get
0.025 = 2.5%.

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 What’s New

Below are the terminologies and their meanings that would help you
better understand our lesson.

Lender or creditor – person (or institution) who invests the money or makes
the funds available

Borrower or debtor – person (or institution) who owes the money or avails of
the funds from the lender

Origin or loan date – date on which money is received by the borrower

Repayment date or maturity date – date on which the money borrowed or

loan is to be completely repaid

Time or term (t) – amount of time in years the money is borrowed or invested;
length of time between the origin and maturity dates

Principal (P) – amount of money borrowed or invested on the origin date

Rate (r) – annual rate, usually in percent, charged by the lender, or rate of
increase of the investment

Interest (I) – amount paid or earned for the use of money

Simple Interest (IS) – interest that is computed on the principal and then
added to it

Compound Interest (IC) – interest is computed on the principal and also on

the accumulated past interests

Maturity value or future value (F) – amount after t years that the lender
receives from the borrower on the maturity date

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 What is It

When using a property owned by another person, you sometimes need

to pay an amount as a fee. For example, you pay rent for the use of a house.
You also pay a toll for the use of a private road. The same is true for the use
of money.
How much do we pay for the use of money?
Note: Money borrowed by one person is money lent or invested by
another. Thus, the interest paid by the borrower is seen as a form of income
by the lender.

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.
Here, the principal (P) amount is ₱50 000, while the annual interest
rate (r) is 6%. The interest (I) paid by Mr. Dela Cruz is the extra ₱9 000 on
top of his ₱50 000 loan, for the duration or term (t) of 3 years.
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.
Here, the principal (P) amount is ₱10,000 while the rate (r) is 0.5% =
0.005 compounded yearly and the duration or term (t) is 12 years.

Observe in the given examples that interest can either be simple or

compound. Example 1 shows simple interest while Example 2 is compound
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.
Following are situations applying simple interest.

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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 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.
Following are situations applying 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.

Generally, simple interest paid or received over a certain period is a

fixed percentage of the principal amount that was borrowed or lent. While,
compound interest accrues and is added to the accumulated interest of
previous periods, so borrowers must pay interest on interest as well as
principal.

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 What’s More

Activity 1

Analyze the following situations. Identify whether it shows SIMPLE

INTEREST or COMPOUND INTEREST. Write your answers on separate
sheet/s of paper.

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.

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).

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 What I Have Learned

Activity 1: Fill in the blanks with the correct words to show how much
you have learned. Write your answers on separate sheet/s of paper.

In this lesson, I have learned that there are two types of interest (1)
_________ and (2) _________. The amount of money to be invested or borrowed
is called the (3) _________, while the percentage of interest is the (4) _________,
the amount of time in years the money is borrowed or invested is the time or
(5) _________ and the amount paid or earned for the use of money is the (6)
_________.

What I Can Do

Answer the following as indicated. Write your answers on separate

sheet/s of paper.

1. How is compound interest different from simple interest?

2. Suppose you won ₱10,000 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?

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 Assessment

Post-test: Choose the letter of the correct/best answer. Write your

answers on separate sheet/s of paper.

1. Which of the following situations illustrates the use of compound interest?

a. Nina paid the same amount of monthly interest for her bank loan.
b. Noel received ₱5 000 quarterly interest for two years from his
investment.
c. Nelly earned more from her investment’s interest this year than last
year.
d. Nancy earned ₱6 500 annual interest for five years from her stock
portfolio.
2. Which of the following situations illustrates the use of simple interest?
a. Manuel pays ₱120, ₱134, and ₱151 as interest for his personal loan.
b. Mark pays ₱400 a month for 6 months as interest for his bank loan.
c. Miko pays different amounts of interest each period for his car loan.
d. Maria pays an increasing rate of interest for her bank loan.
3. A ₱100 000 loan is subject to 8% annual interest. Which of the following
statements is true about the interests?
a. equal under simple and compound methods for the first period
b. greater under simple method than compound method after two
periods
c. equal under simple and compound methods after two periods
d. greater under simple method than compound method after one
period.
4. Which kind of interest is more beneficial to a borrower?
a. compound
b. complex
c. mixed
d. simple
5. If you are an investor, which kind of interest should you prefer?
a. compound
b. complex
c. mixed
d. simple

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What I Know What’s More Assessment
1. a Activity 1 1. c
1. Simple Interest 2. b
2. a 2. Simple Interest
3. Compound Interest 3. a
3. b 4. Compound Interest
5. Simple Interest 4. d
4. a
5. a
5. a Activity 2
1. P=₱150,000 r=4%
I=₱30,000 t=5 years
2. P=₱50,000 r=3.5%
I=₱10,500 t=6 months
3. P=₱50,000 r=1%
Ic=₱2,550.50 t=5 years.
4. P=₱240,000 r= 7%
IC= ₱34,776 t= 2 mos.
5. P= ₱30,000 r=10%
I=₱9,000 t= 3 years
Answer Key
References
Book:
Department of Education Leaner’s Material for General
Mathematics
Orlando A. Oronce, 2016. General Mathematics. Quezon City: REX
Publishing

Website:
“Simple and Compound Interest”.
https://link.quipper.com/en/organizations/547ffce1d2
b76d0002002c2f/curriculum#curriculum. October 20,
2020

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