Simple and Compound Interest

• Who is the person or institution that invests money?

  Lender
• Who is the person or institution that owes the money?

  Borrower
• What is the date on which money is received by the borrower called?

  Origin date
• What is the date on which the money borrowed is to be completely repaid?

  Maturity date
• What is the amount paid or earned for the use of money called?

  Interest
• What is the annual rate charged by the lender usually expressed in?

  Percent
• What is the amount of money borrowed or invested on the origin date called?

  Principal
• What does the amount of time in years the money is borrowed or invested refer to?

  Term
• What is interest that is compounded on the principal and then added to it called?

  Compound interest
• How is interest compounded on the principal and accumulated past interests?

  It is added to the principal
• What is the amount after t years that the lender receives from the borrower on the maturity date called?

  Maturity amount
• What are the key terms related to borrowing and lending money?

  • Lender: person/institution investing money
  • Borrower: person/institution owing money
  • Origin date: date money is received
  • Maturity date: date money is repaid
  • Interest: amount paid for using money
  • Principal: amount borrowed or invested
  • Term: length of time money is borrowed
  • Compound interest: interest on principal and past interest
  • Maturity amount: total received at maturity date
• What does the term "Maturity Value" refer to in finance?

  Future value of an investment or loan
• What is the formula for Future Value of Compound Interest?

  A = P(1 + r)^t
• What is the difference between Simple Interest and Compound Interest?

  Simple interest is on principal only; compound includes accumulated interest
• If you invest Php 72,500 at 8% for 3 years, how would you calculate the compound interest?

  Use the formula: $I_c =$$A - P$
• How do you determine the Principal amount in a loan?

  It is the amount borrowed or invested initially
• What are the key terms used in Business Mathematics related to loans?

  • Origin or Loan date: Date money is received
  • Repayment date or Maturity Date: Date loan is repaid
  • Time or Term (t): Length of time for loan
  • Principal (P): Amount borrowed or invested
  • Rate (r): Interest charged, usually in percent
  • Interest: Amount paid or earned for money use
  • Frequency of conversion (m): Number of conversion periods per year
  • Conversion or Interest Period: Time between interest conversions
• What is the term for the amount paid or earned for the use of money?

  Interest
• What does "Frequency of conversion" refer to?

  Number of times interest is compounded in a year
• What is the significance of the term "Conversion Period"?

  It is the time between successive interest conversions
• How is Simple Interest calculated?

  It is computed on the principal amount only
• How is Compound Interest defined?

  Interest computed on principal and accumulated interest
• If Php 40,000 is deposited for 3 years at 6%, what is the principal amount?

  Php 40,000
• What is the interest earned if Php 40,000 is deposited for 3 years at 6%?

  Php 7,640.64
• How do you find the maturity value if Php 50,000 is invested at 5% compounded annually for 8 years?

  Calculate using the formula for future value
• How does compounding more than once a year affect the future value?

  It increases the future value compared to annual compounding
• What is the periodic rate when compounding annually at 10%?


  10%
• What is the periodic rate when compounding semi-annually at 8%?

  4%
• What is the periodic rate when compounding quarterly at 12%?

  3%
• What is the periodic rate when compounding monthly at 11%?

  0.9167%
• What is the periodic rate when compounding daily at 15%?

  0.0411%
• How do you calculate the future value of Php 30,000 at 8% compounded annually for 10 years?

  Use the formula: $A =$$P(1 + r)^t$
• What is the future value of Php 35,000 at 6% compounded semi-annually for 12 years?

  Calculate using the future value formula
• How do you find the future value of Php 51,000 at 8.8% compounded quarterly for 8 years?

  Use the formula: $A =$$P(1 + r/k)^{kt}$
• What is the future value of Php 12,500 at 7.75% compounded semi-annually for 12 years?


  Calculate using the future value formula
• How do you find the future value of Php 152,000 at 9% compounded daily for 10 years?

  Use the formula: $A =$$P(1 + r/k)^{kt}$
• How does the frequency of compounding affect the total interest earned?

  More frequent compounding increases total interest earned
• How do you complete the table for Php 50,000 invested at 10% interest?

  Calculate future values for different compounding frequencies