Illustrating Simple and Compound Interest
by CHED on June 17, 2017
lesson duration of 3 minutes
under General Mathematics
generated on June 17, 2017 at 09:05 am
Tags: Simple and Compound Interest
CHED.GOV.PH
K-12 Teacher's Resource Community
Generated: Jun 17,2017 05:05 PM
Illustrating Simple and Compound Interest
( 3 mins )
Written By: CHED on May 27, 2016
Subjects: General Mathematics
Tags: Simple and Compound Interest
Resources
n/a
Content Standard
The learner demonstrates understanding of key concepts of simple and compound interests, and simple and general
annuities.
Performance Standard
The learner is able to investigate, analyze and solve problems involving simple and compound interests and simple
and general annuities using appropriate business and financial instruments.
Learning Competencies
The learner distinguishes between simple and compound interests.
The learner illustrates simple and compound interests.
Introduction 1 mins
1. Discussion
Ask students to give their own answers to the question "What are some ways to take care of hard-earned
money?" Possible answers: Buy only what you need, try to save some money, invest some money, think of
the future.
2. Classroom Game (Optional)
Group the students. For each group, write down a starting amount of cash (e.g., P100,000). Prepare some
cards that give certain options (e.g, invest in a bank that offers 3% interest, buy clothes for P200, and so
forth) and even some possible real-life concerns (e.g., pay P100 for water, pay P5,000 for medical bills). After
each group selects a card, compute the amount of money of that group. End after 4 rounds. The point is to
set the tone for thinking about how to prepare for the future.
Try to save money!
Explain that depositing money in a bank is like lending money to the bank in return for which the bank pays
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interest. By contrast, borrowing money from banks or lending institutions requires payment of interest. Hence,
money has present and future values. You may cite successful personalities who have applied good
investment mathematics like Bo Sanchez, Warren Buffet, etc.
Lesson Proper 1 mins
(a) Definition of Terms
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
(t) - amount of time in years the money is borrowed or invested; length of time between the
origin and maturity dates
Principal (P
(P) - amount of money borrowed or invested on the origin date
Rate (r
(r) - annual rate, usually in percent, charged by the lender, or rate of increase of the investment
Interest (I
(I) - amount paid or earned for the use of money
Simple Interest (Is
(Is)) - interest that is computed on the principal and then added to it
Compound Interest (Ic
(Ic)) - interest is computed on the principal and also on the accumulated past interests
Maturity value or future value (F
(F) - amount after t years; that the lender receives from the borrower on the
maturity date
(b) Illustration of Simple and Compound Interest
EXAMPLE 1. Suppose you won P10,000 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?
Solution. Investment 1: Simple interest, with annual rate r
Investment 2: Compound Interest, with annual rate r
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(c) Let the students compare the interests gained in the two investments.
Simple Interest (in pesos): 11,000 - 10,000 = 1,000 Compound Interest (in pesos): 11,040.81 - 10,000 = 1,040.81
Ask the students to distinguish between simple and compound interests based on their illustrations.
Possible answers: Simple interest remains constant throughout the investment term. In com- pound interest, the
interest from the previous year also earns interest. Thus, the interest grows every year.
Homework 1 mins
Let the students generalize the procedures in finding simple and compound interests. Allow them to express these
generalizations using formulas.
Download Teaching Guide Book 0 mins
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