Simple interest and Compound interest

CHAPTER 3
3.1 SAVINGS AND INVESTMENTS
SIMPLE INTEREST AND COMPOUND
INTEREST

- Pn. Sazazila Abdullah-

• 1) Simple interest is a reward given to the depositer at a
certain rate on the deposit amount (principal ) for a certain
period of time ( in years ) .

• 2) Compound interest is interest that is calculated based
on the original principal and also the accumulated interest
from the previous period of savings .

Simple interest: I is the interest
Formula P is the principal
r is the rate
I  Pr t t is the time in years

• Example 1
• Encik Arif deposite RM 4 000 at Bank Bunga Raya with an

interest rate of 2% per annum . How much is the interest
earned by Encik Arif after 1 year ?
• Solution:

4000 2 1
100

 80

Compound interest: • MV = matured value

In general , the formula for • P = principal

calculating compound • r = yearly interest rate
interest is • n= number of periods the

interest is compounded

MV  P1 r nt per year
• t= term in years

 n

• Example 2
• - At the beginning of a year, Mrs Liew Foong saves

RM 15 000 in her savings account with a rate of 4% per
annum and compounded every 6 months . What is Mrs
Liew Foong’s total savings at the end of the third year ?

MV  150001 0.04 2(3)
 2

 15000(1.1262)

 16892.44

• When the compounding frequency increases , the future
value of savings also increases.

Example 3
• - Calculate the matured value for RM 15 000 savings for 5

years , with the interest rate 3.5% per annum ,
compounded monthly .

MV  150001 0.035 12(5)
 12 

 17864.17

Example 4
• - Puan Sara makes a savings of RM 20 000 in a fixed

deposit account with the interest rate 4% per annum ,
compounded yearly . Calculate the matured value in the
account after 12 years .

MV  200001 0.04 1(12)
 1

 32020.64

Example 5
• - Puan Zubaidah makes a savings of RM 20 000 in a

fixed deposit account with the interest rate 4% per
annum , compounded yearly . Calculate the matured
value in the account after 12 years .

MV  200001 0.04 1(12)
 1

 32020.64

i

Example 6
• -At the beginning of the year , Encik Jaafar saves
• RM 15 000 in his fixed deposit account at the end of the

year if interest is compounded
• a) half yearly ( 6 months )

MV  150001 0.04 2(1)
 2

 15606

i

Example 6
• -At the beginning of the year , Encik Jaafar saves
• RM 15 000 in his fixed deposit account at the end of the

year if interest is compounded
• b) quarterly ( 3 months )

MV  150001 0.04 4(1)
 4

 15609.06

Thank you