# simple interest

## Fifty Thousand Pesos Split into Two Simple Interest Investment

**Problem**

A man wants to invest a sum of P50,000 in two investments. The first investment earns a rate of interest 4 times that of the second investment. In 3 years the first investment grows to P37,200. For 10 years, the second investment grows to P24,000.

- Find the sum invested in each rate of interest.

A. P35,000 and P15,000

B. P35,500 and P14,500

C. P30,000 and P20,000

D. P32,000 and P18,000

- Find the rate of interest of each.

A. 8% and 2%

B. 6% and 4%

C. 7% and 3%

D. 5% and 1%

## Compound Interest

In compound interest, the interest earned by the principal at the end of each interest period (compounding period) is added to the principal. The sum (principal + interest) will earn another interest in the next compounding period.

Consider \$1000 invested in an account of 10% per year for 3 years. The figures below shows the contrast between simple interest and compound interest.

## Simple Interest

**Simple Interest**

In simple interest, only the original principal bears interest and the interest to be paid varies directly with time.

The formula for simple interest is given by

The future amount is

## Interest and Discount

**Interest**

The amount of money earned for the use of borrowed capital is called interest. From the borrower’s point of view, interest is the amount of money paid for the capital. For the lender, interest is the income generated by the capital which he has lent.

There are two types of interest, simple interest and compound interest.