Summative Test for Module 1: Unlocking the Power of Interest: Simple vs. Compound
This assessment evaluates your mastery of simple and compound interest. You'll apply your knowledge to solve problems involving:
  • Calculating interest earned, maturity values, and present values for both simple and compound interest scenarios.
  • Determining interest rates and time periods in compound interest problems.
  • Understanding and applying the concept of compounding periods when interest is calculated more than once a year.
  • Calculating and interpreting equivalent and effective interest rates.
Expect a mix of problem-solving questions requiring calculations and conceptual questions testing your understanding of key differences between simple and compound interest.
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Matching Type
Answer each question to the best of your ability. Show your work for calculations to receive full credit.
Instruction: Match each term with its correct definition. *
10 points
Principal (P)
Interest (I)
Interest Rate (r)
Time (t)
Maturity Value (F)
The cost of borrowing money or the reward for lending money, usually expressed as a percentage.
The original amount of money invested or borrowed.
The total amount due at the end of the investment or loan period, including principal and interest.
The length of time for which the money is invested or borrowed.
The amount earned or charged on the principal.
Multiple Choice
Instructions: Choose the best answer for each question.
Which of the following best describes simple interest? *
1 point
What is the formula for calculating simple interest? *
1 point
Compound interest is best defined as: *
1 point
If the interest rate is compounded quarterly, what is the value of 'm'? *
1 point
Which formula is used to calculate the maturity value (F) in compound interest when compounding occurs 'm' times a year? *
1 point
What does the term "frequency of conversion" refer to in compound interest? *
1 point
Which of the following is NOT a factor that affects the future value of an investment? *
1 point
How does increasing the compounding frequency affect the maturity value of an investment, assuming all other factors remain constant? *
1 point
What does the effective annual rate represent? *
1 point
Two investments offer the following interest rates:

Investment A: 5% compounded annually
Investment B: 4.8% compounded monthly

Which investment will yield a higher return after one year?
 *
1 point
True or False (2 points each, 10 points total)
Instruction: 
Simple interest is always less than compound interest over the same time period, assuming the same principal and interest rate. *
2 points
The present value of a future sum of money is always less than the future value, assuming a positive interest rate. *
2 points
The higher the frequency of compounding, the lower the effective annual rate. *
2 points
The formula n = (log F/P) / log(1+i) is used to calculate the interest rate in compound interest. *
2 points
Two interest rates are considered equivalent if they result in the same maturity value for the same principal and time period, even if they have different compounding frequencies. *
2 points
Problem Solving
Instruction:
Calculate the simple interest earned on a principal of ₱12,000 invested at a rate of 5% per annum for 3 years. *
4 points
Find the maturity value of ₱25,000 invested at 4% compounded semi-annually for 8 years. *
4 points
How long will it take for ₱10,000 to double if invested at an interest rate of 7% compounded annually? *
4 points
What effective annual rate is equivalent to a nominal rate of 10% compounded quarterly? *
4 points
A loan of ₱50,000 is taken out with an interest rate of 8% compounded monthly. If the loan is to be repaid in 5 years, what will the monthly payments be? *
4 points
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