If a principal of ₱100,000 is invested at a rate of 6% for 2 years, what is the maturity value?

Understand the Problem

The question is asking for the maturity value of an investment of ₱100,000 at a 6% annual interest rate over 2 years. To solve this, we will use the formula for simple interest to calculate the total amount at the end of the investment period.

Answer

The maturity value is ₱112,000.

Steps to Solve

Identify the formula for maturity value To find the maturity value of an investment with simple interest, we use the formula: $$ M = P + I $$ where:

$M$ is the maturity value
$P$ is the principal amount (initial investment)
$I$ is the interest earned

Calculate the interest earned The interest can be calculated using the formula: $$ I = P \times r \times t $$ where:

$r$ is the rate of interest (as a decimal)
$t$ is the time in years

In our case:

$P = 100,000$
$r = 0.06$ (6% as a decimal)
$t = 2$

Substitute values into the interest formula Plugging in the values into the interest formula gives us: $$ I = 100,000 \times 0.06 \times 2 $$
Perform the calculation for interest Now calculate the interest: $$ I = 100,000 \times 0.06 \times 2 = 12,000 $$
Calculate the maturity value Now that we have the interest, we can find the maturity value by substituting into the first formula: $$ M = P + I $$ That gives us: $$ M = 100,000 + 12,000 $$
Final calculation Perform the final calculation for the maturity value: $$ M = 112,000 $$

The maturity value of the investment is ₱112,000.

More Information

The maturity value reflects the total amount one will receive after the investment period, including both the principal and the interest earned. It's important to understand the distinction between the principal and the interest to comprehend the total growth of an investment.

Tips

Confusing simple interest with compound interest; ensure the correct formula is used.
Not converting the percentage rate into decimal form before calculations. Remember: $6% = 0.06$.
Forgetting to add the principal to the interest when calculating the maturity value.

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