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Module 5 Using Mathematical Techniques PDF
Module 5 Using Mathematical Techniques PDF
MODULE 5
USING
MATHEMATICAL
CONCEPTS AND
TECHNIQUES
MODULE 5
USING
MATHEMATICAL
CONCEPTS AND
TECHNIQUES
• Information Sheet 1 SIMPLE INTEREST
• Information Sheet 2 SIMPLE DISCOUNT
• Information Sheet 3 COMPOUND INTEREST
• Information Sheet 4 SIMPLE ANNUITIES .
DESCRIPTION: This module covers the knowledge, skills and attitudes required in
the application of mathematical concepts and techniques.
COURSE OBJECTIVE: Students completing this module will be able to: Identify
mathematical tools and techniques to solve problem; Apply
mathematical procedure/solution; and Analyze results.
LEARNING GUIDE
Simple interest is the most basic type of interest. In order to understand how
various types of transactions work, it helps to have a complete understanding of
simple interest.
For example, you may pay interest on a loan, and it is important to understand
how interest works. Better yet, your bank may be paying you interest on your
deposits – and you can maximize your earnings by knowing more about
interest.
Simple Interest Overview
Simple interest is just the amount of money paid on a loan. It is the easiest type
of interest to calculate and understand
Simple Interest Formula
If you want to calculate simple interest, use this formula:
I=P r t
In other words Interest (I) is calculated by multiplying Principal (p) times the
Rate (r) times the number of Time (t) periods.
For example, if I invest $100 (the Principal) at a 5% annual rate for 1 year the
simple interest calculation is:
I=P r t
$5 = $100 x 5 % x 1 yr
Simple Interest Limitations
Simple interest is a very basic way of looking at interest. In fact, your interest –
whether you’re paying it or earning it – is usually calculated using different
methods. However, simple interest is a good start that gives us a general idea of
what a loan will cost or what an investment will give us.
The main limitation that you should keep in mind is that simple interest does
not take compounding into account.
Example 1
paid.
Given :
P = $1500
R = 12% = 0.12,
T= 2 years
I=?
Solution:
I = PRT
= 1500 × 0.12 × 2
= $360
Example 2
A man borrowed P 5,000 at the rate of 6% per annum payable at the end of 2
Given:
P = P5,000
R = 6%
T = 2 years
I=?
Solution:
I = PRT
= P5,000 x 6% x 2 years
= P600
Example 3.
Mrs. Garcia borrowed P8,000 at 8% simple interest for 2 years and 3 months.
Given:
P = P8,000
R = 8%
T = 2 years and 3 months
Solution:
I = PRT
= P8,800 x 0.8 x 2 3/12
= P1,584
SELF-CHECK 1.1
I P R T
1. ____________ P 2,400 6% 2 years
2. ____________ P 1,670 4 ½% 10
months
3. ____________ P 24,000 8 ¼% 2 years and 3
mos.
4. ____________ P 16,000 5.25% 8 months
5. ____________ P 14,500 11% 5 years
The principal (P) is computed by dividing the interest by the product of the rate
P= I
RT
Example 1.
Find the principal if the interest from a certain investment is P600 for 4 years at
the rate of 6% simple interest.
Given:
I = P600
R = 6%
T = 4 years
P=?
Solution
P= I
RT
= P600
(.06)(4years)
= P2,500
Example 2.
How much should Mr. Cruz invest so that his money earns P1,408 borrowed at
8% for two years and 9 months.
Given:
I = P1,408
R = 8%
T = 2 years and 9 months
P=?
Solution:
P= I
RT
= P1408
(.08)(2 years and 9 months) or (11/4)
= P6,400
SELF-CHECK 1.2
I P R T
1. P 2,400 ____________ 6% 2 years
2. P11,000 ____________ 4 ½% 10
months
3. P 4,580 ____________ 8 ¼% 2 years and 3
mos.
4. P 26,000 ____________ 5.25% 8 months
5. P 4,500 ____________ 11% 5 years
1. How much should Mr. Cruz invest so that his money earns P
8,980 borrowed at 4% for 7 years 4 months.
To solve for the rate of interest (R), divide the interest (I) by the product of the
R= I
PT
Example 1.
Mrs. Latar invested P3,500. For a period of 2 years, her money earned P665.
Given:
I = P665
T = 2 years
P = P3,500
R=?
Solution:
R= I
PT
= P665
(P3,500) (2)
= .095 or 9.5%
Example 2.
At what rate should one invest in a bank so that P6000 earns P1,537.50 for a
period of 3 years and 5 months?
Given:
I = P1,537.50
T = 3 years and 5 months
P = P6,000
R=?
Solution:
R= I
PT
= P1,537.50
(6000) (.075) (3 5/12)
= 7.5%
SELF-CHECK 1.3
I P R T
5. Find the rate of interest after 5 years and 6 months, if money is worth
P8,500 with an earning of P560.
To solve for the time, divide the interest (I) by the product of the principal (P)
and the rate of interest. (R). Thus,
T= I
PR
Example 1.
How long will it take P2,500 to earn P200 if the money is invested at 8% simple
interest?
Given:
I = P200
P = P2,500
R = 8%
T=?
Solution:
T= I
PR
= P200
(P2,500) (8%)
= 3 years
Example 2.
At what length of time must P4,500 be invested at 91/2% simple interest to earn
P496.25?
Given:
I = P496.25
P = P4,500
R = 9 1/2%
T=?
Solution:
T= I
PR
= P496.25
(P4,500) (9 1/2%)
= 3.5 years
SELF-CHECK 1.4
I P R T
The total amount S at the end of 5 years represents the principal plus the
total interest earned for the given number of years. We say that the principal
P has accumulated to the total amount S at the end of t years. By definition,
S=P+I
S = P + Prt
S = P (1 + rt)
Example 1:
Mary Juan borrowd from her sister the amount of P 3,650 and promised to
pay at the end of 2 years and 3 months. If money is worth 12%, how much
will she pay back at the end of the term?
Solution:
a. I = PRT
= P3,650 (.12) (2 ¼)
= P 985.50
S=P+I
= P3,650 + 985.50
= P4,635.50
b. Using the formula
S = P (1 + rt)
= P3,650 ( 1 + .13 x 2.25)
= P 4,650.50
SELF-CHECK 1.5
7. How long will it take for a given principal to earn half of itself if invested
at 8%?
9. Mario borrowed P8,500 with a promise to pay the amount including the
interest at 12% for one year. What simple payment should she have paid
at the end of the year?
The amount to be invested at simple interest (r) for a given period at time (t)
is called the present value (P) of the total amount (S). To compute the
present value (P) at simple interest, we have,
S = P (1 + rt)
P= S
I + rt
Example:
Solution:
P= S
1 + rt
= P 2,317.50
1 + .06 (180/360)
= P 2,250
SELF-CHECK 1.6
1. Find the present value of P245.18 at 8% from March 23, 1986 to April 12,
1987.
2. At 5% simple interest, find the present value of P325 due in 120 days.
3. How much must a man invest today at 4 1/2 % to pay an account woth
P3,426 due in 1 year and 8 months?
4. Mr. Carlos will need P50,000 in order to buy new machines 4 ½ years from
now. How must he invest today in the bank which gives 12% simple
interest?
5. Mr. Macoy invested a certain amount which earns 10 1/2 % simple interest.
How much did he invest if the money will mature after 18 months with an
accumulated value of P6,405?
Exact time is the actual number of days in the term of the transaction.
Approximate time arbitrarily considers each month as having 30 days.
For convention, we shall use the exact number of days between two dates.
But, we shall consider the time as a whole number of months when we find
the time from a certain date in another month. For example, from June 8 to
October 8 is 4 months. Hence, 4 times 30 equals 120. From October 8 to
October 12 is 4 days, therefore the approximate time is 120 plus 4 equals
124 days.
June 8 6 8
4 mo. 4 days
To determine the exact time between two dates, there are two methods that
we may use. On method is simply determining the number of days from
month to moth from the first date to the second date of the term. Another
method is by using Table 1 (found at the end of the module), the number of
each day of the year.
Example 1.
Determine the exact number of days from July 2, 1986 to December 20,
1986
Solution:
b. Using Table 1
December 20 = 345th day of the year
Less: July 2 = 290th day of the year
Exact No. of days = 171 days.
Example 2:
Solution
a. Find the exact time using the Table:
Number of day from October 17, 1987 to December 31, 1987
There are 177 days from January 1, 1988 to June 26, 1988. Hence, the exact
number of days from October 17, 1987 to June 26, 1988 is 252. That is 75 days
plus 177 days.
Another method is done by subtracting the first date from the second date.
To find the simple interest between two dates, gives us four types of interest as
follows:
1. Ordinary interest on exact number of days
I= PRT
= P5,600 (.05) (252/360)
= P196
Among the four types of interest, the ordinary interest on exact number of days
yields the highest interest. This type of interest is otherwise known as the
Banker’s Rule which is widely used in business
SELF-CHECK 1.7
A. Using the table, find the exact number of days between the following dates:
1) May 17, 1986 to December 3, 1986
2) November 15,1986 to August 9, 1987
3) January 22, 1984 to March 3, 1985
4) June 12, 1983 to July 15, 1986
2) Mrs. Paras, who needed an additional amount of P8,260 for her business,
borrowed from Mrs. Santos the said amount at 9% for 264 days. How
much interest did Mrs. Paras pay Mrs. Santos?
3) On December 15, 1986, Mrs Lee loaned P5,000 to pay the hospital bills.
She promised to pay the amount plus the interest on April 9, 1987. how
much was the interest, if the amount is worth 9 ½% simple interest?
4) At the start of business, Mr. Liptona loaned P50,500 at ABC Bank which
charges 12% simple interest. He promised to pay the amount plus the
interest at the end of one year and 275 days. How much was the interest
paid?
The use of the 6%, 6-day method of computing interest makes computation
easier. This method has varied application as illustrated by the following
examples:
Solution:
a) I = PRT
= (P1,200) (.06) (6/360)
= (P1,200) (.001)
= P 1.20
b) I = PRT
= (P1,200) (.06) (60/360)
= (P1,200) (.01)
= P 12
c) I = PRT
= (P1,200) (.06) (600/360)
= (P1,200) (.1)
= P 120
d) I = PRT
= (P1,200) (.06) (6000/360)
= (P1,200) (1)
= P 1,200
Take note that the interest is simply found by multiplying the given principal by
.001 for 6 days, .01 for 60 days, .1 for 600 days and by 1 for 6,000 days.
Example 2.
Solution:
a. I = (P5,250) (.001)
= P5.25 (interest at 6% for 6 days)
Since, 12% = 2 (6%), then the interest at 12% for 6 days is equals to the
interest at 6% for 6 days multiplied by 2. Hence,
I = (P5.25) (2)
= P10.50 (interest at 12% for 6 days
b. I = (P5,250) (1)
= P5250 (interest at 6% for 6 days)
Since, 12% = 2 (6%), then the interest at 12% for 6 days is equals to the
interest at 6% for 6 days multiplied by 2. Hence,
I = (P5,250) (2)
= P10,500 (interest at 12% for 6 days
SELF-CHECK 1.8
A. Using the 6%-6 day method, discount each of the following amounts
Normally, when a person applies for loans from banks or credits institutions, the
interest is collected in advanced which we call discount. To discount an amount is
to find its value at a period earlier than its maturity date. Let S be the sum of
money to be discounted, d the rate of discount per annum and t the term of
discount in years. Then , the amount of discount represented by D is.
D = SDT
Example:
Discount the amount, P2,400 at 10% discount rate for 150 days.
Solution:
D = SDT
= P2,400 (.10) (150/360)
= P100
After the amount is discounted by the bank, the amount which the borrower recives
is the present value (P) of the amount (S). To find the present value P.
P=S–D
So,
P = P2,400- 100
= P2,300
To solve for the discount rate (r), divide the discount D by the product of the total
amount (S) and the term of discount. (t). Hence,
d= D
St
Example:
Find the discount rate if P820 yields a discount of P147.60 for 3 years.
Solution:
d= D
St
= P147.60
P820
To solve for the term of discount (t), divide the discount (D) by the product of the
total amount (S) and the discount rate d. Thus,
t= D
Sd
Example:
How long will it take P1,300 to earn P55.25 if the amount is discounted at 8 ½%?
Solution:
t= D
Sd
t = P55.25
P1,300 (.085)
t = .5 years or 6 months
To solve for the total amount (s), divide the discount D by the product of the
discount rate (d) and the term of the discount (t). So,
S= D
dt
Example:
A certain amount is discounted at 8% for 120 days, and yields a discount of P24.
Find the total amount.
Solution:
S= D
dt
= P24
(.08) (120/360)
= P900
SELF-CHECK 2
D S d t P
1. P245.18 at 8% simple interest rate from March 29, 1987 to November 12, 1987.
2. P950 at 12 ½% discount rate from October 21, 1986 to August 16,1987
3. P4,200 due in 225 days at 9 ½% discount rate.
4. P15,500 due in 390 days at 12% simple interest rate
5. P2,350 at 8 ½% discount rate for 1 year and 15 days.
Whenever, a person borrows money from a creditor, that person whom who call
the debtor signs as agreement which is a promise to pay the amount at some future
time. The agreement is called the promissory note. The date when the note was
drawn is called the date of note while the date when the note matures is called the
maturity date or the due date. The amount written in the promissory note is called
face of the note. While the amount which includes the interest plus an agreed rate
of interest on the face is called the maturity value. The person who signs the note is
the maker of the note.
There are two types of promissory notes, one is the interest-bearing note and the
other is the non-interest bearing note. A non-interest bearing note includes the
interest in the maturity value while an interest-bearing note states the interest rate.
Any note, for it to be negotiable or valid, must be dated, signed, with a fixed
amount, unconditional, either demand or with a definite due date and with
specified interest rate, if any.
Five months from date, I promise to pay to the order of Juan dela Cruz two
thousand six hundred pesos (P2,600) with interest at the rate of 10% per annum.
Five months from date, I promise to pay to the order of Juan dela Cruz two
thousand six hundred pesos (P2,600)
(Signed) Francisco Merced
A person who holds a note may cash the note before the due date as the need of
cash arises. That is, he may sell the note to the bank and the bank is turn will take a
certain percentage on the maturity value at a discount rate. This percentage will be
deducted from the maturity value and the balance will be deducted from the
maturity value and the balance will be given to the seller of the promissory note.
On the other hand, the bank then collects the maturity value from the maker of the
note on the due date.
Example:
Mr. Juan dela Cruz made a promissory note, promising to pay Mr. Garcia P2,400
with an interest at 9% after 9 months. Three months after the date of note, Mr.
Garcia sold the note to a bank which charges 10% discount rate. How much did
Mr. Garcia receive from the bank?
Solution:
a. The maturity value S of the note is, b. Substitute from the formula,
S = P (1 + rt) P = S (1 –dt)
= P2,400 (1 + .09 x 9/12) = P2,563 (1 - .10 x 6/12)
= P2,562 = P2,562 (1 - .05)
From the time the note was sold to the time = P2,433.90
it matures, the bank discounts it for 6
months. Thus,
D = Sdt
D= P2,562 x .10 x 6/12
= P128.10
P=S–D
= P2,562 – 128.10
= P2,433.90
SELF-CHECK 2.1
1. Mr. Juan promises to pay to the order of Mr. Lee (P6,500 with 12% simple
interest after 6 months. Three months after, Mr. Lee sold the note to a bank
which discounts it at 5% simple discount. How much will Mr. Lee receive from
the bank?
2. On February 16, 1988 Mrs. Lope borrowed P50,000 from Mrs. Cunate. She
then made the following note:
Sampaloc, Manila
Feb. 16, 1988
Two hundred ninety five days after date, I promise to pay Mrs. Cunate fifty
thousand pesos only (P50,000) with 10% simple interest per annum.
3. From problem no. 2, ACE Bank in turn sold the note to ABC Bank which
rediscounts it at 3% discount rate. How much will ACE Bank receive?
● When interest is regularly added to the principal and this new sumbecomes the
principal for the following time period and the process is repeated periodically, the
final amount si called compound amount.
● The regular or periodic interval of time per year is called conversion period or
interst period. This is denoted by the symbol m. This is usally quarterly, where
interest is computed for every three months or four times a year. Quarterly is
symbolized by m = 4. This may also be semi-annually m = 2 or monthy m= 12. If no
period is stated, it is understood that the interest period is annually (m=1).
S = P (1 + i ) n
Where:
Note: The total number of conversion period (n) for the entire term of the transaction
is the product of the conversion period per year (m) and the entire term expressed in
terms of years (t)
Example 1:
Given:
P= P1,000
j = 8%
m = 4 (quarterly)
t = 1 year
Solution:
a.) i = j = 8% = 2%
m 4
b.) n = mt = 4(1) = 4
c.) S = P (1 + i ) n = P1,000 (1 + 2%)4
= P1,000 (1.08243216)
= P1,082.43
Example 2:
Given:
P= P8,500
j = 12%
m = 12
t = 10 year
Solution:
a.) i = j = 12% = 1%
m 12
Example 3:
Given:
P= P500
j = 4%
m = 12
t = 1 ½ years
Solution:
a.) i = j = 4% = 1/3%
m 12
b.) n = mt = 12(1 ½ ) = 18
c.) S = P (1 + i ) n = P500 (1 + 1/3%)18
= P500 (1..061731)
= P530.87
SELF-CHECK 3
the present value P is that principal which is invested on the given date at the
given interest rate will accumualate to a specific amount S. At some later date.
P = S
(1 + i ) n
P = S (1 + i ) -n
Example 1.
Given:
j = 6%
m=2
S = P2,000
t = 5 years
Solution:
a.) i = j = 6% = 3%
m 2
b.) n = mt = 2(5 ) = 10
c.) P = S (1 + i ) -n = P2,000 (1 + 3%)-10
= P2,000 (.744094)
= P1,488.19
Example 2.
A non-interest bearing note whose face value is P6,250 is sold to a bank 19 monts
before maturity. If money is worth 8% m=4 how much will the bank pay for the
note
Given:
j = 8%
m=4
S = P6,250
t = 5 years
Solution:
a.) i = j = 8% = 2%
m 4
b.) n = mt = 4(19/12 ) = 6 1/3
c.) P = S (1 + i ) -n = P6,250 (1 + 2%)-6
(1 + 2%) 1/3
= P6,250 (.88791)
1.006623
= P5,513.30
SELF-CHECK 3.1
2. How much must a corporation deposit on a bank which credits interest at 18% m = 12. to
come up with P30,000 in 6 years needed for its expansion program?
3. Mr. dela Rosa wishes to invest a sum on his son’s 7th birthday in a trust fund which gives
9% interest compounded quarterly. How much must he invest if he wants the money to
amount to P20,000 by the time his son reaches his 18th birthday?
There are some investment problems that will ask for the value of the nominal rate
or quoted rate (j) and the value of the interest per period (i). These problems
usually look for these rates for purposes of information and comparison. If P, S,
and n are given it is possible to solve for the values of i and j.
To compute for the nominal rate, divide accumulated amount (S) to principal (P)
then look for the nth root (n), subtract the result to 1. To get the nominal rate
multiply it to periodic conversion (m). Below is the formula
i = n S - 1
P
j = i (m)
Example 1:
Given:
P = P500
S = P760
m=4
n = 5 years
Solution:
i = n S - 1
P
= 20 P760 - 1
P500
= 20 1.52 - 1
= 1.021156 – 1
= .021156 x 4
= 8.46%
SELF-CHECK 3.2
P S m Term
2. At what rate, converted semi-annually is P896 the present value of P1104 which is due in
8 years?
4. If an investment increases from P68000 to P83000 in 4 years what is the nominal rate of
interest compounded quarterly?
Everyday living entails monthly rentals for persons’ dwelling installment payments
for a car or some household appliances. The common housewife is usually
confronted with the question of how to budget the family income in such a way
that the basic needs of the family would be attended to.
Aside from the basic financial needs which must be attended to, a certain amount
must be set aside for some future use. A regular monthly, bi-monthly (or whatever)
savings ensure a person of a modest amount in the future.
A simple annuity is one wherein the payment interval and the interest conversion
period coincide.
The payment interval is the period of time between consecutive payments. It may
be of any convenient length like monthly, quarterly, semiannually and annually.
The term of an annuity extends from one payment interval before the first payment
up to the day of the last payment. Unless otherwise specified, the term of any
annuity is presumed to begin immediately.
TYPES OF ANNUITIES
The amount of an annuity (S) is the total value of all payments at the end of the
term. It can also be called as the accumulated value of the annuity. Use this
formula,
S = R ( 1 + i) n -1
i
n i
Example
Mrs. Cruz regularly deposits P1,000 at the end of each six months for 3 years. The
bank gives interest at 8%, m = 2. How much will be in her account at the end of the
third year?
Given:
R = P1000
n=6
i = 4%
Solution
S = R ( 1 + i) n -1
i
n i
= P1000 ( 1 + .04)6 -1
.04
= P1000 (1.265319 – 1)
.04
= P6,632.98
SELF-CHECK 4
1. P2300 paid at the end of each 6 months for 4 years with interest at 11%, m =
2
3. P8000 due at the beginning of each 3 months for 3 years. Money is worth
6%,m = 4
4. An annual payment of P200 every three months for 2 years. Money is worth
4%, m = 4
5. A payment of P 2000 every three months for 2 years. Money is worth 4%,
1. Mrs. Reyes bought a sala set and paid P5000 as downpayment and promises
to pay P250 at the end of each three months for 2 years. If money is worth
5% compounded quarterly, how much is the total payment for the sala set?
2. The contract for the sale of farm machineries calls for a downpayment of
P5,600 plus a quarterly payment of P2,250 for 5 years. If money is worth
10%, m=4, how much is the total payment for the machineries?
3. A man made semiannual deposits of P2000 into a savings fund that pays
interest at 9% compounded twice a year. How much will be his savings in 8
years? If after the eight year, no deposit and withdrawal have been made,
how much will be in his account at the end of the twelfth year?
4. The buyer of a house and lot agrees to pay P2,830 at the beginning of each
month for 8 years. If money is worth 18% compounded monthly, find the
total cost of the house and lot.
The present value (A) of an annuity is the total value of all payments computed at
the beginning of the term. It is the sum of the discounted values of the payments of
the annuity at the beginning of the term.
A = R 1 -( 1 + i) - n
i
n i
Example:
The contract for the sale of a lot calls for a monthly payment of P500 for 5 years. If
money is worth 12% compounded monthly, what is the cash price of the lot
Solution:
R = P500 n = 60 i = 1%
b. A = R 1 -( 1 + i) - n
i
n i
= P500 1 – ( 1 + .01) - 60
.01
= P500 1 – 0.550450
.01
= P500(44.955048)
= P22,477.52
SELF-CHECK 4.1
2. P1000 paid at the end of every year for 25 years with interest at 4%, m=12
3. P7500 deposited monthly for 20 years for 1 year if money is worth 12%
compounded monthly
1. The buyer of a farm pays P42000 downpayment and promises to pay P8000
at the end of each 6 months for 7 years. If money is worth 8% compounded
semiannually, find the equivalent cash price.
2. A sala set is bought for P6000 downpayment and P240 a month for 8
months. What is the equivalent cash price of the sala set if money is worth
24% compounded monthly.
3. A man agrees to pay P2000 at the end of each month for 20 years in
purchasing a house. Find the present value of this agreement if money is
worth 3% compounded monthly.
4. Upon retirement, Mrs. Reyes finds that her company pension calls for
payments of P2000 to her (or to her estate if she dies) at the beginning of
each month for 25 years. Find the present value of this pension if money is
worth 4% compounded monthly.
5. A stereo set is offered for sale for P4000 downpayment and P1,200 every
three months for the balance for 5 years. If interest is to be computed at 6%,
m=4, what is the cash price of the set.
Student name:
Module Title/No:
Qualification:
Oral/interview questions Satisfactory response
Yes No
1.
2.
3.
4.
5.
Performance Remarks
Feedback
S NS C NYC
1. Self-Check 1.1
2. Self-Check 1.2
3. Self-Check 1.3
4. Self-Check 1.4
5. Self-Check 1.5
6. Self-Check 1.6
7. Self-Check 1.7
8. Self-Check 1.8
9. Self-Check 2
10. Self-Check 2.1
11. Self-Check 3
12. Self-Check 3.1
13. Self-Check 3.2
14. Self-Check 3.3
15. Self-Check 4
16. Self-Check 4.1
S - Satisfactory
NS – Not Satisfactory
C - Completed
NYC – Not Yet Completed
Module is
Completed Not Yet Completed
Remarks: