SIMPLE AND COMPOUND INTEREST

Simple interest is based on a loan or deposit's principal amount, while compound interest is base
d on the principal amount and interest accumulated on it in each period.

Annual Simple Interest

𝒍𝒔 = 𝑷𝒓𝒕
Where 𝑙 = simple interest
𝑃 = principal, or the amount invested or borrowed
r = simple interest rate
t = term or time in years

Example 1: A BDO company offered 0.30% annual simple interest rate for a particular deposit.
How much interest will be earned if five hundred thousand pesos is deposited in this savings
account for 2 years?

Given: 𝑃 = 500,000 𝑙 = 0.30% = 0.0030 𝑡 = 2 years

Find: 𝑙𝑠

Solution: 𝑙𝑠 = 𝑃𝑟𝑡
𝑙𝑠 = (500,000)(0.0030)(2)
𝑙𝑠 = 3,000

Answer: The interest earned is P 9,000.

Example 2: Complete the table below by finding the unknown

𝑃𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙 ( 𝑃) 𝑅𝑎𝑡𝑒 ( 𝑟) 𝑇𝑖𝑚𝑒 ( 𝑡) 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡

𝑎 6.4% 4 3,000
80,000 𝑏 2 13,000
130,000 0.8% 𝑐 225
150,000 19.4% 8 𝑑

Solution:

(a) The unknown principal can be obtained by

𝑙𝑠
𝑃 = 𝑟𝑡
3,000
𝑃= (0.064)(4)
𝑃 = 11,718.75
(b) The unknown rate can be computed by
𝑙𝑠
𝑟 = 𝑃𝑡
13,000
𝑟= (80,000)(2)
𝑟 = 0.08 = 8%
 (c) The unknown time can be calculated by
𝑙𝑠
𝑡 = 𝑃𝑟
225
𝑡= (130,000)(0.008)
𝑡 = 0.22 𝑦𝑒𝑎𝑟𝑠

(d) The unknown simple interest is given by

𝑙𝑠 = 𝑃𝑟𝑡
𝑙𝑠 = (150,000)(0.194)(8)
𝑙𝑠 = 232,800

Example 3: If an entrepreneur applies for a loan amounting to P735, 000 in a bank, the simple
interest of which is P 169,000 for 2 years, what interest rate is being charged?

Given: 𝑃 = 735,000 𝑙𝑠 = 169,000 𝑡 = 2 𝑦𝑒𝑎𝑟𝑠

Find: 𝑟

𝑙𝑠
Solution: 𝑟= 𝑃𝑡
169,000
𝑟= (735,000)(2)
𝑟 = 0.115 = 11.5%

Answer: The bank charged an annual simple interest rate of 11.5%.

Example 4: Find the maturity value and the compound interest if P13, 000 is compounded
annually at an interest rate of 5% in 7 years.

Given: P13, 000 r = 5% = 0.05 t = 7 years

Find: (a) maturity value F

(b) Compound interest 𝑙𝑐

Solution:

(a) F = 𝑃(1 + 𝑟)𝑡

F = (13, 000) (1 + 0.05)7
F = 18, 292.31

(b) 𝑙𝑐 = F- P
𝑙𝑐 = 18, 292.31-13, 000
𝑙𝑐 = 5,292.31

Answer: The future value F is P18, 292.31 and the compound interest is P5, 292.31
Example 5: How much money should a student place in time deposit in a bank that pays 2.3%
compounded annually so that he will have P345, 000 after 7 years?

Given: F = 345,000 r = 2.3% = 0.023 t = 7 years

Find: P

Solution: The present value P can be obtained by

𝐹
𝑃 = (1+𝑟)𝑡
345,000
𝑃= (1+0.023)7
𝑃 = 294,231.83

Answer: The student should deposit P294,231.83 in the bank.

ANNUITIES
Annuity is a sequence of payments made at equal (fixed) intervals or period of time.
An annuity is a time-limited fixed income.

According to payment interval
and interest period
According to time of payment
According to duration
𝐴𝑛𝑛𝑢𝑖𝑡𝑖𝑒𝑠
Simple Annuity an annuity General Annuity an annuity
where the payment interval is where the payment interval is
the same as the interest period not the same as the interest
period
Ordinary Annuity (or Annuity Due a type of
Annuity Immediate) a type annuity in which the payments
of annuity in which the are made at beginning of each
payments are made at the end payment interval
of each payment interval
Annuity Certain an annuity Contingent Annuity an
in which payments begin end annuity in which the payments
at definite times extend over an indefinite(or
indeterminate) length of time

Term of an annuity, t – time between the first payment interval and last payment interval

Regular or Periodic payment, R – the amount of each payment

Amount (Future Value) of an annuity, F – sum of future values of all the payments to be made
during the entire term of the annuity

Present value of an annuity, P – sum of present values of all the payments to be made during
the entire term of the annuity.
Time Diagram for an n-Payment Ordinary Annuity

R R R R R ... R

0 1 2 3 4 5 n

Example 1: Suppose Mrs. Kagigil would like to save P 3,875 every month in a fund that gives
10% compounded monthly. How much is the amount or future value of her savings after 8
months?

Given: periodic payment R = 3,875

term t = 8 months
interest rate per annum 𝑖 (12) = 0.10
number of conversions per year m = 12
0.10
interest rate per period 𝑗 12 = 0.0083
Find: amount (future value) at the end of the term, F

Solution.

(1)Illustrate the cash flow in a time diagram.

3875 3875 3875 3875 3875 3875 3875 3875

0 1 2 3 4 5 6 7 8

(2) Find the future value of all the payments at the end of term (t = 8).

3875 3875 3875 3875 3875 3875 3875 3875

0 1 2 3 4 5 6 7 8

3875

3875(0.0083)

3875(0.0083)2

3875(0.0083)3

3875(0.0083)4

3875(0.0083)5

3875(0.0083)6

3875(0.0083)7

3875(0.0083)8
(3) Add all the future values obtained from the previous step.

3875 = 3875
3875(1 + 0.0083) = 3,907.16
3875(1 + 0.0083)2 = 3,939.59
3875(1 + 0.0083)3 = 3,972.29
3875(1 + 0.0083)4 = 4,005.26
3875(1 + 0.0083)5 = 4,038.50
3875(1 + 0.0083)6 = 4,072.02
3875(1 + 0.0083)8 = 4,139.90

F = 31,949.72

Thus, the amount of this annuity is P31, 949.72.

Example 2: Ms Dee Umaeno started to deposit P3, 000 quarterly in a fund that pays 7.6%
compounded quarterly. How much will be in the fund after 7 years?

Given: R = 3,000
m= 4
(12)
𝑖 = 7.6% = 0.076
0.076
𝑗 = 4 = 0.019
𝑡 = 7 𝑦𝑒𝑎𝑟𝑠
n = tm = (7) (4) = 28 periods

Find: F

(1+𝑗)𝑛 − 1
Solution: F = R 𝑗

(1+0.019 )28 − 1
F = (3,000) 0.019

Answer F = 109,556.62

Example 3: The buyer of a store and lot pays P130, 000 cash and P11, 000 every month for 17
years. If money is 6% compounded monthly, how much is the cash value of the lot?

Given: down payment = 130, 000

R = 11,000
(12) = 0.06
𝑖
m = 12
0.06
j = 12 = 0.005
t = 17 years
n = mt = (12) (17) = 204 periods
Find: Cash Value

Solution:

1− (1+𝑗)−𝑛
P=R 𝑗
1−(1+0.005)−204
P = (11,000) 0.005

P = 1,404,672.348

Cash Value = Down payment + Present Value

Cash Value = 130, 000 + 1,404,672.348

Answer: 1,534,672.348

Example 4: Mr. Sumuko would like to save P444, 999 for his daughter’s college education.
How much should he deposit in a savings account every 6 months for 11 years if interest is at 2%
compounded semi – annually?

Given: F = 444, 999

𝑖 (2)=0.02
m=2
j = 0.005
t = 11 years
n = mt = (2)(22) = 44 periods

Find: periodic payment R

Solution:

(1+𝑗)𝑛 − 1
R=F/ 𝑗

(1+0.005)44 − 1
R = 444, 999 / 0.005

Answer: 9,067.034

Example 5: A microwave oven is for sale at P 23,999 in cash or on terms, P2,999 each month
for the next 12 months. Money is 8% compounded monthly. Which is lower, the cash price or
the present value of the installment terms?

Given: Cash Price: P 23,999

R = 2,999
𝑖 (12) = 0.08
m = 12
j = 0.0075
t = 1 year
n = mt = (12)(1) = 12 periods

Find: Present Value P

Solution:

1−(1+𝑗)−𝑛
P=R 𝑗

1−(1+0.0075)−12
P = (2,999) 0.0075

P = 34,293.30

Therefore, buying the microwave oven in cash is lower than paying it in instalment term.

BASIC CONCEPTS OF STOCKS AND BONDS

Stocks and bonds represent two different ways for an entity to raise money to fund or expand
their operations. When a business issues inventory, in return for money, it sells a piece of itself.
When an organization issues a bond, paying interest for the use of the cash is issuing debt with
the contract.

Example 1: A certain financial institution declared a P 45,000,000 dividend for the common
stocks. If there are total of 835,000 shares of common stock, how much is the dividend per
share?

Given: Total Dividend = P 45,000,000

Total Shares = 835,000

Find: Dividend per share

Solution:

𝑇𝑜𝑡𝑎𝑙 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑
Dividend per Share = 𝑇𝑜𝑡𝑎𝑙 𝑠ℎ𝑎𝑟𝑒𝑠

45,000,000
= 835,000

= 53.89

Therefore, the dividend per share is P53.89

Example 2: A certain corporation declared a 5% dividend on a stock with a par value of P800.
Mrs. Inip owns 300 shares of stock with a par value of P800. How much is the dividend she
received?
Given: Dividend Percentage = 5%
Par Value = P800
Number of Shares = 300

Find: Dividend

Solution:
The dividend per share is: P800 × 0.05 = P40.

P40/ share × 300 shares = 12,000

In summary,

Dividend = (Dividend Percentage)×(Par Value)×(No. Shares)

= (0.05) (800) (300)
= 12,000

Thus, the dividend is P12, 000.

Example 3: Determine the amount of the semi-annual coupon for a bond with a face value of
P456, 000 that pays 11.5%, payable semi-annually for its coupons.

Given: Face Value F = 456,000

Coupon rate r = 11.5%

Find: Amount of the semi-annual coupon

Solution:
Annual coupon amount: 456,000(0.115) = 52,440.

1
Semi-annual coupon amount: 52,440 (2) = 26,220

Thus, amount of the semi-annual coupon is P26,220.

Note: The coupon rate is used only for computing the coupon amount, usually paid semi-
annually. It is not the rate at which money grows. Instead current market conditions are reflected
by the market rate, and are used to compute the present value of future payments.

Example 4: Corporation A, with a current market value of P67, gave a dividend of P9 per share
for its common stock. Corporation B, with a current market value of P98, gave a dividend of P18
per share. Use the stock yield ratio to measure how much dividends shareholders are getting in
relation to the amount invested.

Solution:
Given: Corporation A
Dividend per share = P9
Market Value = P67
Find: stock yield ratio

𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒

= 𝑚𝑎𝑟𝑘𝑒𝑡 𝑣𝑎𝑙𝑢𝑒

Stock yield ratio

9
= 67

= 0.1343 = 13.43%

Corporation B
Dividend per share = P18
Market Value = P98
Find: stock yield ratio

𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒

= 𝑚𝑎𝑟𝑘𝑒𝑡 𝑣𝑎𝑙𝑢𝑒
Stock yield ratio
18
= 98

= 0.1837 = 18.37%

Corporation A has a higher stock-yield-ratio than Corporation B. Thus, each peso would earn
you more if you invest in Corporation A than in corporation B. If all other things are equal, then
it is wiser to invest in Corporation A.

Example 5:

A financial institution declared a dividend of P88, 000,000 for its common stock. Suppose there
are 678,000 shares of common stock, how much is the dividend per share?

Solution:

Given: Total Dividend = 𝑃88,000,000

Total shares = 678,000

Find: Dividend per Share

𝑇𝑜𝑡𝑎𝑙 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑
Dividend per share = 𝑇𝑜𝑡𝑎𝑙 𝑆ℎ𝑎𝑟𝑒𝑠
 88,000,000
= 678,000

= 129. 79

Therefore, the dividend per share is P129.79.

BASIC CONCEPTS OF LOANS

Business Loan-money specifically provided for a company purpose. Collateral-assets used to
obtain the loan can be used to begin a company or to have a company expansion Consumer
Loan-cash provided to a person for private or family purposes.

Example 1: Mr. Reklamo borrowed P2, 000,000 for the expansion of his business. The effective
rate of interest is 9%. The loan is to be repaid in full after two years. How much is to be paid
after two years?

Solution:

Given: P2, 000,000 𝑗 = 0.09

n= 2
Find F.

Solution: F = P(1 + j)𝑛 = P2, 000,000(1+ 0.09) = 2,180,000

Example 2 (Chattel Mortgage): A person borrowed P2, 300, 000 for the purchase of a car. If
his monthly payment is P43, 000 on a 6-year mortgage, find the total amount of interest.
Given: P = 2,300,000 Monthly Payments = 43,000

Solution:

The total amount paid is given by

Total Amount = (43,000) (12 months)(6 years)
= 3,096,000

Thus, the total interest is the difference between the total amount paid and the amount of the
mortgage;
Total Interest = 3,096,000 - 2,300,000

= 796,000

Example 3: If a house is sold for P2, 600,000 and the bank requires 12% down payment, find
the amount of the mortgage.

Solution:
Down payment = down payment rate × cash price
= 0.12(2, 600,000)
 = 312,000

Amount of the loan = cash price – down payment

= 2, 600,000 - 312,000
= 2,288,000

The mortgage amount is 2,288,000

Example 4: A loan of P345, 000 is to be repaid in full 3 years. If the interest rate is 7%
per annum. How much should be paid after 3 years?

Solution:

Given: P = P345, 000 j= 0.07 n= 3

Find F.

F = P +(1 + j)𝑛 = P345, 000(1 + 0.07)3 = 422,639.84

The amount to be paid is P422,639.84.

Example 5: If a car loan of P999, 000 requires a 23% down payment. How much is the
mortgage?

Solution:

Down payment = down payment rate × cash price

= 0.23(P999, 000)
= 229,770
Amount of the loan = cash price - down payment
= 999, 000 - 229,770
= 769,230

The mortgage is P769, 230.

LOGIC
Logic One area of mathematics that has its roots deep in philosophy is the study of logic. Logic is the
Study of formal reasoning based upon statements or propositions.

A proposition is a declarative sentence that is either true or false, but not both. If a proposition is
true, then is truth value is true, which is denoted by T; otherwise, its truth value is false, which is
denoted by F.

Propositions are usually denoted by small letters. For example, the proposition
p: Think before you click
may be read as
p is the proposition “Think before you click.”

If a sequence of propositions is considered, we denote the propositions by 𝑝1, 𝑝2 ,...

Example 1: Determine the following statements if it is a proposition or not. If it is a proposition,

give its truth value.

g: 4+19 = 23

Solution:
The given equation is a mathematical sentence. Translated into English, the equation reads ‘The
sum of four and nineteen is twenty-one”, which is a declarative sentence. It is also a true
statement. Hence is a true proposition.

Example 2: Determine the following statements if it is a proposition or not. If it is a proposition,

give its truth value.

e: 4× 4 = 16

Solution:
The given equation is a mathematical sentence. Translated into English, the equation reads ‘The
multiplication of four and four is sixteen”, which is a declarative sentence. It is also a true
statement. Hence is a true proposition.

Example 3: Determine the following statements if it is a proposition. If it is a proposition

determine its truth value if possible.

r: 64 is a perfect square

Solution:
This is a true proposition, since it is declarative and we know that 82 = 64.

Example 4: Determine the following statements if it is a proposition. If it is a proposition

determine its truth value if possible.

m: 8 is a square root of 64

Solution:
This is a true proposition, since it is declarative and we know that √64 = 8.

Example 5: Determine the following statements if it is a proposition. If it is a proposition

determine its truth value if possible.
i: 625 is a perfect square

Solution:
This is a true proposition, since it is declarative and we know that 252 = 625.