Where:

𝐼 = 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡
𝑃 = 𝑃𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙, 𝑝𝑟𝑒𝑠𝑒𝑛𝑡 𝑤𝑜𝑟𝑡ℎ
𝑖 = 𝑟𝑎𝑡𝑒 𝑜𝑓 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑝𝑒𝑟 𝑝𝑒𝑟𝑖𝑜𝑑
𝑛 = number of interest periods, in years
𝐹 = 𝐴𝑐𝑐𝑢𝑚𝑢𝑙𝑎𝑡𝑒𝑑 𝐴𝑚𝑜𝑢𝑛𝑡, 𝑜𝑟 𝐹𝑢𝑡𝑢𝑟𝑒 𝑊𝑜𝑟𝑡ℎ
A. Ordinary Simple Interest B. Exact Simple Interest

computed on the basis of one based on the exact number of

banker’s years which is 12 days in a year, 365 for an
months of 30 days each or ordinary year and 366 days for
360 days a year a leap year
 Sample Problems
If you got a character loan of P10000 from a
bank worth 18% interest per annum, how
much interest would you have paid in 2
years?

02
A money worth P 4000 is borrowed for 75
days at 16% per annum simple interest. How
much will be due at the end of 75 days?
CASH FLOW
DIAGRAM
Types of
Cash Flows
PROBLEM: A machine will cost $30000 to
purchase. Annual operating and maintenance
cost (O&M) will be $2000. The machine will
save $10000 per year in labor cost. The salvage
value of the machine after 5 years will be
$7000. Draw the cash flow diagram.
Where:

P = Present worth or Principal

F = Future worth
r = nominal rate
t= number of years of investment
m = number of compounding year
 Sample Problems
Maria puts P20000 in a savings account
paying 8% annual interest compounded
monthly. At this rate, how much money will
be in the account for 10 years

James wants to have P 2000000 for

retirement in 45 years. He invests in a mutual
02 fund paying on average of 9.5% each year
compounded quarterly. How much should he
deposit into his mutual funds?
Where:

I =Nominal interest rate

N = Number of periods
m = number of compounding per year
r = nominal rate
 Sample Problems
What is the effective rate corresponding
to 18% compounded daily? Assume 1
year is equal to 360 days.

What rate of interest compounded

02 annually is the same as the rate of
interest of 8% compounded quarterly?
Where:
𝑃 = 𝑃𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙, 𝑝𝑟𝑒𝑠𝑒𝑛𝑡 𝑤𝑜𝑟𝑡ℎ
𝑒 = 𝑚𝑎𝑡ℎ𝑒𝑚𝑎𝑡𝑖𝑐𝑎𝑙 𝑐𝑜𝑛𝑠𝑡𝑎𝑛𝑡 𝑎𝑝𝑝𝑟𝑜𝑥 𝑎𝑠 2.7183
r = nominal rate
𝐹 = 𝐴𝑐𝑐𝑢𝑚𝑢𝑙𝑎𝑡𝑒𝑑 𝐴𝑚𝑜𝑢𝑛𝑡, 𝑜𝑟 𝐹𝑢𝑡𝑢𝑟𝑒 𝑊𝑜𝑟𝑡ℎ
𝑡 = 𝑡𝑖𝑚𝑒, 𝑖𝑛 𝑦𝑒𝑎𝑟𝑠
 Sample Problems
Kim invest $10000 in a mutual fund
that grows continuously, on average, by
9% per year. What will be the value of
the account after 10 years?

How long will it take Kim’s investment

02 to double if her mutual fund to grow by
9% per year on average?
DISCOUNT AND
INFLATION
 DISCOUNT
- The difference b/n the Future value and its
present worth.
d= Future Value - Present Value
1. Maria borrowed Php 10000 from a bank and
promised to pay the amount for 1 year. But
he received Php 9600 only after the bank
deducted an advance interest of Php 400.
Find the:
(a) the rate of discount and
(b) the rate of interest that the bank charged her.
INFLATION
is the rate at which the general level of
prices and goods and services is
increasing from one year to another and
subsequently, purchasing power of money
is decreasing
In an inflationary economy, the buying
power of money decreases as cost
increases:
If the uninflated present worth is to be
determined:
𝐹
𝑃=
1+𝑖
𝑖 = 𝑖 + 𝑓 + 𝑖𝑓
 1. A man invested P 130000 at an interest rate
of 10% compounded annually. What will

Sample
be the final amount of his investment, in
terms of today’s peso, after 5 years, if

Problems inflation remains the same at the rate of

8% per year?

2. What is the uninflated present worth of a Php

200,000 future value in two years if the average
inflation rate is 6% and interest rate is 10%?