03/02/2024

PRINCIPLES OF MONEY
TIME RELATIONSHIPS
ES 032
Jefrancis Concepcion

03/02/2024

TOPICS
• Simple Interest
• Compound Interest
• Nominal and Effective Interests
• Annuities
• Gradient Series
• Special case of Annuities

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Lesson Objectives
• Define the different terms
related to economics.
• Apply money - time
relationship.

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MONEY $

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MONEY $
• Medium of Exchange –
- Means of payment for goods or services;
-What sellers accept and buyers pay ;
• Store of Value –
- A way to delay buying power from one time period to another;
• Unit of Account –
- A precise measurement of value or worth;
- Allows for tabulating debits and credits;

A brief history about money

• Introduction of coins, Lydia, created first silver and gold coins in
561 BC.
• Chinese started issuing paper currency but led to inflation in
800AD
• In Europe during the 1600s, goldsmiths used notes as evidence
to pay. Also known as banknotes.
• In the 1900s, the Gold Standard was established.

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The GOLD Standard

• A monetary standard where basic currency unit is equal to and
exchanged for a specific amount of gold.
• Advantages:
• Security about their money
• Prevents government from printing
paper money
• Disadvantages:
• Gold Stock does not grow Fast
• Price of Gold likely to change

CAPITAL
• Wealth in the form of money or property that can be used to
produce more wealth.

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KINDS OF CAPITAL

Equity Capital

• owned by individuals who have invested their money or

property in a business project or venture in the hope of
receiving a profit.

Debt Capital

• often called borrowed capital, is obtained from lenders (e.g.,

through the sale of bonds) for investment.

INTEREST
• The fee that a borrower pays to a lender for the use of his or
her money.

INTEREST RATE
The percentage of money being borrowed
that is paid to the lender on some time basis.

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SIMPLE INTEREST

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SIMPLE INTEREST
• The total interest earned or charged is linearly
proportional to the initial amount of the loan
(principal), the interest rate and the number of
interest periods for which the principal is
committed.

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SIMPLE INTEREST
When applied, total interest “I” may be found by
I = ( P ) ( i ) ( N),
where
P = principal amount lent or borrowed
i = interest rate per interest period
N = number of interest periods ( e.g., years )

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SIMPLE INTEREST

Future Amount (F)

F= P+I
A full-wave rectifier is also known as an absolute value circuit

= P + P(i)(N)

F = P (1 + iN)

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2 TYPES OF SIMPLE INTEREST

1. Ordinary simple interest
- computed on the basis of one banker’s year

1 banker’s year = 12 months (each consisting 30

days)
= 360 days,
d
I  Pi for ordinary year
360

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2 TYPES OF SIMPLE INTEREST

2. Exact Simple Interest
- based on the exact number of days,
- 365 days for ordinary year
- 366 days for a leap year

d for ordinary year

I  Pi
365
d for a leap year
I  Pi
366
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LEARNING CHECK!
1) Coach Lea deposits ₱5,000 at a bank at an interest rate of 4.5%
per year. How much interest will she earn at the end of 3 years?
2) An investment earned ₱ 11.25 interest after 9 months. The rate
was 5%. What was the principal?
3) Grace bought a car for ₱ 400, 000. She took a ₱ 200,000 loan
from a bank at an interest rate of 15% per year for a 3-year period.
What is the total amount (interest and loan) that she would have to
pay the bank at the end of 3 years?

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THINGS TO REMEMBER IN
SHOWING YOUR SOLUTION:

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