Unit 2

BASIC BUSINESS
MATHEMATICS
Objectives:
1. Illustrate simple and compound
interest.
2. Distinguish between simple and
compound interest.
3. Compute interest, maturity value,
future value and present value in
simple and compound interest.
 Key Words
1. Principal (P)
- it is the amount borrowed.
2. Interest (I)
- payment for the use of money.
3. Rate of Interest (r)
- interest rate per period (expressed in percent
or fraction).
4. Time or Terms (t)
- number of units expressed in days, months or
years for which the money is borrowed (in year basis).
5. Maturity amount (Final Amount)
- principal plus the interest.
Simple Interest
- Is a quick and easy method of calculating the
interest charge on a loan.

Formula:
Simple interest = Principal x interest x Time
I = Prt
Final Amount = Principal + Simple Interest
F=P+I
Other Formula
F = P(1 + rt)
Examples:
1. Find the interest loan pf Php 5,600 for one
year if the interest rate is 15%

Solution:
I = Prt
I = (5,600)(0.15)(1)
I = Php 840
2. A credit cooperative has issued a 2-year load
of Php 60,000 at a rate of 8%, what amount will
be paid at the end of term.

Solution:
I = Prt
I = (60,000)(0.08)(2)
I = Php 9,600
To solve the amount to be paid at the end of
the term.
F=P+I
F = 60,000 + 9,600
F = Php 69,600
Other Formula
F = P( 1 + rt )
F = 60,000 ( 1 + (0.08 x 2))
F = Php 69,600
3. An Php 18,000 savings account earned
Php 5,400 interest in 2 and a half years.
What was the rate of interest given?

Given :
P = Php 18,000
I = Php 5,400
t = 2.5 years
Required :
rate of interest (r)
Equation:
I = Prt
𝐼
𝑟=
𝑃𝑡
Solution:
5,400
𝑟=
(18,000)(2.5)

Answer :
𝑟 = 0.12 𝑜𝑟 12%
4. Naz is planning to buy a computer set
which cost Php 25,000. he plans to apply a
credit cooperative loan to limit the loan to
Php 4,500. the interest rate is 12%. How long
the loan should be paid?

Given :
P = Php 25,000
I = Php 4,500
r = 12% or 0.12
Equation :
𝐼
𝑡=
𝑃𝑟

Solution :
4,500
𝑡=
(25,000)(0.12)

Answer :
𝑡 = 1.5 years or 1 year and 6 months
5. Find the original sum borrowed for 9
months if a borrower pays Php 12,500 at the
end of the term at 7.5% simple interest?

Given :
I = Php 12,500
r = 7.5% or 0. 075
t = 9 months or 0.75
I. Complete the table
1.
P = Php 2,450 I= F= r= 3% t= 2years
2.
P= I= Php 350 F= r= 2% t= 3 years
3.
P= I= F= 26, 245 r= 8% t= 1.5 years
Approximate and Actual Time
Approximate Time
-Expressed in 30 days in a month and
in 360 days in a year (12 months x 30
days).
Actual Time
- by exact number of days in the
calendar (365 days in a year).
Example :
1. Find the ordinary and exact time from
January 15 – April 23, 2015

2. Find the ordinary and exact time from

May 27- December 8, 2014.
I. Find the Approximate and
Actual time.

1. June 30 to October 12, 2015

2. November 12, 2014 to April 6,
2015
3. July 15, 2014 to December 24,
2015
Approximate (ordinary) time

Year Month Day

2015 04 23
2015 01 15
______________________________
0 03 8

3 months and 8 days or 98 days.

Actual Time

Month No. of Days

January(31-15) 16
February 28
March 31
April 23
______________
Total 98 days
Ordinary and Exact Interest
Ordinary Interest is computed in 360 days in
a year as the time factor for the
denominator.

Exact Interest is computed on 365 days in a

year.
Ordinary Interest

𝑵𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒅𝒂𝒚𝒔
I = Prt, where t =
𝟑𝟔𝟎

Exact Interest

𝑵𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒅𝒂𝒚𝒔
I = Prt, where t =
𝟑𝟔𝟓

Note : Change the number of days to

fractional form in terms of year (t) when
substituting to simple interest formula.
Example
1. What amount should be paid on August
22, 2015 for a loan pf Php 5,000 made on
May 30, 2015 at 10%. Compute for:

a. Ordinary interest using approximate time

b. Ordinary interest using actual time
c. Exact interest using approximate time
d. Exact interest using actual time
a. Ordinary interest using approximate time

Approximate time
Year Month Day
2015 08 22
2015 05 30

Year Month Day

2015 07 52
2015 05 30

______________________________
0 2 22

2 months and 22 days or 82 days

Ordinary Interest

𝑵𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒅𝒂𝒚𝒔
I = Prt, where t =
𝟑𝟔𝟎

𝟖𝟐
𝑰 = 𝟓, 𝟎𝟎𝟎 𝟎. 𝟏𝟎
𝟑𝟔𝟎
𝑰 = 𝑷𝒉𝒑 𝟏𝟏𝟑. 𝟖𝟗
𝑭=𝑷+𝑰
𝑭 = 𝟓, 𝟎𝟎𝟎 + 𝟏𝟏𝟑. 𝟖𝟗
𝑭 = 𝑷𝒉𝒑 𝟓, 𝟏𝟏𝟑. 𝟖𝟗
b. Ordinary interest using actual time

Month No. of Days

May (31-30) 1
June 31
July 30
August 22
______________
Total 84 days
Ordinary Interest

𝑵𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒅𝒂𝒚𝒔
I = Prt, where t =
𝟑𝟔𝟎

𝟖𝟒
𝑰 = 𝟓, 𝟎𝟎𝟎 𝟎. 𝟏𝟎
𝟑𝟔𝟎
𝑰 = 𝑷𝒉𝒑 𝟏𝟏𝟔. 𝟔𝟕
𝑭=𝑷+𝑰
𝑭 = 𝟓, 𝟎𝟎𝟎 + 𝟏𝟏𝟔. 𝟔𝟕
𝑭 = 𝑷𝒉𝒑 𝟓, 𝟏𝟏𝟔. 𝟔𝟕
c. Exact interest using approximate time

Exact Interest

𝑵𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒅𝒂𝒚𝒔
I = Prt, where t =
𝟑𝟔𝟓

𝟖𝟐
𝑰 = 𝟓, 𝟎𝟎𝟎 𝟎. 𝟏𝟎
𝟑𝟔𝟓
𝑰 = 𝑷𝒉𝒑 𝟏𝟏𝟐. 𝟑𝟑
𝑭=𝑷+𝑰
𝑭 = 𝟓, 𝟎𝟎𝟎 + 𝟏𝟏𝟐. 𝟑𝟑
𝑭 = 𝑷𝒉𝒑 𝟓, 𝟏𝟏𝟐. 𝟑𝟑
d. Exact interest using actual time

Exact Interest

𝑵𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒅𝒂𝒚𝒔
I = Prt, where t =
𝟑𝟔𝟓

𝟖𝟒
𝑰 = 𝟓, 𝟎𝟎𝟎 𝟎. 𝟏𝟎
𝟑𝟔𝟓
𝑰 = 𝑷𝒉𝒑 𝟏𝟏𝟓. 𝟎𝟕
𝑭=𝑷+𝑰
𝑭 = 𝟓, 𝟎𝟎𝟎 + 𝟏𝟏𝟓. 𝟎𝟕
𝑭 = 𝑷𝒉𝒑 𝟓, 𝟏𝟏𝟓. 𝟎𝟕
II. Given
P = Php Php 17,345.79
r= 14.6%
t= January 15 to April 23, 2015
Compute for :
a. Ordinary interest using approximate time
b. Ordinary interest using actual time
c. Exact interest using approximate time
d. Exact interest using actual time
Bankers Method
- Bank or lending institutions compute
interest charges on annual (360 days) basis
using ordinary interest.
Example
1. Supposed Mr. Ilao borrowed Php 150,000
at 12% interest on May 10. How much
interest will be after 150 days later and the
amount needed to be paid?
 𝑵𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒅𝒂𝒚𝒔
I = Prt, where t =
𝟑𝟔𝟎

𝟏𝟓𝟎
𝑰 = 𝟏𝟓𝟎, 𝟎𝟎𝟎 𝟎. 𝟏𝟐
𝟑𝟔𝟎
𝑰 = 𝑷𝒉𝒑 𝟕, 𝟓𝟎𝟎
𝑭=𝑷+𝑰
𝑭 = 𝟏𝟓𝟎, 𝟎𝟎𝟎 + 𝟕, 𝟓𝟎𝟎
𝑭 = 𝑷𝒉𝒑 𝟏𝟓𝟕, 𝟓𝟎𝟎
Compound Interest
- Earned Interest as is added to
the principal and the sum is
treated as new principal for the
calculation of the interest for the
next period.
Terms :
1. Compound Amount
- it is the original amount plus the compound
interest.
2. Compound Interest
- it is the difference between compound
amount and the original principal.
3. Compounding
- the interest is based on the present balance
of principal.
1. What is compound
interest on a Php 15,000
loan at 8% annual interest
for 3 years.
Formula
𝒓 𝒏
𝑭=𝑷 𝟏+ , 𝒘𝒉𝒆𝒓𝒆 𝒏 = 𝒎 𝒙 𝒕
𝒎

F = Compound Amount or Maturity

P = Present Value
r = rate of interest
m = number of interest period in one year
n = number of interest periods multiply by the
number of terms in one year ( n = m x t )
t = terms in years
Interest period (per year)
m
Monthly 12
Quarterly 4
Semi-Annual 2
Annually 1
Example
1. Find the compound amount
and the interest if Php 505,600 is
invested at 9% compounded
quarterly for 3 years and 3
months.
Given
P = Php 505, 600
r = 9%
t = 3.25 years
m=4
n=mxt
n = 4 x 3.25
n = 13
Example
2. Find the compunded interest
of Php 601,800 for 4 years and 6
months at 6% converted semi-
annually.
Board Work
1. Accumulate Php 25,000 for 8 years at 6%
compounded quarterly.
2. Find the amount due and interest for a
loan of Php 50,500 at 5% compounded
semi-annually for 6 years.
3. Determine the final amount and interest if
Php 20,150 is inbverted at 15%
compounded semi-annually for 3 years.
4. Arthur invested Php 150,000 in a
cooperative that offers 3% interest
compounded quarterly. What sum of
money will he receive at the end of 7
years?

5. On Jay’s 7th birthday his father deposited

Php 35,000 in her savings bank paying 2.5%
every month. Find the value of the savings
when she reaches the age of 18.
Formula for Present Value
𝒓 −𝒏
𝑷 =𝑭 𝟏+
𝒎
Example
1. An obligation of Php 126,000 is
due on January 14,2015. What is
the present value on October
14, 2008 at 5% compounded
quarterly?
Given
𝒓 −𝒏
𝑷 =𝑭 𝟏+
𝒎
−𝟐𝟓
𝟎. 𝟎𝟓
𝑷 = 𝟏𝟐𝟔, 𝟎𝟎𝟎 𝟏 +
𝟒
𝑷 = 𝑷𝒉𝒑 𝟗𝟐, 𝟑𝟔𝟐. 𝟑𝟎
Example
2. What was the original amount
invested 7 years ago at 7% if the
maturity value is Php 150,000
compounded semi-annually?
Given
𝒓 −𝒏
𝑷 =𝑭 𝟏+
𝒎
−𝟏𝟒
𝟎. 𝟎𝟕
𝑷 = 𝟏𝟓𝟎, 𝟎𝟎𝟎 𝟏 +
𝟐
𝑷 = 𝑷𝒉𝒑 𝟗𝟐, 𝟔𝟔𝟕. 𝟐𝟕
Formula for Time
𝒍𝒐𝒈 (𝑭 ÷ 𝑷)
𝒕 = 𝒓
𝒎 𝒍𝒐𝒈 𝟏 +
𝒎
Example
1. How long will Php
25,000 takes to amount
Php 46,000 if the interest is
7% semi-annually?
Example
2. When is the due of Php
60,000 if the present value of
Php 18,000 is deposited in an
investment firm at 8%
compounded monthly?
Formula for rate

𝒏 𝑭
𝒓=𝒎 −𝟏
𝑷
Example
3. Find the rate
compounded quarterly if
Php 3,000 accumulates to
Php 15,000 in 6 years?
Example
4. At what interest rate will
Php 6,120 amount to
Php 10,250 in 3 years and
6 months compounded
semi-annually?
Nominal Rate (j)
- Is defined as the annual
interest rate on which
compound interest is
computed.
Effective Rate (e)
- Is defined as interest rate
compounded more than annually.
The effective rate is higher than the
nominal rate.

- If the rate is not specified as nominal

or effective, it is assumed that the
rate is nominal.
Example
1. If the interest is compounded
quarterterly, find the nominal rate if
the effective rate is 5%.
Answer: 4.91%
2. What nominal rate compounded
monthly if the effective rate is 8.5%?
Answer: 8.19%
Formula
Nominal Rate
𝟏
𝒋=𝒎 𝟏+𝒆 𝒎 −𝟏

Effective Rate
𝒎
𝒋
𝒆= 𝟏+ −𝟏
𝒎
3. Find the effective rate of interest of
12% compounded semiannually.
Answer: 12.36%

4. Which is better? Solve for the

effective rate:

a. 5% compounded quarterly.
b. 4% compounded monthly.
Answer: a. 5.1% b. 4.07%