STEM - IIIA (MATHEMATICS)

GENERAL MATHEMATICS
 Content:
Basic Business Mathematics
Senior High School
Mass Training of Teachers
On Academic Track
STEM III-A (Mathematics)
 Objectives
After this session, you are expected to:
1. illustrate simple and compound interests.
2. distinguish between simple and compound
interests.
3. compute interest, maturity value, future value,
.
and present value in simple interest and
compound interest environment.
4. solve problems involving simple and compound
interests.
DEPARTMENT OF EDUCATION
Lender or creditor- person (or institution)
who invests the money or makes the funds
available
Borrower or debtor- person (or institution)
.
who owes the money or avails of the funds
from the lender
.

DEPARTMENT OF EDUCATION
 Interest
• income derived from invested capital
• money paid as rental for the use of money

DEPARTMENT OF EDUCATION
 Interest

Interest (I) - a fixed rated proportion as the

rate of interest for any specified time unit.
Interest Rate (r) - ratio of the interest earned
in one time unit to the principal.
.
Principal or Present Value (P) - refers to the
capital originally invested in a business
transaction.

DEPARTMENT OF EDUCATION
 Interest
Amount / Full Amount/ Maturity or Future
Value (F) - the sum of the Principal (P) and
the Interest (I) due at any time after the
investment of the Principal (P).
Time (t) - period of coverage of the transaction.
Unless otherwise specified, the time unit will
.

be one year.

DEPARTMENT OF EDUCATION
 Interest
I = Prt
where, I = interest
P = Principal or original capital
invested
r = rate of interest. (%)
t = time

DEPARTMENT OF EDUCATION
 Interest
• Simple Interest
• Compound Interest

DEPARTMENT OF EDUCATION
Ella and Thelma each invest P10,000 for two
years, but under different schemes. Ella’s earns
2% of P10,000 the first year, which is P200, then
another P200 the second year. Thelma earns 2%
of P10,000 the first year, which is P200, the same
as Ella’s. But during the second year, she earns 2%
of the P10,000 and 2% of the P200 also.
Ella and Thelma each invest P10,000 for two years, but
under different schemes. Ella’s earns 2% of P10,000 the
first year, which is P200, then another P200 the second
year.
Ella invested on the simple interest.
Thelma earns 2% of P10,000 the first year, which is P200,
the same as Ella’s. But during the second year, she earns
2% of the P10,000 and 2% of the P200 also.
Thelma invested on the compound interest.
 Simple Interest
I = Prt

F=P+I
(maturity/future value or full amount)
.
F = P + Prt

F = P(1 + rt)
DEPARTMENT OF EDUCATION
Simple Interest
I = Prt

F = P(1 + rt)

DEPARTMENT OF EDUCATION
 Simple Interest
• The unit for time (t) is in year(s).
• When given time (t) is in months, convert it
to year (divide by 12).
• When given time (t) is in days, convert it to
year (divide by 360 or. 365).

DEPARTMENT OF EDUCATION
 Simple Interest
Sample Problem.
1. Find the interest and the full amount on
P3,000 at 5% interest for two years.
I = P300
F = P3,300
2. Find the principal value P and full amount
F if the investment . earns P200 interest in
18 months at the rate of 8%.

P = P1,666.67
F = P1,866.67
DEPARTMENT OF EDUCATION
 Simple Interest
Sample Problem.
3. If P500 is the interest earned of P8,000
which was invested for 16 months, how
much is the rate of interest?
r = 4.70%
4. How long will it take
. to accumulate P5,000
to P7,000 if the interest rate is 6%?

t = 6.67 years

DEPARTMENT OF EDUCATION
 Simple Interest
When given time (t) is in days:
Ordinary Interest - all months of the year
are having 30 days, thus 360 days a
year.
Exact Interest - a year
. has exactly 365
days.

DEPARTMENT OF EDUCATION
 Simple Interest
Sample Problem.
1. Find the ordinary and exact interests at
6% on P3,500 and the corresponding
amounts at the end of 75 days.
.

DEPARTMENT OF EDUCATION
 Compound Interest
• If during the term of investment, the interest
due at stated intervals is added to the
principal and thereafter earns interest, the
sum of the increases over the principal by the
end of the term of investment is called
Compound Interest. .

DEPARTMENT OF EDUCATION
 Compound Interest
Compound Amount - the total amount due
which consists of the principal and the
compound interest.
Conversion Period - the time between the
successive conversions
.
of interest into
principal.

DEPARTMENT OF EDUCATION
 Compound Interest
Conversion Period - the number of unit of
time in one year as basis for computing
interest which could be either (a) annually,
(b) semi-annualy, (c) quarterly, or (d)
monthly.
.

DEPARTMENT OF EDUCATION
 Compound Interest
Nominal rate - refers to the rate of borrowing
and is usually quoted as an annual interest
rate, unless otherwise specified.

DEPARTMENT OF EDUCATION
 Compound Interest
Periodic rate or interest rate per
compounding period - refers to the interest
rate per conversion period. It is equal to the
nominal rate divided by the compounding
period in a year.
.

DEPARTMENT OF EDUCATION
 Compound Interest
Illustration:
Solve for the compound amount and
compound interest at the end of 5 years if
P10,000 is invested at 6% compounded
annually. .

DEPARTMENT OF EDUCATION
 Compound Interest
time Principal Interest Amount

1st year

2nd year

3rd year
.

4th year

5th year

DEPARTMENT OF EDUCATION
 Compound Interest
time Principal (P) Interest (I) Amount (F)

1st year P10,000 P600 P10,600

2nd year P10,600 P636 P11,236

3rd year P11,236 P674.16 P11,910.16

.

4th year
P11,910.16 P714.61 P12,624.77

5th year P757.49 P13,382.26

P12,624.77

DEPARTMENT OF EDUCATION
 Compound Interest
Who will earn more? Group 1 or Group 2?

DEPARTMENT OF EDUCATION
Compound Interest

Ic =Fc –Pc
Ic =Compound Interest
Fc = Maturity Value
.

Pc = Present Value
DEPARTMENT OF EDUCATION
 Compound Interest
Sample Problem.
1. Solve for the compound amount and the
compound interest at the end of 2 years if P1,000
is invested at 8% compounded quarterly.
Solution:
. F = P1,171.65
Data: P = P1,000
r = 8% or 0.08 I = P171.65
m = 4 (quarterly)
t = 2 (years)

DEPARTMENT OF EDUCATION
 Compound Interest
Sample Problem.
2. If P20,000 is invested for 5 years at 12% interest
compounded semi-annually, find the value of F and the
compound interest I.
Solution:
F = P35,816.95
Data: P = P20,000 .
= 12% or 0.12 I = P15,816.95

m = 2 (semi-annually)
t = 5 years

DEPARTMENT OF EDUCATION
 Compound Interest
1. What is the present value of P50,000 due in 7 years if
money is worth 10% compounded monthly?

Solution:
Data: F = P50,000 P = P25,657.91

r = 10% or 0.1 .
m = 12 (monthly)
t = 7 (term in 7 yrs.)

DEPARTMENT OF EDUCATION
) Time(t) Frequency of Simple Interest Compound
Conversion (Is) Interest (Ic)
(m)
*for
compounded
conversion
only*

15 none 1. *******

6 2 150 3.

10 12 5,250 5.