Module 5 Using Mathematical Techniques

MODULE 5
USING
MATHEMATICAL
CONCEPTS AND
TECHNIQUES

ASIAN ACADEMY OF BUSINESS AND COMPUTERS
MAT 111

BUSINESS MATHEMATICS
COMPETENCY-BASED LEARNING MODULE ON

MODULE 5

.

USING
MATHEMATICAL
CONCEPTS AND
TECHNIQUES
Information Sheet 1 SIMPLE INTEREST
Information Sheet 2 SIMPLE DISCOUNT
Information Sheet 3 COMPOUND INTEREST
Information Sheet 4 SIMPLE ANNUITIES
ASIAN ACADEMY OF BUSIMESS AND COMPUTERS
MODULE TITLE
USING MATHEMATICAL CONCEPTS AND
TECHNIQUES
DESCRIPTION: This module covers the knowledge, skills and attitudes required in
the application of mathematical concepts and techniques.
COURSE OBJECTIVE: Students completing this module will be able to: Identify
mathematical tools and techniques to solve problem; pply
mathematical procedure!solution; and naly"e results.
CONTENTS: Information Sheet #.# $ Simple Interest
Self%&heck #.#
Information Sheet #.' $ Solving the (rincipal
Self%&heck #.'
Information Sheet #.) $ Solving the Interest *ate
Self%&heck #.)
Information Sheet #.+ $ Solving the Time
Self%&heck #.+
Information Sheet #., $ Total mount
Self%&heck #.,
Information Sheet #.- $ (resent .alue
Self%&heck #.-
Information Sheet #./ $ 01act Interest and ppro1imate Time
Self%&heck #./
Self%&heck #.2
Information Sheet '.# $ Simple 3iscount
Information Sheet '.' $ Solve 3iscount *ate
Self%&heck '
Information Sheet '.) $ (romissory 4ote
Self%&heck '.#
Information Sheet ).# $ &ompound Interest
Self%&heck )
Self%&heck ).#
Self%&heck ).'
Information Sheet +.# $ Sample nnuity
Self%&heck +
Self%&heck +.#

LEARNING GUIDE
Learning Steps Resources

1. Read Information Sheet 1 on Simple
Interest
2. Answer Self-Check
DIscount
5. Read Information Sheet 3 on
Compound interest
Annuity

Information Sheet 1

Self-Check 1

Information Sheet 2

Self-Check 2

Information Sheet 3

Self-Check 3

Information Sheet 4

Self-Check 4

USING MATHEMATICAL CONCEPTS AND TECHNIQUES
MODULE 5
1.1 Simple Interest

Simple interest is the most basic type of interest. In order to understand how
various types of transactions work, it helps to have a complete understanding of
simple interest.
For example, you may pay interest on a loan, and it is important to understand
how interest works. Better yet, your bank may be paying you interest on your
deposits and you can maximize your earnings by knowing more about
interest.
Simple Interest Overview
Simple interest is just the amount of money paid on a loan. It is the easiest type
of interest to calculate and understand
Simple Interest Formula
If you want to calculate simple interest, use this formula:
I=P r t
In other words Interest (I) is calculated by multiplying Principal (p) times the
Rate (r) times the number of Time (t) periods.
For example, if I invest $100 (the Principal) at a 5% annual rate for 1 year the
simple interest calculation is:
I=P r t
$5 = $100 x 5 % x 1 yr
Simple Interest Limitations
Simple interest is a very basic way of looking at interest. In fact, your interest
whether youre paying it or earning it is usually calculated using different
methods. However, simple interest is a good start that gives us a general idea of
what a loan will cost or what an investment will give us.
The main limitation that you should keep in mind is that simple interest does
not take compounding into account.
INFORMATION SHEET 1.1
SIMPLE INTEREST
Using Mathematical Concepts and Techniques
ASIAN ACADEMY OF BUSINESS AND COMPUTERS 1
Module 5

Example 1

A student purchases a computer by obtaining a simple interest loan. The
computer costs $1500, and the interest rate on the loan is 12%. If the loan is to
be paid back in weekly instalments over 2 years, find the amount of interest

paid.

Given:
P = $1500
R = 12% = 0.12,
T= 2 years
I = ?

Solution:

I = PRT
= 1500 0.12 2
= $360

Example 2

A man borrowed P 5,000 at the rate of 6% per annum payable at the end of 2
years. Find the interest.

Given:
P = P5,000
R = 6%
T = 2 years
I = ?
Module 5

Solution:

I = PRT
= P5,000 x 6% x 2 years
= P600

Example 3.

Mrs. Garcia borrowed P8,000 at 8% simple interest for 2 years and 3 months.
Find the simple interest.

Given:
P = P8,000
R = 8%
T = 2 years and 3 months

Solution:

I = PRT
= P8,800 x 0.8 x 2 3/12
= P1,584

Module 5
A. Compute for the interest.

I P R T
1. ____________ P 2,400 6% 2 years
2. ____________ P 1,670 4 % 10
months
3. ____________ P 24,000 8 % 2 years and 3
mos.
4. ____________ P 16,000 5.25% 8 months
5. ____________ P 14,500 11% 5 years

B. Solve the following problems:

1. Mrs. Loida Aquino invested P8,250 in a bank which yields 6 % simple
interest for 27 months.

2. Find the total interest earned from P27,000 investment, if invested at 9
% interest for 18 months.

3. A man borrowed P125,000 to start a business. Find the interest if money
is invested at 8% for 8 months.

4. For a period of 3 years, money worth P 148,000 is invested at 9 %.
Find the interest.

5. Mrs. Guzman invested P 4,850 in a bank with an interest of 5%, how
much will be the interest if invested for 7 years.

SELF-CHECK 1.1
Module 5

1.2 Solving the Principal

The principal (P) is computed by dividing the interest by the product of the rate
of interest (R) and the time (T). Hence,

P = I
RT

Example 1.

Find the principal if the interest from a certain investment is P600 for 4 years at
the rate of 6% simple interest.

Given:
I = P600
R = 6%
T = 4 years
P = ?

Solution

P = I
RT

= P600
(.06)(4years)

= P2,500
SOLVING THE PRINCIPAL
Module 5

Example 2.

How much should Mr. Cruz invest so that his money earns P1,408 borrowed at
8% for two years and 9 months.

Given:

I = P1,408
R = 8%
P = ?

Solution:

P = I
RT

= P1408
(.08)(2 years and 9 months) or (11/4)

= P6,400

Module 5

A. Compute for principal.

I P R T
1. P 2,400 ____________ 6% 2 years
2. P11,000 ____________ 4 % 10
months
3. P 4,580 ____________ 8 % 2 years and 3
mos.
4. P 26,000 ____________ 5.25% 8 months
5. P 4,500 ____________ 11% 5 years


1. How much should Mr. Cruz invest so that his money earns P
8,980 borrowed at 4% for 7 years 4 months.

2. Find the principal if money earned P700 3% interest for 18
months.

3. For a period of 3 years, a certain principal earned P335 at 8%
simple interest. Determine the value of the principal.

4. Find the principal if money is invested for 5 years at 7% simple
interest earning P300 .

5. Find the principal if money is invested for 15 years at 3% simple
interest earning P5750
SELF-CHECK 1.2
Module 5

1.3 Solving the Interest Rate (R)

To solve for the rate of interest (R), divide the interest (I) by the product of the
principal (P) and the time (T). Hence,

R = I
PT

Example 1.

Mrs. Latar invested P3,500. For a period of 2 years, her money earned P665.
Find the rate of interest.

Given:

I = P665
T = 2 years
P = P3,500
R = ?

Solution:

R = I
PT
= P665
(P3,500) (2)
= .095 or 9.5%
SOLVING THE INTEREST RATE
Module 5

Example 2.

At what rate should one invest in a bank so that P6000 earns P1,537.50 for a
period of 3 years and 5 months?

Given:

I = P1,537.50
P = P6,000
R = ?

Solution:

R = I
PT

= P1,537.50
(6000) (.075) (3 5/12)

= 7.5%

Module 5

A. Compute for rate

I P R T

1. P 210 P 1,680 ___________ 2 years
2. P 500 P 4,100 ___________ 9 months
3. P 3,000 P 16,000 ___________ 2 years and 6
mos.
4. P 500 P 4,000 ___________ 5 years
5. P 252 P 3,500 ___________ 4 years


1. Mrs. Guzman invested P4,850 in a bank which gave her an interest
amounting to P121.25 in 6 months. Find the rate of interest.

2. A man borrowed P12,000 to start a business which gave her an interest
amounting to P530 after 5 months. Find the rate of interest

3. At what interest will P 4,850 be invested if it earned P425 in 1 year and 2
months?

4. Mr. Cruz earned P2,500 in a borrowed money amounting to P25,000 in 2
years. What is the interest rate?

5. Find the rate of interest after 5 years and 6 months, if money is worth
P8,500 with an earning of P560.
SELF-CHECK 1.3
Module 5

1.4 Solving the Time (T)

To solve for the time, divide the interest (I) by the product of the principal (P)
and the rate of interest. (R). Thus,

T = I
PR

Example 1.

How long will it take P2,500 to earn P200 if the money is invested at 8% simple
interest?

Given:

I = P200
P = P2,500
R = 8%
T = ?

Solution:

T = I
PR
= P200
(P2,500) (8%)
= 3 years
SOLVING THE TIME
Module 5

Example 2.

At what length of time must P4,500 be invested at 91/2% simple interest to earn
P496.25?

Given:

I = P496.25
P = P4,500
R = 9 1/2%
T = ?

Solution:

T = I
PR
= P496.25
(P4,500) (9 1/2%)
= 3.5 years

Module 5

A. Compute for rate

I P R T

1. P 960 P 4,000 12% ___________
2. P 9,116.25 P 25,500 6 1/2% ___________
3. P 25,937.50 P 150,000 9 1/2% ___________
4. P 800 P 8,500 6% ___________
5. P 580 P 10,000 8% ___________


1. At what length of time must P 4,850 be invested at 12 % simple interest
to earn P2,425?

2. How long will it take a given principal to double itself if invested at 8%
simple interest?

3. Mrs. Garcia borrowed P2,500 at 8% simple interest. Find the length of
time if the interest is P200.

4. At what length of time must P8,000 at 8% simple interest if money
earned P1,584?

5. Find the length of time if money amounting to P2,500 earned P600 at 6%
simple interest.
SELF-CHECK 1.4
Module 5

1.5 Total Amount

The total amount S at the end of 5 years represents the principal plus the
total interest earned for the given number of years. We say that the principal
P has accumulated to the total amount S at the end of t years. By definition,
S = P + I
S = P + Prt
S = P (1 + rt)

Example 1:

Mary Juan borrowd from her sister the amount of P 3,650 and promised to
pay at the end of 2 years and 3 months. If money is worth 12%, how much
will she pay back at the end of the term?

Solution:
a. I = PRT
= P3,650 (.12) (2 )
= P 985.50
S = P + I
= P3,650 + 985.50
= P4,635.50
b. Using the formula
S = P (1 + rt)
= P3,650 ( 1 + .13 x 2.25)
= P 4,650.50
TOTAL AMOUNT
Module 5
Solve the following problems

1. Accumulate P3,590 at 7 % for 2 years.

2. At what rate must P8,450 be invested in order to accumulate to P8,957 in
9 months.

3. An investment of P1,500 accumulates to P1,850 in 10 months. Find the
rate at which the money was invested?

4. Accumulate P4,200 in 3 years if it was invested at 6% for the first 15
months and then at 81/2% for the remaining period.

5. An investment of P5,400 earned interest amounting to P420.75 for 11
months. Find the rate of interest.

6. Mrs. Ledesma loaned P24,500 to open a beauty parlor shop. If money is
worth 14%, how much will she have to pay back at the end of a year and
8 months?

7. How long will it take for a given principal to earn half of itself if invested
at 8%?

8. How long will it take P11,500 to accumulate to P14,087.50 if the amount
is invested at 9%?

9. Mario borrowed P8,500 with a promise to pay the amount including the
interest at 12% for one year. What simple payment should she have paid
at the end of the year?

SELF-CHECK 1.5
Module 5
1.6 Present Value

The amount to be invested at simple interest (r) for a given period at time (t)
is called the present value (P) of the total amount (S). To compute the
present value (P) at simple interest, we have,

S = P (1 + rt)

P = S
I + rt

Example:

Find the present value of P2,317.50 due in 180 days if it is invested at 6%

Solution:

P = S
1 + rt

= P 2,317.50
1 + .06 (180/360)

= P 2,250

PRESENT VALUE
Module 5

A. Supply the blanks with the correct answers.
I P R T S

1. ___________ P 2,500 8 1/2% 2 years ___________
2. ___________ ___________ 7% 240 days P4,364.60
3. P1,651.65 ___________ 6 % 3 months ___________
4. ___________ P12,500 ___________ 4 years P17,562.50
5. ___________ ___________ 12% 45 days P984.55


1. Find the present value of P245.18 at 8% from March 23, 1986 to April 12,
1987.

2. At 5% simple interest, find the present value of P325 due in 120 days.

3. How much must a man invest today at 4 1/2 % to pay an account woth
P3,426 due in 1 year and 8 months?

4. Mr. Carlos will need P50,000 in order to buy new machines 4 years from
now. How must he invest today in the bank which gives 12% simple
interest?

5. Mr. Macoy invested a certain amount which earns 10 1/2 % simple interest.
How much did he invest if the money will mature after 18 months with an
accumulated value of P6,405?
SELF-CHECK 1.6
Module 5
1.7 Exact and Ordinary Interest, Exact and Approximate Time

The exact interest is based on using as fraction whose numerator is the
number of days in the term of the transaction and whose denominator is the
exact number of days in a year. If 360 days is used, then the interest used is
said to be ordinary.

Exact time is the actual number of days in the term of the transaction.
Approximate time arbitrarily considers each month as having 30 days.

For convention, we shall use the exact number of days between two dates.
But, we shall consider the time as a whole number of months when we find
the time from a certain date in another month. For example, from June 8 to
October 8 is 4 months. Hence, 4 times 30 equals 120. From October 8 to
October 12 is 4 days, therefore the approximate time is 120 plus 4 equals
124 days.

Another method of finding the approximate time is by subtracting the first
date from the second date. Thus,

Year Months Date
October 12 10 12

June 8 6 8
4 mo. 4 days

(4 x 30) + 4 = 124 days

EXACT INTEREST AND APPROXIMATE TIME
Module 5
To determine the exact time between two dates, there are two methods that
we may use. On method is simply determining the number of days from
month to moth from the first date to the second date of the term. Another
method is by using Table 1 (found at the end of the module), the number of
each day of the year.

Example 1.

Determine the exact number of days from July 2, 1986 to December 20,
1986

Solution:

a. Determine the number of days from month to month
July = 29
August = 31
September = 30
October = 31
November = 30
December = 20 (last day of the transaction)
Total No. = 171 days.

b. Using Table 1
December 20 = 345
th
day of the year
Less: July 2 = 290
th
day of the year
Exact No. of days = 171 days.

Module 5
Example 2:

Find the different types of interest on P5,600 at 5% fromOctober 17, 1987 to
June 26, 1988.

Solution
a. Find the exact time using the Table:
Number of day from October 17, 1987 to December 31, 1987

December 31 - 365
th
day of the year
October 17 - 290
th
day of the year
Exam time = 75 days

There are 177 days from January 1, 1988 to June 26, 1988. Hence, the exact
number of days from October 17, 1987 to June 26, 1988 is 252. That is 75 days
plus 177 days.

b. Find the approximate time:
From October 17, 1987 to June 17, 1988 is 8 months. This is equivalent
to 240 days. From June 17 to June 26 is 9 days. So the approximate number of
days from October 17,1987 to June 26, 1988 is 240 days plus 9 days equals 249
days

Another method is done by subtracting the first date from the second date.

Year Month Date
Second date 1987 18 26
First date 1987 10 17
Approximate time = 8 mos. 9 days
Module 5
Approximate number of days = (8 x 30) + 9 = 249 days. Note that 10 cannot be
subtracted from 6, so borrow 1 year from 1988 convert to months and add to the
column of month, hence 6 plus 12 equals 18.

To find the simple interest between two dates, gives us four types of interest as
follows:
1. Ordinary interest on exact number of days
I = PRT
= P5,600 (.05) (252/360)
= P196

2. Ordinary interest on approximate number of days
I = PRT
= P5,600 (.05) (249/360)
= P193.67

3. Exact interest on exact number of days
I = PRT
= P5,600 (.05) (252/365)
= P193.32

4. Exact interest on approximate number of days
I = PRT
= P5,600 (.05) (249/365)
= P191.01

Among the four types of interest, the ordinary interest on exact number of days
yields the highest interest. This type of interest is otherwise known as the
Bankers Rule which is widely used in business
Module 5
A. Using the table, find the exact number of days between the following dates:
1) May 17, 1986 to December 3, 1986
2) November 15,1986 to August 9, 1987
3) January 22, 1984 to March 3, 1985
4) June 12, 1983 to July 15, 1986

B. Find the approximate number of days
1) April 16, 1982 to October 4, 1982
2) February 11, 1986 to September 30, 1986
3) November 28, 1985 to May 25, 1986
4) October 15, 1983 to July 24, 1987

C. Using the exact time, find the ordinary interest on
1) P 3,265 at 7% from August 14, 1986 to November 28, 1987
2) P 25,500 at 91/2% from April 20,1983 to September 26, 1986

D. Find the exact interest using approximate time:
1) P7,200 at 6% from February 10,1980 to April 12, 1982
2) P10,500 at 6 % from August 24,1983 to May 14, 1985

E. Find the ordinary interest using approximate number of days.
1) P825 at 8 1/2% from March 30, 1984 to October 3, 1984
2) P3,450 at 10% from September 14, 1985 to April 24, 1986.

SELF-CHECK 1.7
Module 5
F. Find the exact interest using the exact number of days:
1) P5,300 at 12 % from May 5, 1984 to November 18, 1984
2) P16,800 at 9 % from December 3, 1985 to August 18, 1987

G. Solve the following problems:

1) On November 18, 1986, Mrs. Acero borrowed P4,500 at 8% simple
interest. If the loan was paid on May 27, 1987, how much interest should
she pay?

2) Mrs. Paras, who needed an additional amount of P8,260 for her business,
borrowed from Mrs. Santos the said amount at 9% for 264 days. How
much interest did Mrs. Paras pay Mrs. Santos?

3) On December 15, 1986, Mrs Lee loaned P5,000 to pay the hospital bills.
She promised to pay the amount plus the interest on April 9, 1987. how
much was the interest, if the amount is worth 9 % simple interest?

4) At the start of business, Mr. Liptona loaned P50,500 at ABC Bank which
charges 12% simple interest. He promised to pay the amount plus the
interest at the end of one year and 275 days. How much was the interest
paid?

Module 5
1.8 6%, 6-Day Mehod for Computing Simple Interest

The use of the 6%, 6-day method of computing interest makes computation
easier. This method has varied application as illustrated by the following
examples:

Example 1: Find the interest earned from P1,200 at 6% for
a. 6 days
b. 60 days
c. 600 days
d. 6,000 days

Solution:
a) I = PRT
= (P1,200) (.06) (6/360)
= (P1,200) (.001)
= P 1.20

b) I = PRT
= (P1,200) (.06) (60/360)
= (P1,200) (.01)
= P 12

c) I = PRT
= (P1,200) (.06) (600/360)
= (P1,200) (.1)
= P 120

Module 5
d) I = PRT
= (P1,200) (.06) (6000/360)
= (P1,200) (1)
= P 1,200

Take note that the interest is simply found by multiplying the given principal by
.001 for 6 days, .01 for 60 days, .1 for 600 days and by 1 for 6,000 days.

Example 2.

Find the interest earned by P5,250 at 12% for
a. 6 days b. 6000 days

Solution:

a. I = (P5,250) (.001)
= P5.25 (interest at 6% for 6 days)

Since, 12% = 2 (6%), then the interest at 12% for 6 days is equals to the
interest at 6% for 6 days multiplied by 2. Hence,

I = (P5.25) (2)
= P10.50 (interest at 12% for 6 days

Module 5
b. I = (P5,250) (1)
= P5250 (interest at 6% for 6 days)

Since, 12% = 2 (6%), then the interest at 12% for 6 days is equals to the
interest at 6% for 6 days multiplied by 2. Hence,

I = (P5,250) (2)
= P10,500 (interest at 12% for 6 days

Module 5

A. Using the 6%-6 day method, discount each of the following amounts

1. P620 at 6% for 15 days

2. P3,847 at 6% for 130 days

3. P192.15 at 3% for 240 days

4. P427.85 at 12% for 380 days

5. P33,712.20 at 15% for 72 days

SELF-CHECK 1.8
Module 5

2.1 Simple Discount

Normally, when a person applies for loans from banks or credits institutions, the
interest is collected in advanced which we call discount. To discount an amount is
to find its value at a period earlier than its maturity date. Let S be the sum of
money to be discounted, d the rate of discount per annum and t the term of
discount in years. Then , the amount of discount represented by D is.

D = SDT

Example:

Discount the amount, P2,400 at 10% discount rate for 150 days.

Solution:

D = SDT
= P2,400 (.10) (150/360)
= P100

After the amount is discounted by the bank, the amount which the borrower recives
is the present value (P) of the amount (S). To find the present value P.

P = S D

So,
P = P2,400- 100
= P2,300

SIMPLE DISCOUNT
Module 5

2.2 Solve for the Discount rate (d)

To solve for the discount rate (r), divide the discount D by the product of the total
amount (S) and the term of discount. (t). Hence,

d = D
S t

Example:

Find the discount rate if P820 yields a discount of P147.60 for 3 years.

Solution:

d = D
S t
= P147.60
P820

2.3 Solve for the Term of Discount (t)

To solve for the term of discount (t), divide the discount (D) by the product of the
total amount (S) and the discount rate d. Thus,

t = D
S d

SOLVE DISCOUNT RATE
Module 5
Example:

How long will it take P1,300 to earn P55.25 if the amount is discounted at 8 %?

Solution:

t = D
S d
t = P55.25
P1,300 (.085)
t = .5 years or 6 months

2.4 Solve for the Total Amount (S)

To solve for the total amount (s), divide the discount D by the product of the
discount rate (d) and the term of the discount (t). So,

S = D
d t

Example:

A certain amount is discounted at 8% for 120 days, and yields a discount of P24.
Find the total amount.

Solution:

S = D
d t
= P24
(.08) (120/360)
= P900

Module 5

A. Fill the space provided with the correct answer.

D S d t P

1. ___________ P 820 6% 75 days ___________
2. ___________ P 6,300 8% 720 days ___________
3. P33.60 ___________ 12% 120 days ___________
4. P200 ___________ 10% __________ P3,400
5. P612 P8,640 ________ 300 days __________

B. Find the present value of the following maturity value:

1. P245.18 at 8% simple interest rate from March 29, 1987 to November 12, 1987.
2. P950 at 12 % discount rate from October 21, 1986 to August 16,1987
3. P4,200 due in 225 days at 9 % discount rate.
4. P15,500 due in 390 days at 12% simple interest rate
5. P2,350 at 8 % discount rate for 1 year and 15 days.

SELF-CHECK 2
Module 5
2.4 Promissory Notes

Whenever, a person borrows money from a creditor, that person whom who call
the debtor signs as agreement which is a promise to pay the amount at some future
time. The agreement is called the promissory note. The date when the note was
drawn is called the date of note while the date when the note matures is called the
maturity date or the due date. The amount written in the promissory note is called
face of the note. While the amount which includes the interest plus an agreed rate
of interest on the face is called the maturity value. The person who signs the note is
the maker of the note.

There are two types of promissory notes, one is the interest-bearing note and the
other is the non-interest bearing note. A non-interest bearing note includes the
interest in the maturity value while an interest-bearing note states the interest rate.
Any note, for it to be negotiable or valid, must be dated, signed, with a fixed
amount, unconditional, either demand or with a definite due date and with
specified interest rate, if any.

Example of interest bearing note:

Example of non- interest bearing note:

Diliman, Quezon City
April 8, 1987

Five months from date, I promise to pay to the order of Juan dela Cruz two
thousand six hundred pesos (P2,600) with interest at the rate of 10% per annum.

(Signed) Francisco Merced
Diliman, Quezon City
April 8, 1987

Five months from date, I promise to pay to the order of Juan dela Cruz two
thousand six hundred pesos (P2,600)
(Signed) Francisco Merced
PROMISSORY NOTE
Module 5
A person who holds a note may cash the note before the due date as the need of
cash arises. That is, he may sell the note to the bank and the bank is turn will take a
certain percentage on the maturity value at a discount rate. This percentage will be
deducted from the maturity value and the balance will be deducted from the
maturity value and the balance will be given to the seller of the promissory note.

On the other hand, the bank then collects the maturity value from the maker of the
note on the due date.

Example:

Mr. Juan dela Cruz made a promissory note, promising to pay Mr. Garcia P2,400
with an interest at 9% after 9 months. Three months after the date of note, Mr.
Garcia sold the note to a bank which charges 10% discount rate. How much did
Mr. Garcia receive from the bank?

Solution:

b. Substitute from the formula,

P = S (1 dt)
= P2,563 (1 - .10 x 6/12)
= P2,562 (1 - .05)
= P2,433.90

a. The maturity value S of the note is,

S = P (1 + rt)
= P2,400 (1 + .09 x 9/12)
= P2,562
From the time the note was sold to the time
it matures, the bank discounts it for 6
months. Thus,

D = Sdt
D= P2,562 x .10 x 6/12
= P128.10

P = S D
= P2,562 128.10
= P2,433.90
Module 5
Solve the following problems.

1. Mr. Juan promises to pay to the order of Mr. Lee (P6,500 with 12% simple
interest after 6 months. Three months after, Mr. Lee sold the note to a bank
which discounts it at 5% simple discount. How much will Mr. Lee receive from
the bank?

2. On February 16, 1988 Mrs. Lope borrowed P50,000 from Mrs. Cunate. She
then made the following note:

a. Find the maturity date.
b. Find the maturity value.
c. On July 10, 1988 Mrs. Cunate sold the note to ACE Bank which discounts it
at 6% simple discount. How much will she receive from the purchase of the
note?

3. From problem no. 2, ACE Bank in turn sold the note to ABC Bank which
rediscounts it at 3% discount rate. How much will ACE Bank receive?

Sampaloc, Manila
Feb. 16, 1988

Two hundred ninety five days after date, I promise to pay Mrs. Cunate fifty
thousand pesos only (P50,000) with 10% simple interest per annum.

Signed: Mrs. Lope
SELF-CHECK 2.1
Module 5

Business and banking transactions become more attractive to businessmen and
depositors with the use of compound interest. Compound interest methods of
computing gains and profits give more benefits to lenders, depositors and those
engaged in business.

3.1 What is COMPOUND INTEREST?

When interest is regularly added to the principal and this new sumbecomes the
principal for the following time period and the process is repeated periodically, the
final amount si called compound amount.

Compound interest is usually paid on loans, mortgages, bank deposits, insurance
premiums and in calculating sinking funds.

The regular or periodic interval of time per year is called conversion period or
interst period. This is denoted by the symbol m. This is usally quarterly, where
interest is computed for every three months or four times a year. Quarterly is
symbolized by m = 4. This may also be semi-annually m = 2 or monthy m= 12. If no
period is stated, it is understood that the interest period is annually (m=1).

The formula is the principal (P) will be multiplied by n factors (1 + i)
n

Hence, the compound amount at the end of n period is P (1 + i )
n

S = P (1 + i )
n

Where:

S = final compound amount
P = Principal
i = interest rate per conversion periods
n = the total number of conversion periods for entire term of the t intervals.

Note: The total number of conversion period (n) for the entire term of the transaction
is the product of the conversion period per year (m) and the entire term expressed in
terms of years (t)
COMPOUND INTEREST
Module 5
If interest is compounded more than once a year, it is conventional to quote the
reate on annual basis. Such a rate is known as nominal rate, denoted by i. For
example, a rate of 6% compounded sem-annually means actually 3% is the rate per
conversion period, denoted by i. The rate per conversion period can be found by
dividing the nominal rate by the conversion period per year, (i = j/m)

Example 1:

To what amount will P1,000 accumulate in one year if invested at 8% compounded
quarterly?

Given:

P= P1,000
j = 8%
m = 4 (quarterly)
t = 1 year

Solution:

a.) i = j = 8% = 2%
m 4
b.) n = mt = 4(1) = 4
c.) S = P (1 + i )
n
= P1,000 (1 + 2%)
4
= P1,000 (1.08243216)
= P1,082.43

Example 2:

Accumulate P8,500 at 12% m=12 for 10 years

Module 5
Given:
P= P8,500
j = 12%
m = 12
t = 10 year

Solution:

a.) i = j = 12% = 1%
m 12

b.) n = mt = 12(10) =120
c.) S = P (1 + i )
n
= P8,500 (1 + 1%)
120
= P8,500 (3.30038689)
= P28,053.29

Example 3:

Find the compound amount if 1 years if P500 is invested at 4% compounded
monthly.

Given:

P= P500
j = 4%
m = 12
t = 1 years

Solution:

a.) i = j = 4% = 1/3%
m 12
b.) n = mt = 12(1 ) = 18
c.) S = P (1 + i )
n
= P500 (1 + 1/3%)
18
= P500 (1..061731)
= P530.87
Module 5

A. Find the total number of conversion periods (n)quarterly for 8 years
A. semi-annually for 36 months
B. weekly for 2 years
C. quarterly for 15 years and 9 months
D. monthly ofr 13 years and 5 months

B. Find the interest rate per conversion period (i)
15% compounded quarterly
18% compounded monthly
3% compounded semi-annually
12% m=6
12.46% m=3

Solve for the accumulated value of the following amounts..
1. P12,000 for 6 yearsat 8% m=12
2. 4,500 for 12 years at 12% m = 4
3. P9,000 for 2 years at 8% compounded
a. monthly b. Quarterly c. Semi-annually d. Annually
4. P25,000 for 4 years at 7% compounded
a. monthly b. Quarterly c. Semi-annually d. Annually
A. PP5,600 for 8 years and 3 months at 7% compounded semi-annually

D. Solve the following problems.
1. Ms. Paulin Nicole invested P700,000 at 9% compounded semi-annually for
6 years and 3 months. Find the amount
2. Erwin invested P650,000 for years and 10 months at 7% comounded
quarterly. Find the amount
3. Mr. Ric Pangan borrowed P120,000 on May 31, 2006 at 12% compounded
quarterly . What is the amount of the loan on July 31, 2008?
4. What amount of money is required to repay a loan of P36,000 on July 1,
2007, if the loan was made on Oct. 1, 2002 at the interest rate of 10%
compounded semi-annually.
5. A note today has a face value of P7,500 bears interest at 8 1/2%
compounded semi-annually. Find the amount.
SELF-CHECK 3
Module 5
3.2 Present Value of an Amount

the present value P is that principal which is invested on the given date at the
given interest rate will accumualate to a specific amount S. At some later date.

To compute for the value of P we use the formula for accumulation .
S = P (1 + i )
n
and placed P as the unknown, thus,

P = S
(1 + i )
n

To avoid long division , we write this expression using negative exponent
which gives the formula

P = S (1 + i ) -
n

Example 1.

If money is worth 6% m = 2 find the present value of P2,000 whic is due in 5
years.

Given:
j = 6%
m = 2
S = P2,000
t = 5 years

Solution:

a.) i = j = 6% = 3%
m 2
b.) n = mt = 2(5 ) = 10
c.) P = S (1 + i )
-n
= P2,000 (1 + 3%)
-10
= P2,000 (.744094)
= P1,488.19
Module 5
Example 2.

A non-interest bearing note whose face value is P6,250 is sold to a bank 19 monts
before maturity. If money is worth 8% m=4 how much will the bank pay for the
note

Given:
j = 8%
m = 4
S = P6,250
t = 5 years

Solution:

a.) i = j = 8% = 2%
m 4
b.) n = mt = 4(19/12 ) = 6 1/3
c.) P = S (1 + i )
-n
= P6,250 (1 + 2%)
-6

(1 + 2%)
1/3
= P6,250 (.88791)
1.006623
= P5,513.30

Module 5

A. Find the present value of each of the following amounts

Amount Nominal Rate Frequency of Conversion Term

1. P 600 8% quarterly 6 years
2. P4,820 12% monthly 10 years
3. P517.50 9% quarterly 4 years
4. P3,629 8 % semi-annually 18 months
5. P55,000 12% every 2 months 3 years & 8 mos.


1. What amount must be invested today at 12% compounded monthly in order to
accumulate to P6,000 in 5 years?

2. How much must a corporation deposit on a bank which credits interest at 18% m = 12. to
come up with P30,000 in 6 years needed for its expansion program?

3. Mr. dela Rosa wishes to invest a sum on his sons 7
th
birthday in a trust fund which gives
9% interest compounded quarterly. How much must he invest if he wants the money to
amount to P20,000 by the time his son reaches his 18
th
birthday?

SELF-CHECK 3.1
Module 5
3.3 Finding the Unknown Rate

There are some investment problems that will ask for the value of the nominal rate
or quoted rate (j) and the value of the interest per period (i). These problems
usually look for these rates for purposes of information and comparison. If P, S,
and n are given it is possible to solve for the values of i and j.

To compute for the nominal rate, divide accumulated amount (S) to principal (P)
then look for the nth root (n), subtract the result to 1. To get the nominal rate
multiply it to periodic conversion (m). Below is the formula

i = n S - 1
P

j = i (m)

Example 1:

At what nominal rate compounded quarterly will P500 accumulate to P760 in 5
years?

Given:
P = P500
S = P760
m = 4
n = 5 years

Solution:

i = n S - 1
P

= 20 P760 - 1
P500
Module 5
= 20 1.52 - 1

= 1.021156 1
= .021156 x 4
= 8.46%

Module 5

A. Find the value of i and j in each of the following:

P S m Term

6. P 400 P 620 quarterly 3 years
7. P6,280 P8,400 semi-annually 5 years
8. P5,500 P 7520.36 monthly 2 years
9. P731.24 P1024.12 annually 10 years
10. P1085 P2247.76 quarterly 27 years


1. At what nominal rate compounded monthly will P4720.16 accumulate to P6,285.45 in 2
years and 8 months?

2. At what rate, converted semi-annually is P896 the present value of P1104 which is due in
8 years?

3. One investment pays 8% annual interest. Another investment accumulates P4000 to
PP6200 in 7 years. Which of the two gives higher annual income?

4. If an investment increases from P68000 to P83000 in 4 years what is the nominal rate of
interest compounded quarterly?

5. Find the annual rate of interest if an investment increases 25% in 6 years?

SELF-CHECK 3.2
Module 5

Everyday living entails monthly rentals for persons dwelling installment payments
for a car or some household appliances. The common housewife is usually
confronted with the question of how to budget the family income in such a way
that the basic needs of the family would be attended to.

Aside from the basic financial needs which must be attended to, a certain amount
must be set aside for some future use. A regular monthly, bi-monthly (or whatever)
savings ensure a person of a modest amount in the future.

4.1 Simple Annuities

An annuity is a series of periodic payments (usually of equal amount) made at
regular intervals of time. Installment payments for appliances, housing loans,
memorial plans and monthly rentals are common examples of annuities.

A simple annuity is one wherein the payment interval and the interest conversion
period coincide.

The payment interval is the period of time between consecutive payments. It may
be of any convenient length like monthly, quarterly, semiannually and annually.

The term of an annuity extends from one payment interval before the first payment
up to the day of the last payment. Unless otherwise specified, the term of any
annuity is presumed to begin immediately.

SIMPLE ANNUITY
Module 5
TYPES OF ANNUITIES

1. Annuity certain is an annuity payable for a definite length of time not
dependent on some outside contingency. It means that payment begins
and ends on definite or fixed dates. Examples are monthly payment on a
housing loan and monthly payment on a car loan since the payment starts
on a fixed date and continues until the required number of payments has
been made.

2. Contingent annuity is one whose payment extend over a period of time
whose length cannot be foretold accurately. Examples are pensions and
life insurance policies.

4.2 Solving for the Amount (S) of an annuity

The amount of an annuity (S) is the total value of all payments at the end of the
term. It can also be called as the accumulated value of the annuity. Use this
formula,

Example

Mrs. Cruz regularly deposits P1,000 at the end of each six months for 3 years. The
bank gives interest at 8%, m = 2. How much will be in her account at the end of the
third year?

S = R ( 1 + i)
n
-1
i
n i
Module 5
Given:

R = P1000
n = 6
i = 4%

Solution

S = R ( 1 + i)
n
-1
i
n i
= P1000 ( 1 + .04)
6
-1
.04

= P1000 (1.265319 1)
.04

= P6,632.98

Module 5
A. Solve for the amount (S) of the following annuities:

1. P2300 paid at the end of each 6 months for 4 years with interest at 11%, m =
2

2. P5500 regular monthly deposit in a bank which credits interest at 12%,
m = 6 for 5 years.

3. P8000 due at the beginning of each 3 months for 3 years. Money is worth
6%,m = 4

4. An annual payment of P200 every three months for 2 years. Money is worth
4%, m = 4

5. A payment of P 2000 every three months for 2 years. Money is worth 4%,

B. Solve the following problems completely:

1. Mrs. Reyes bought a sala set and paid P5000 as downpayment and promises
to pay P250 at the end of each three months for 2 years. If money is worth
5% compounded quarterly, how much is the total payment for the sala set?

2. The contract for the sale of farm machineries calls for a downpayment of
P5,600 plus a quarterly payment of P2,250 for 5 years. If money is worth
10%, m=4, how much is the total payment for the machineries?

3. A man made semiannual deposits of P2000 into a savings fund that pays
interest at 9% compounded twice a year. How much will be his savings in 8
years? If after the eight year, no deposit and withdrawal have been made,
how much will be in his account at the end of the twelfth year?

4. The buyer of a house and lot agrees to pay P2,830 at the beginning of each
month for 8 years. If money is worth 18% compounded monthly, find the
total cost of the house and lot.

SELF-CHECK 4
Module 5
4.3 Solving for the Present Value (A) of an annuity

The present value (A) of an annuity is the total value of all payments computed at
the beginning of the term. It is the sum of the discounted values of the payments of
the annuity at the beginning of the term.

Use this formula,

Example:

The contract for the sale of a lot calls for a monthly payment of P500 for 5 years. If
money is worth 12% compounded monthly, what is the cash price of the lot

Solution:
R = P500 n = 60 i = 1%

b. A = R 1 -( 1 + i)
- n

i
n i

= P500 1 ( 1 + .01)
- 60

.01

= P500 1 0.550450
.01
= P500(44.955048)
= P22,477.52

A = R 1 -( 1 + i)
- n

i
n i
Module 5. Using Mathematical Concepts and Techniques
A. Solve for the present value (A) of the following annuities.

1. A quarterly payment of P1500 for 15 years if money is worth 6%, m = 2

2. P1000 paid at the end of every year for 25 years with interest at 4%, m=12

3. P7500 deposited monthly for 20 years for 1 year if money is worth 12%
compounded monthly

4. A monthly payment of P2000 for 2 years if money is worth 6%, m =12

5. A semiannual deposit of P1,500 for 7 years if money is worth 5% m=2

B. Solve the following problems completely

1. The buyer of a farm pays P42000 downpayment and promises to pay P8000
at the end of each 6 months for 7 years. If money is worth 8% compounded
semiannually, find the equivalent cash price.
2. A sala set is bought for P6000 downpayment and P240 a month for 8
months. What is the equivalent cash price of the sala set if money is worth
24% compounded monthly.
3. A man agrees to pay P2000 at the end of each month for 20 years in
purchasing a house. Find the present value of this agreement if money is
worth 3% compounded monthly.
4. Upon retirement, Mrs. Reyes finds that her company pension calls for
payments of P2000 to her (or to her estate if she dies) at the beginning of
each month for 25 years. Find the present value of this pension if money is
worth 4% compounded monthly.
5. A stereo set is offered for sale for P4000 downpayment and P1,200 every
three months for the balance for 5 years. If interest is to be computed at 6%,
m=4, what is the cash price of the set.

SELF-CHECK 4.1

TABLE 1.
Module 5 - Using Mathematical Concepts and Techniques
Recording Sheet For Oral Questioning / Interie!
Student name"
Module Title/#o"
Quali$ication"
Oral/interie! questions Satis$actor% response
&es #o
1.
2.
3.
4.
5.
The student's underpinning knowledge was:
Satisfactory Not satisfactory
Student's Signature" (ate
Trainor's signature" (ate"
)ccepta*le ans!ers are"
52 ASIAN ACADEMY OF BUSIMESS AND COMPUTERS
Rating Sheet
Module 5 - Using Mathematical Concepts and Techniques
Performance
Feedback
Remarks
S NS C NYC
1. Self-Check 1.1
2. Self-Check 1.2
3. Self-Check 1.3
4. Self-Check 1.4
5. Self-Check 1.5
6. Self-Check 1.6
7. Self-Check 1.7
8. Self-Check 1.8
9. Self-Check 2
10. Self-Check 2.1
11. Self-Check 3
12. Self-Check 3.1
13. Self-Check 3.2
14. Self-Check 3.3
15. Self-Check 4
16. Self-Check 4.1
S - Satisfactory
NS Not Satisfactory
C - Comlete!
N"C Not "et Comlete!
odule is
!o"pleted Not #et !o"pleted
$e"arks:
Student's Signature (ate
53 ASIAN ACADEMY OF BUSIMESS AND COMPUTERS

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MODULE 5

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