S

(1) Lender or creditor

Person or institution who invests money or makes the fund
available (2) Borrower or debtor
Person or institution who owes the money or avails the funds from the
lender (3) Origin or loan date
Date on which the money is received by the borrower
(4) Repayment or maturity date
Date on which the money borrowed, or loan is to be completely repaid Definition of
Term
(5) Time or term (t)
Amount of time (usually in years) the money is borrowed or invested; length of time
between the origin and maturity dates
(6) Principal (P)
Amount of money borrowed or invested on theorigin date
(7) Rate (r)
Annual rate, usually in percent, charged by the lender, or rate of increase of the
investment
(8) Interest (I)
Amount paid or earned for the use of money
(9) Simple Interest (IS)
Interest is computed on the principal and then added to it
(10) Compound Interest (IC )
Interest is computed on the principal and on the accumulated past
interests (11) Maturity value or future value (F)
Amount of after t years that the lender receives from the borrower on the
maturity date

lS = �� × �� × ��
where IS = simple interest
P = principal
r = rate
 t = term of time, in years
A bank offers 0.25% annual simple interest rate for a deposit. How much interest will
be earned if PhP 1M is deposited in this savings account for 1 year? Given P =
1,000,000 r = 0.25 % = 0.0025 t = 1 year
Unknown; Is
IS = �� × �� × ��
IS= (1,000,000) (0.0025)(1)
IS= Php 2,500
The interest earned is Php 2,500
How much interest is charged when PhP 50,000 is borrowed for 9
months at an annual simple interest of 10%? Given
P = 50,000 r = 10 % = 0.10 t = 9/12 year = 0.75 year Note: When the
term is expressed in months (M) it should be converted in years by
 M/12.
Unknown: Is IS= �� × �� × ��
��
IS= (50,000)( 0.10) ���� IS= Php
3,750
The interest earned is Php 3,750
When invested at an annual interest rate of 7%, a deposit
earned PhP 11,200 of simple interest in two years. How much
money was originally invested? Given
r = 7 % = 0.07 t = 2 years Is = Php 11,200
Unknown: P
I
s= �� × �� × ��
����
�� = ����
 �� =����, ������
(��. ����)(��)

�� = ������ ����, ����

�� = �� + ���� = �� + �� ×
�� × �� = �� �� + ����
where F = maturity (future value) IS
= simple interest
P = principal
r = rate
 t = term of time, in years
Find the maturity value if PhP 1M is deposited in a bank at a simple interest rate of 0.25% after (a) 1 year and
(b) 5 years?
Given P = Php 1,000,000 r = 0.25 % = 0.0025 Find (a) maturity or future value F after 1
year Method 1:
���� = �� × �� × ��
���� = (��, ������, ������)(��. ��������)(��)
���� = ������ ��, ������
The maturity or future value is given by F=P+I
�� = ��, ������, ������ + ��, ������
�� = ��, ������, ������
Method 2: To directly solve the future value F
�� = ��(�� + ����)
�� = (��, ������, ������)(�� + (��. �������� )(��) )
�� = ��, ������, ����
Find (a) maturity or future value F after 5 years
Method 1:
���� = �� × �� × ��
���� = (��, ������, ������)(��. ��������)
 (��)
���� = ������ ����, ������
The maturity or future value is given by F=P+Is
�� = ��, ������, ������ + ����, ������
�� = ��, ������, ������
Method 2: To directly solve the future value F
�� = ��(�� + ����)
�� = (��, ������, ������)(�� + ��. ��������)
(��0) )
�� = ��, ������, ����0
t
�� = ��( �� + r)
���� = �� − �� = �� [(�� +
��)�� − ��]
where F = maturity or future value
 IC = compound interest
P = principal or present value
r = interest rate
n = number of years
Find the maturity value and the compound interest if PhP 10,000 is compounded annually at
an interest rate of 2% in 5 years. P = 10,000 ; r = 2% = 0.02; t = 5 years
Find (a) Maturity value F
�� = �� �� + �� ��
�� = ����, ������ �� + ��. ���� ��
�� = ����, ������. ������
Find (b) Compound interest
���� = �� − ��
����= ����, ������. ���� − ����, ������
���� = ��, ������. ����
The future value F is Php 11,040.81 and the compound interest
is Php 1,040.81
 Suppose your father deposited in your bank account an amount of PhP 10,000 at
an annual interest rate of 0.5% compounded yearly when you graduate from
kindergarten and did not get the amount until you finish Grade 12. How much will
you have in your bank after 12 years?
Given: P = 10,000; r = 0.5 % = 0.005; t = 12 years
Unknown: F
The future value F is calculated by
�� = �� �� + �� ��
�� = ����, ������ �� + ��. ������
����
�� = ����, ������. ����
The amount will become Php 10,616.77 after 12 years
�� ��
�� = ��(�� + ��)
(��+��)��
�� ��(��+��)��
(��+��) = ��
��=
(��+��)�� Where
-t
�� = ��(�� + ��) F = maturity or future value P =
�� = ��(�� + ��) −�� principal or present value r =
�� interest rate
�� =
(��+��)�� t = number of years
What is the present value of Php 50,000 due in 7 years if money is worth 10
% compounded annually?
Given: F = 50,000; r = 10 % = 0.1; t = 7 years
Unknown: Present Value (P)
The present value P can be obtained by
�� =��
(��+��)��
����,������
�� =
(��+��.��)��
P = 25,657.91
The present value is Php 25,657.91
How much money should a student place in a time deposit in a bank that pays 1.1
% compounded annually so that he will have Php 200,000 after 6 years? Given: F
= 200,000; r = 1.1 % = 0.011; t = 6 years
Unknown: Present Value (P)
��
�� =
(��+��)��
������,������
�� =
(��+��.������)��
�� = ������, ������. ����

r
Definition of Terms
1. Conversion or interest period – time between successive conversions of
 interest 2. Frequency of conversion, m – number of conversion periods in one
year 3. Nominal rate, s – annual rate of interest compounded at a given period
(Ex. 2% per annum compounded semi-annually or simply 2% compounded
semi-annually) 4. Rate of interest (j) for each conversion periods
�� =����=������������ �������� ���� ����������������
������������������ ���� ��������������������
5. Total number of conversion periods
�� = ���� = no. of years no. of conversion periods in one year
Formula ��
r = �� + ��
��
−1

Convert to effective annual interest rate

(r) 1. 2% compounded semi-annually 2.
2% compounded quarterly
 3. 2% compounded monthly
4. 2% compounded daily
�� = 1 +������- 1 �� = 1 +������- 1
2% compounded semi-annually 2% compounded monthly
�� = 1 +0.222- 1 ���� ��. ���� %2% 12
-1
�� = ��. �������� �� = 1 +0.02 12

compounded quarterly 4- 1 ���� ��. ������ % 2%

�� = ��. ���������� compounded daily
�� = 1 +0.02 �� = ��. 02
�� = 1 + 365
4 ���������� ���� 365
��. ������ % -1

�� = ��. �������� ���� ��. ���� %

 Future and Present Value (Compounding m times a year)
�� −����
�� = �� �� + �� �� = �� ��
�� −��
+ ��

where F = maturity or future value P =

principal
s = nominal rate of interest
m = frequency of conversion
t = number of years
Find the maturity value and interest if Php 10,000 is deposited in a bank at 2
% compounded quarterly for 5 years.
Given: P = 10,000: s = 2 % = 0.02: t = 5 years: m = 4
Unknown: F and Interest ��
�� = �� �� + ������ �� = ����, ������ ��
 �� = ����, ������. ����
+��. ���� �� ��∗��

�� =
������������
���� = �� − ��
�� = ����,
������. ���� −
����, ������ ��
= ��, ������.
����
Find the present value of Php 50,000 due in 4 years if money is
invested at
12 % compounded semi-annually.
Given: F = 50,000; s = 12 % = 0.12; t = 4 years; m = 2
Unknown P = +
1 mt
⎛ ⎞
:P fs
�� = �� �� ⎜ P= ⎟
+����−���� ⎝ m ⎠
50 , 000

2
0 . 12 ⎛ ⎞
1 + 2*4 ⎟
⎜⎝ ⎠

�� = ������ ����, ������. ����

Interest Rate and Time in Compound

Interest
How long will it take Php 3,000 to savings account at 0.25 % 3500
accumulate to Php 3,500 in a bank ��.��������
compounded monthly? 3000 = �� +
����
I n =3500 0.0025
3000= �� +��.�������� ������ 3000= ���� ��
3500 ��.��������
+
������ ����
3500
In =
������
���� Given
P = 3,000; F = 3,500; s = 0.25 % = ������
Unknown; t +��.�����
�� ����
�� = �� �� + �� ���
����
3000= ������ ���� ��
=
t ⎛⎜⎜⎝ ⎞⎟ ⎟
3500 3000 ⎠

0 . 0025
12 1

�� +

������ �� = ������ �� �� +��. 12

������ ⎞⎟

������ In
⎟

⎠
⎛⎜⎜⎝
���� ��������?
�� = ����. ����
Suppose you invested Php 20,000 at 3 % compounded
continuously. How much will you have from this
investment after 6 years?
Given: P = Php 20,000; r = 3 % = 0.03; t = 6
rt 0.03(6)
years F=Pe F=(20,000)e
F=Php 23,944.35
Hence, the amount Php 20,000 will become
Php 24,944.35 if you invest at 3 %
compounded
continuously for 6 years
Definition of Terms
1. Annuity – a sequence of payment made at equal (fixed)
intervals or periods of time
2. Payment interval – the time between successive payments 3.
Term of an annuity, n – time between the first payment and last
payment interval
4. Regular or periodic payment, A – amount of equal payments 5.
Amount on an annuity (future value, F) – “sum” of future values
of all the payments to be made during the entire term of the
annuity
6. Present value of an annuity (P) – “sum” of present values of all
the payments to be made during the entire term of the annuity
According to payment interval and interest period
Simple Annuity
An annuity where the payment interval is the same as the interest period
General Annuity
An annuity where the payment interval is not the same as the interest periodAccording to time of
payment
Ordinary Annuity (Annuity Immediate)
A type of annuity in which the payments are made at the end of each payment
interval. Annuity Due
A type of annuity in which the payments are made at beginning of each payment interval.
According to duration
Annuity Certain
An annuity in which payments begin and end at definite
times
Contingent Annuity
An annuity in which the payments extend over an
indefinite (or indeterminate) length of time
In SIMPLE annuity the payment interval is the same as the
interest period while in a GENERAL annuity the payment
interval is not the same as the interest period.

Future Value of a Simple Annuity

Suppose Mrs. Halili would like to save Php 3,000 at the end of each
month,for six months, in a fund that gives 9 % compounded monthly. How
much is the amount or future value ofher savings after 6 months? Given: A
= Php 3,000; t = 6 months; s = 9 % = 0.09
Illustrate the cash flow in a time diagram
Find the future value ofall the payments at the end ofterm (t=6)
In order to save for her college graduation, Maria decided to
save Php 200 at end of each month. If the bank pays 0.250 %
compounded monthly, by how much will her money be at the
end of6 years?
A = Php 200; t = 6 years; s = 0.250 % = 0.0025; m = 12
General Annuity
An annuity where the payment interval is not the same as the interest compounding
period.
General Ordinary Annuity
A general annuity in which the periodic payment is made at the end of the payment
interval
Examples ofAnnuity
Monthly installment payment of a car, lot or house with an interest rate that
is compounded annually; paying a debt of semi-annually when the interest is
compounded monthly.
AMORTIZATION- method of paying loan (principal and interest)on
amortization basis, usually ofequal amounts at regular intervals
AMORTIZATION SCHEDULE - a table for the amortization of a loan showing
the regular payments, payment to interest, payment to principal and the
outstanding balance after each payment
COLLATERAL - assets used to secure the loan (usually the purchased
property)
Examples: real-estate, equipment, fixtures, furniture
MORTGAGE - a loan, secured by a collateral, that a borrower is required to
pay at specified terms
CHATTEL MORTGAGE - a mortgage on a movable property
MORTGAGOR - borrower in a mortgage with the right to posses and use the mortgaged property
MORTGAGEE - lender in a mortgage with the right to repossess the property in case the mortgagor
does not make regular payments
FIXED-RATE MORTGAGE - most common type of mortgage wherein the interest remains
constant throughout the term ofloan
ADJUSTABLE-RATE MORTGAGE - Type of mortgage wherein the interest rate (as well as the
payment) can change at some time point.
REPOSSESSION - the act of taking back of a mortgaged property when the mortgagor fail to fulfill its
obligation
GUARANTOR - a person guaranteeing that the borrower will pay the loan
1. Consumer loans do not usually require a guarantor.
bank or the lending institution may require a credit report, bank statements, and an income tax
return, and if the lendee is employed, a certificate of employment and employee pay slips 2. B
usiness loans require the business owners to sign as guarantors.
Lendee has to submit a credit report, income tax returns and company’s financial statement
 B. Amortization schedule
The amortization schedule is an amortization table. Step 1:
Place the original loan and the periodic payments.
Step 2: Compute the interest payment I1 for the first period:
(500,000)(0.04) = 20,000
Step 3: G et the principal repayment P1 by subtracting the
interest I1 from the regular payment R:
137,745.02 – 20,000 = 117,745.02
 Problem 1
The amount of Php 20,000 was deposited in a bank earning an
interest of 6.5 % per annum. Determine the total amount at
the end of 7 years if the principal and interest were not
withdrawn during this period.
A. Php 30,890.22
B. Php 30,980.22
C. Php 31,079.73
D. Php 31,179.37
Find the present worth of a future payment of Php 80,000
to be made in 6 years with an interest of 12 %
compounded annually.
A. Php 40,540.49
B. Php 40,450.49
C. Php 40,350.49
D. Php 40,530.49
What is the effective rate corresponding to 18 %
compounded daily? Take 1 year is equal to 360 days.
A. 19.61 %
B. 19.44 %
C. 19.31 %
D. 19.72 %
What nominal rate, compounded semi-annually yields the
same amount as 16 % compounded quarterly? A. 16.09 %
B. 16.32 %
C. 16.45 %
D. 16.78 %
In how many years is required for Php 2,000 to increase by
Php 3,000 if interest at 12 % compounded semi-annually?
A. 7.86 years
B. 7.65 years
C. 7.23 years
A. 8.12 years
Fifteen years ago Php 1,000 was deposited in a bank account,
and today it is worth Php 2,370. The bank pays interest semi-
annually. What was the interest rate paid in this account?
A. 5.72 %
B. 5.78 %
C. 5.83 %
D. 5.90 %
What annuity is required over 12 years to equate
with a future amount of Php 20,000? Assume i=6 %
annually.
A. Php 1,290.34
B. Php 1,185.54
C. Php 1,107.34
D. Php 1,205.74
Determine the annual payment to extinguish a debt of
Php 10,000 payable for 6 years at 12 % interest
annually. A. Php 2,324.64
B. Php 2,234.26
C. Php 2,432.26
D. Php 2,342.26
A machine has an initial cost of Php 50,000 and is salvage
value of Php 10,000 after 10 years. What is the book value
after 5 years using straight line depreciation? A. Php
30,000
B. Php 31,000
C. Php 30,500
D. Php 31,500