Introduction

Almost every day money is loaned, borrowed or invested. Some used credit
cards, to purchase goods and other services for personal use,

In this chapter, we cover topics on simple interest, compound interest

stocks, bonds, credit cards, mutual fund and home ownership. Knowing these
concepts and how they work makes for more informed and efficient consumption,
leading to a better and more comfortable life.
 SIMPLE AND COMPOUND INTEREST
Key Concepts
Interest (𝑰) is the amount earned for the use of borrowed money or of
money deposited in the bank.
Principal (P) is the amount of money borrowed or placed into a savings
account.
Rate (r) is the percent of the principal paid for having money loaned or
earned for investing money.
Time or term (t) is the length of time that the money is being borrowed or
invested. Time has to be written in years.

Interest is computed using one of two types of interests. These are

1. Simple Interest
2. Compound Interest

Simple Interest
Simple interest is computed only on the amount originally lent to the
borrower or amount deposited or placed into savings account. This can be solved
using the formula:

𝑰 = 𝑷𝒓𝒕 , where: 𝐼 = Simple Interest

P = Principal amount
r = Rate of Interest
t = time (in years)

Illustrative Examples:
1. Dolly loaned Php 100 000.00 for 4 years at 5% simple interest. How much
interest will she pay after 4 years? What is the total amount to be paid after
4 years?
Given: P = Php100 000.00
r = 5 %, 0.05 in decimal form
t = 5 years
Solution: 4
𝐼 = 𝑃𝑟𝑡
𝐼 = Php 100 000.00 x 0.05 x 4
𝐼 = Php 20 000.00
(F)= P + 𝐼 or (F) = P(1 + rt)
F = Php 100 000.00 + Php 20 000.00 F = Php100 000.00 [1 + (0.05 x 4)]
F = Php 120 000.00 F = Php120 000.00

Dolly will pay an interest of Php 20 000. She will pay the total amount of
Php 120 000.00.

Worktext in Mathematics in the Modern World 152

2. Cindy borrowed Php 25 000.00 from Bank A. If the loan was for 3 years and
the amount of interest was Php 9 000.00, what simple interest rate was she
charged?
Given: P = Php 25 000.00
𝐼 = Php 9 000.00
t = 3 years
r =?
Solution:
𝐼= 𝑃𝑟𝑡
𝐼
𝑟 =
𝑃𝑡
𝑃ℎ𝑝 9 000.00
𝑟 =
(𝑃ℎ𝑝 25 000.00)(3)
𝑟 = 0.12
𝑟 = 12%

Cindy was charged 12% interest rate.

3. John wants to have an interest income of Php 1 200.00 in1 year and 6
months. How much must he invest if the interest is at 8% per annum?
Given: i = Php 1 200.00
r = 8%
t = 1 year and 6 months or 1.5 years
P =?
Solution:
𝐼= 𝑃𝑟𝑡
𝐼
𝑃 =
𝑟𝑡
1 200.00
𝑃 =
(0.08)(1.5)
𝑃 =Php 10 000.00

John invested Php 10 000.00 within 1 year and 6 months.

Worktext in Mathematics in the Modern World 153

Name: Date:
Curriculum and Section: Score:

Try this!

Direction: Answer the following problems.

1. If a nine-month term deposit at a bank earns a simple interest of 1% per

annum. How much will have to be deposited to earn Php 5 100.00 of
interest

2. Joshua paid Php15 884.00 in a loan made 6 months ago at 9% simple

interest. Find the interest generated?

3. A man borrowed Php 4 000.00 for 3 months and paid an interest of

Php 250.00. What was the annual rate of interest?

4. Find the amount of interest earned by Php 9 000.00 invested at 6%

annual simple interest rate for 4 years.

5. What total amount should be paid at the end of 5 years if Php 30 000.00
earns 4.5% simple interest?

6. Jane wants to borrow Php 15 000.00 from someone at 12% interest per
annum. What total amount will she pay at the end of 8 months?

7. Cynthia invested Php 30 000.00 in a bank at a simple interest of 5% for 2

years and 9 months. How much interest is earned on this investment?

8. Sante deposits Php 20 000.00 and got back and amount of

Php 22 100.00 after a year. Find the interest and interest rate.

Worktext in Mathematics in the Modern World 154

Compound Interest
The interest is charged on principal plus accumulated interest. The amount
of interest for a period is added to the amount of principal to compute the interest
for the next period. The interest may be compounded monthly, quarterly,
semiannually, or annually.

The conversion periods for compounded interest computation are:

Annually = 1
Semi-annually = 2
Quarterly = 4
Monthly = 12

Compound Amount (A) and Compound Interest (CI) can be solved using the
formulas:

𝒓 𝒏𝒕
𝑨 = 𝑷 (𝟏 + ) 𝑪𝑰 = 𝑨 − 𝑷
𝒏

where: A = Compound Amount

P = Principal Amount
r = rate of interest
n = conversion period
t = time in years

Illustrative Examples:
1. Mae has deposited Php 10 000.00 in a bank for four years at a rate of 4%
per year compounded annually. What is the compound amount and interest
after 4 years?
The table below shows the computation for 4 years of investment
Principal Rate of Compound
Years Interest
amount interest amount
1 Php 10 000.00 4% Php 400.00 Php10 400.00
2 Php 10 400.00 4% Php 416.00 Php10 816.00
3 Php 10 816.00 4% Php 432.64 Php11 248.64
4 Php 11 248.64 4% Php 449.95 Php11 698.59
Given: P = Php 10 000.00
r = 4%
n=1
t=4
Solution:
𝑟 𝑛𝑡
𝐴 = 𝑃 (1 + ) = 𝑃ℎ𝑝 10 000(1 + 0.04)4
𝑛
𝐴 = 𝑃ℎ𝑝 11 698.59
𝐶𝐼 = Php 11 698.59 –Php 10 000.00 = Php 1 698.59

Worktext in Mathematics in the Modern World 155

2. What is the compound amount of Php 5 000.00 for 3 years at 10%
compounded semi-annually?
Given: P = Php5 000.00
n=2
t=3
r = 10% = 0.10
Solution:
𝑟 𝑛𝑡 0.10 (2)(3)
𝐴 = 𝑃 (1 + ) = 𝑃ℎ𝑝 5 000 (1 + )
𝑛 2
𝐴 = 𝑃ℎ𝑝 5 000 (1 + 0.05)6
𝐴 = 𝑃ℎ𝑝 6, 700.48

3. At the birth of a daughter, what should a father invest in order to provide his
daughter with Php 50 000.00 on her 18th birthday if money is worth 12 %
compounded quarterly?
Given: A = Php5 0 000.00
r = 12% = 0.12
t =18
n=4

Solution:
𝑟 𝑛𝑡
𝐴 = 𝑃 (1 + )
𝑛
𝐴 𝑃ℎ𝑝 50 000
𝑃 = 𝑛𝑡 =
𝑟 0.12 (4)(18)
(1 + 𝑛) (1 + 4 )

𝑃ℎ𝑝 50 000 𝑃ℎ𝑝 50 000

𝑃 = 72 =
0.12 (1 + 0,3)72
(1 + 4 )

𝑃ℎ𝑝 50 000 𝑃ℎ𝑝 50 000

𝑃 = =
(1.03)72 8.4000

𝑃 = 𝑃ℎ𝑝 5 952.38

Worktext in Mathematics in the Modern World 156

Name: Date:
Curriculum and Section: Score:

Try this!
Direction: Answer the following problems.

1. Daryl wants to have a total of Php 4, 000.00 in two years so that he can
upgrade his bike. He finds an account that pays 5% interest compounded
monthly. How much should Daryl deposit into his account so that he will
have Php 4 000.00 at the end of two years?

2. Find the rate compounded quarterly for an amount of Php 20 056.00 due
in 7 years and 6monhs whose present value is Php 10 750.00.

3. Mrs. Cruz have a bank account whose principal is Php 10 000.00 and the
bank compounds the interest twice a year at an interest rate of 3%. How
much money she had in the bank at the end of a year?

4. A rural bank is offering to double your money. Joanna invested with them
Php 2 500.00 at 5% interest compounded quarterly. How long will it take
to double Joanna’s money?

5. Rey deposited his money in Bank X which offers an interest of 3.5%

compounded semi-annually. How much will be in his account at the end
of 3 years?

6. Gina deposited Php 12 000.00 in the bank which offers 4% compounded

quarterly for 3 years. How much is her money in the bank at the end of 3
years?

7. What principal you have to deposit in a 4.5% savings account

compounded semi-annually in order to have a total of Php 8 500.00 after
5 years?

Worktext in Mathematics in the Modern World 157

 STOCKS, BONDS, AND MUTUAL FUNDS
Stocks or equity
Stocks or equity is a share of individual companies or person. Buying a
stock is buying a share of the company. The person who buys the stocks is a
company part owner and is issued a certificate and he is a stockholder and will
gets a share of the profit of the company. Profits are distributed through
dividends expressed as per-share amount.

Dividend = number of shares x per-share amount

𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑚𝑚𝑜𝑛 𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑
Dividend per share (common) = 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠 (𝑐𝑜𝑚𝑚𝑜𝑛)
Total preferred dividend = Number of shares x Dividend per share
Total common dividend = Total dividend − Total preferred dividend
Dividend per share (preferred) = Par value x Dividend rate
Illustrative Examples:
1. A stock pays an annual dividend of Php 3.50 per share. How much dividend
is paid to a shareholder who has 1 200 shares of company’s stock?
Solution:
Dividend = number of shares x per-share amount
Dividend = 1 200 shares x Php 3.50 per share
Dividend = Php 4 200.00

2. Mr. Santos owns 600 shares of stocks from Company A. The shares were
purchased at Php 30.50 per share and were sold at the closing price of Php
32.75.
a. How much is the profit on the sale of the stock?
b. If the broker charges 2.5% of the total sale price, how much was
the commission?
Solution:
a. Since selling price is higher than purchase price, there is a profit.
Profit = number of shares (selling price - purchase price)
= 600(Php 32.75 – Php 30.50) = 600(Php 2.25) = Php 1 350.00
b. Commission = charge (selling price)
Commission = 2.5% (600 x Php 32.75) = 0.025 x (Php 19 650) = Php 491.25

3. The XYZ enterprise has 1 300 shares of common stock outstanding. If a

dividend of Php 32 500.00 was declared by the company board of directors,
what are the dividends per share of common stocks?
Solution:
Given: Number of shares = 1 300
Total dividend = Php 32 500.00
32,500
Dividend per share = 1 300
Dividend per share = Php 25.00

Worktext in Mathematics in the Modern World 158

Bonds
Bonds are issued by the company for borrowing money from bank holders.
Face value is the price paid for the bond. They are paid with in a particular
maturity date and a rate of interest called the coupon.

Illustrative examples:
1. A bond has a face value of Php 10 000.00 with a 4% interest rate for 5
years. What is the amount of interest paid to the bondholder?
Solution: 𝐼 = 𝑃𝑟𝑡
𝐼 = Php10 000.00 x 0.04 x 5
𝐼 = Php2 000.00

2. A bond with a face value of Php 40 000.00 and a 3% coupon matures in 3

years. Find the annual amount of interest and the total amount paid to the
bondholder?
Given: Face value = Php 40 000.00
Rate of interest = 3%
t = 3 years

Solution:
𝐼 = 𝑃𝑟𝑡
𝐼 = Php 40 000.00 x 0.03 x 3
𝐼 = P 3, 600.00
Amount to be paid = Php 40 000.00 + Php 3 600.00
= Php 43 600.0

Mutual Funds
A mutual fund company is an investment trust whose assets are stocks
and bonds. The company deals on purchase of stocks and bonds in terms of
shares.
In a mutual fund, money is managed by full time professionals whose job is
to research and evaluate stocks of individual investors. Each day, the value of a
share in the fund called Net Asset Value (NAV) of the fund is calculated.
𝐴−𝐿
Formula: NAV = 𝑁
where, A is the total fund assets
L is the total fund liabilities
N is the number of outstanding shares
Illustrative examples:
1. A mutual fund has Php 100 million worth of stocks, Php10 million worth of
bonds, and Php 6 million in cash. The fund’s total liabilities are worth Php 4
million. There are 28 million shares outstanding. Reina invested an amount
of Php 40 000 to this fund,
a. Calculate the NAV
b. How many shares can be purchased?

Worktext in Mathematics in the Modern World 159

 Given: Asset stocks = Php100 million
Bonds = Php10 million
Cash = Php 6 million
Liabilities = Php 4 million
Number of shares outstanding = 28 million shares
Invested amount = Php 40, 000.00
Solution:
(𝑃ℎ𝑝100𝑀+𝑃ℎ𝑝10 𝑀+𝑃ℎ𝑝6 𝑀)−𝑃ℎ𝑝4𝑀
a. NAV = 28 𝑚𝑖𝑙𝑙𝑖𝑜𝑛 𝑠ℎ𝑎𝑟𝑒𝑠

= Php 4.00/share
𝑃ℎ𝑝 40,000
b. Shares to purchase = 4
= 10 000 shares

2. The total assets of a mutual fund amount to Php 40 million and the total
liabilities of Php 8 million. If you invest Php 1 million together with
Php 3 million shares outstanding, how many shares can be purchased?
Solution
𝐴−𝐿
a. NAV = 𝑁
40𝑀−8𝑀
NAV = 3𝑀 𝑆ℎ𝑎𝑟𝑒

NAV = 10.67/share

𝐴𝑚𝑜𝑢𝑛𝑡 𝑖𝑛𝑣𝑒𝑠𝑡𝑒𝑑 𝑃ℎ𝑝1.000,000

b. Number shares to purchase = = = 93.7 shares
𝑁𝐴𝑉 10.67/𝑠ℎ𝑎𝑟𝑒

Worktext in Mathematics in the Modern World 160

Name: Date:
Curriculum and Section: Score:

Try this!
Direction: Answer the following problems.

1. Sandy own shares of a company which just paid him Php 25.00 per share
in annual dividend. If the current stock price is Php130.00, what is the
dividend yield on the company’s stock?

2. Cindy bought 300 shares of stocks at Php160.00 per share. A year later,
he sold the stock at Php 175.50. How much money did he make on the
sale excluding costs of buying and selling?

3. What is the total interest paid to a bondholder if a bond has face value of
Php 25 000.00 and has a five year maturity date at 1.6% coupon?

4. A bond with a face value of Php 45 000.00 and a 2.5% coupon matures in
3 years. Find the annual amount of interest and the total amount of
interest paid to the bondholder.

5. A mutual fund has Php 15 million worth of stocks, Php 2.5 million worth of
bonds, and Php 2.1 million worth of cash. The fund’s total liabilities amount to
Php 3 million. There are 1.5 million shares outstanding. Rona invests
Php 25, 000 in this fund. Calculate the net asset value of a mutual fund and
find the number of shares will she purchase?

Worktext in Mathematics in the Modern World 161

 CONSUMERS LAON
Consumers loan is an amount of money lent to an individual for personal,
family or household purposes. Most consumer loans apply the Annual
Percentage Rate (APR) interest rate, such as a car loan, housing loan, furniture
loan, appliance loan, and other types of loan with regular payment schedule.
Formula: Annual Percentage Rate
𝐴𝑖 2𝑚𝑟
𝑅= 𝐴𝑃𝑅 =
1−(1+𝑖)−𝑛 𝑚+1
where, R = regular payment
A = loan amount
r = annual interest rate
t = number of years
m = number of payments per year
n=tm
𝑟
i = 𝑚, rate per year

Illustrative Examples:
1. Madele purchased a smart phone for Php 40 000.00. A gadget store is
offering their customer who purchase the latest model of smart phone an
annual interest rate of 8% for 2 years. If Madele purchases the latest model
of smart phone for Php 40 000.00 from this gadget store, what is her
quarterly payments?
Given: A = Php 40 000.00 r = 8% = 0.08
t = 2years m = quarterly (4)
0.08
n = t m = (2)(4) = 8 i= = 0.02
4

Solution:
𝐴𝑖 (𝑃ℎ𝑝 40 000)(0.02)
𝑅= −𝑛 =
1 − (1 + 𝑖) 1 − (1 + 0.02)−8
𝑃ℎ𝑝 800 𝑃ℎ𝑝 800
𝑅= =
1 − 0.853490 0.14651
𝑅 = 𝑃ℎ𝑝 5 460. 38
The quarterly payment of Madele in her smart phone Php 5 460.38

2. Romar, a manager of a large company purchases a car for Php 1 200 000.00.
The sales tax is 8% of the purchase price and he makes a down payment of
Php 100 000.00. The remaining balance is loan at annual interest rate of 10%
for 5 years. Find the amount of sales tax, the amount of loan that Romar
needs, and monthly payment.
Given: Sales tax Rate = 8% = 0.08
Down Payment = Php 100 000.00
Purchase Price = Php 1 200 000.00

Worktext in Mathematics in the Modern World 162

 Solution:
Step 1. Compute the amount of sales tax
Sales tax = Purchase price x Sales tax Rate
Sales tax = Php 1 200 000.00 x 0.08
Sales tax = Php 96 000.00

Step 2. Compute for the loan amount

Loan Amount = Purchase Price + Sales Tax - Down Payment
Loan Amount = Php 1 200 000 + Php 96 000 – Php 100 000
Loan Amount = Php 1 196 000.00

Step 3. Compute for the monthly payment

A = Php 1 196 000.00 r = 10%
m = 12 (monthly payment) t = 5 years
𝑟 0.10
i= = = 0.0083 n = tm = 5(12) = 60
𝑚 12

𝐴𝑖 (𝑃ℎ𝑝 1 196 000)(0.0083)

𝑅= −𝑛 =
1 − (1 + 𝑖) 1 − (1 + 0.0083)−60

𝑃ℎ𝑝 9 926.80 𝑃ℎ𝑝 9 926.80

𝑅= =
1 − 0.608995 0.391004
𝑅 = 𝑃ℎ𝑝 25 387.98

3. Suppose Joan purchase a 50-inch television set for Php 60 000.00. He

pays 25% down payment and agrees to pay the balance in 10 equal
payments. The finance charge on the balance is 8% simple interest. Find
the finance charge and estimate the annual percentage rate.
Solution:
Step 1 Compute for the amount of down payment and amount
finance
Down payment = Purchase Price x Percent Down
Down payment = Php 60 00000 x 0.25 = Php 15 000.00
Amount Finance = Purchase Price - Down Payment
Amount Finance = Php 60 00.00 – Php 15 000.00 = Php 45 000.00

Step 2. Determine the finance charge

Finance Charge = Amount Finance x Finance Rate
Finance Charge = Php 45 000.00 x 0.08 = Php 3 600.00

Step 3. Estimate the Annual Percentage Rate

2𝑚𝑟 2(10)(0.25)
𝐴𝑃𝑅 = =
𝑚+1 10 + 1

5
𝐴𝑃𝑅 = = 0.45454545 … = 45.45%
11

Worktext in Mathematics in the Modern World 163

Name: Date:
Curriculum and Section: Score:

Try this!
Direction: Answer the following problems.

1. Geo purchase a sports car for Php 4 000, 000.00. He makes

Php 1 500 000.00 down payment and finances the remaining amount for
5 years at an annual interest rate of 8%. The sales tax is 5.5% of the
selling price. Find the monthly payment.

2. During the big sale, Pearl bought Php 90 000.0 worth of furniture. The
down payment was Php 3 500.00. The balanced was financed for years
at 12% simple interest per year.

Find the value of the following.

a. Amount financed

b. Financed charge

c. Installment price

D. Monthly payment

Worktext in Mathematics in the Modern World 164

 HOME OWNERSHIP
Mortgage is the amount borrowed to purchase a home and other real
estate property. It is the difference between the selling price and down payment.
The borrower is usually the owner of the property and is referred to as the
mortgator and the ledger is the mortgage.
Illustrative examples:
1. Dante’s home worth Php 4 000 000.00 in a subdivision in Iloilo City. He
made a down payment of 20% and secures a loan on the remaining
balance for 25 years at an annual interest rate of 6%. Find the monthly
mortgage. What is the total payment over the life of the loan and the
amount of interest paid on the loan over the 25 years.
Given: Selling price = Php 4 000 000.00 t = 25 years
r = 6% = 0.06 m = 12
𝑟 0.06
n= tm = 25(12) = 300 i= 𝑚 = 12 = 0.005

Solution:
a. Compute for the down payment
Down payment = Selling price x rate of down payment
Down payment = Php 4 000 000.00 x 0.20 = Php 800 000.00

b. Compute for the mortgage

Mortgage = Selling price − Down payment
Mortgage = Php 4 000 000.00 – Php 800 000.00 = Php 3 200 000.00

c. Compute for the monthly mortgage payment

𝐴𝑖 (𝑃ℎ𝑝 3 200 000)(0.005)
𝑅= =
1 − (1 + 𝑖)−𝑛 1 − (1 + 0.005)−300

𝑃ℎ𝑝 16 000 𝑃ℎ𝑝 16 000

𝑅= =
1 − 0.223966 0.77603

𝑅 = 𝑃ℎ𝑝 20 617.76

d. Compute for the total mortgage payments

Total Mortgage Payments = Monthly payments x No. of monthly payments
Total Mortgage Payment = Php 20 617.65 x 300 = Php 6 185 295.00

e. Compute for the amount of interest paid

Interest = Total Mortgage Payments − Amount of Mortgage
Interest = Php 6 185 295 .00 – Php 3 200 000.00
Interest = Php 2 985 295.00

The amount of interest paid over the life of the loans is Php 2 985 295.00

Worktext in Mathematics in the Modern World 165

2. Mrs Cruz has monthly payment of Php 15 325.00 on a 25-year loan at an
annual rate of 4.5%. After making payments for 20 years, she decides to
sell the house. What is the payoff for the mortgage?
Given: R = P15 325.00 t = 25 years
r = 4.5% = 0.045 m = 12
t1 = 5 years (remaining years) n = t1 (m)= 5(12) = 60
𝑟 0.045
i = 𝑚= 12 = 0.00375

Solution:
We will apply the APR loan payoff formula. Mrs. Cruz had made
payments for 20 years or 240 months. There are 60 unpaid or remaining
payment, n = 60.
2𝑚𝑟
𝐴𝑃𝑅 =
𝑚+1

1 − (1 + 𝑖)−𝑛
𝐴 = 𝑅[ ]
𝑖

1 − (1 + .00375)−60
𝐴 = 𝑃ℎ𝑝 15 325 [ ]
0.000375

0.201147
𝐴 = 𝑃ℎ𝑝 15 325 [ ]
0.00375

𝐴 = 𝑃ℎ𝑝 15 325(53. 639)

𝐴 = 𝑃ℎ𝑝 822 017.68

Worktext in Mathematics in the Modern World 166

Name: Date:
Curriculum and Section: Score:

Try this!
Direction: Answer the following problems.

1. After making payments of Php 13 500 for 10 years on Larry’s 20-year

housing loan at 8%, he decided to sell his house. What is the loan payoff?

2. Belinda purchase a home for Php 6 850 000.00 in a subdivision in

Mandurriao, Iloilo City and obtained a 20-year loan with an annual interest
rate of 6.2%, after paying a down payment of 25%. Find the value of the
following:
a. Monthly mortgage payment

b. The total payment over the life of the loan

c. The amount of interest paid on the loan over the 20 years.

Worktext in Mathematics in the Modern World 167

 CREDIT CARD
Credit Cards is a small plastic card that contains name of the owner and
authorizes the person whose name appears on it to charge purchases or
services to his account for which he will be later billed.

Finance Charge is an amount paid in excess of the cash price. It is the cost
to the costumer for the use of credit. The due date on the bill is usually 1 month
after the billing date. If the bill is paid in full by the due date, the customer pays
no finance charge. If the bill is not paid in full by the due date, a finance charge is
added to the next bill.

Average Daily Balance:

The average daily balance is determined using the formula:
𝑆𝑢𝑚 𝑜𝑓 𝑡ℎ𝑒 𝑡𝑜𝑡𝑎𝑙 𝑎𝑚𝑜𝑢𝑛𝑡 𝑜𝑤𝑒𝑑 𝑒𝑎𝑐ℎ 𝑑𝑎𝑦 𝑜𝑓 𝑡ℎ𝑒 𝑚𝑜𝑛𝑡ℎ
Average daily balance =
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑑𝑎𝑦𝑠 𝑖𝑛 𝑡ℎ𝑒 𝑏𝑖𝑙𝑙𝑖𝑛𝑔 𝑝𝑒𝑟𝑖𝑜𝑑

Illustrative examples:
1. Sofia has unpaid bill of Php 4 500.00 had a due date of July 15. A purchase
of Php 1 700.00 was made on July 20. A payment of Php 4 000.00 was made
on July 26 and an item worth Php 900.00 was purchased on August 6. The
next billing date is August 15. The interest rate on the average daily balance
is 4% per month. Find the finance charge on the August 15 bill.
Step 1. Compute the daily balance
The table below shows the unpaid balance for each purchase, the
number of days the balance is owed. The negative sign in the payment or
purchase column of the table indicates that the payment was made on that
date.
Number of
Unpaid balance
Payment or Unpaid days until
Date times number of
purchases Balance balance
days
changes
July 15-19 Php 4 500,00 5 Php 22 500.00
July 20- 25 Php 1 700.00 Php 6 200.00 6 Php 37 200.00
July 26-Aug 5 Php 4 000.00 Php 2 200.00 11 Php 24 200.00
Aug 6 - Aug 15 Php 900.00 Php 3 100.00 10 Php 31 000.00
Php 114 900.00

Step 2. Compute the Average daily balance.

𝑆𝑢𝑚 𝑜𝑓 𝑡ℎ𝑒 𝑎𝑚𝑜𝑢𝑛𝑡 𝑜𝑤𝑒𝑑 𝑒𝑎𝑐ℎ 𝑑𝑎𝑦 𝑜𝑓 𝑡ℎ𝑒 𝑚𝑜𝑛𝑡ℎ
Average daily balance = 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑑𝑎𝑦𝑠 𝑖𝑛 𝑡ℎ𝑒 𝑏𝑖𝑙𝑙𝑖𝑛𝑔 𝑝𝑒𝑟𝑖𝑜𝑑

𝑃ℎ𝑝 114 900

Average daily balance = 30

Average daily balance =Php 3 830.00

Worktext in Mathematics in the Modern World 168

 Step 3. Finance Charge
Finance Charge = Average Daily Balance x Periodic Rate
Finance Charge =Php 3, 830.00 x 0.04
Finance Charge = Php153.20
Hence, the finance charge on the August 15 bill is Php153.20.00

Step 4. Determine the Current Balance

Current Balance= Previous Balance − Payments + New Charges
+ Finance Charge
Current Balance = Php 4 500.00 – Php 4 000.00 +Php 3 100.00
+ Php 153.20
Current Balance = Php 3 753.20

2. Terry made a Php 3 000.00 purchase on January 10, a Php 5 500.00 on

January 20, and cash advance of Php 6 000.00 on January 25 using her
credit card, which previously had zero balance. Her monthly statements are
billed on the 31st of each month. The interest on the average daily balance
is 3% per month and 2.5% for cash advances. Find the finance charge and
the balance owed on January 31 bill.

Step 1. Determine the finance charge

Prepare the table showing the unpaid balance for each purchase.
Number of days Unpaid balance
Payments/ Unpaid
Dates until balance times number of
Purchase balance
changes days
January 10-19 Php 3 000.00 Php 3 000.00 10 Php 30 000.00
January 20-24 Php 5 500.00 Php 8 500.00 5 Php 42 500.00
January 25-31 Php 6 000.00 Php 14 500.00 7 Php 101 500.00
Php 174 000.00
Terry owed Php 174 000.00 and the number of days from January 1 to
January 31 is 31 days

Step 2. Compute for the average daily balances

𝑆𝑢𝑚 𝑜𝑓 𝑡ℎ𝑒 𝑎𝑚𝑜𝑢𝑛𝑡 𝑜𝑤𝑒𝑑 𝑒𝑎𝑐ℎ 𝑑𝑎𝑦 𝑜𝑓 𝑡ℎ𝑒 𝑚𝑜𝑛𝑡ℎ
Average daily balance = 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑑𝑎𝑦𝑠 𝑖𝑛 𝑡ℎ𝑒 𝑏𝑖𝑙𝑙𝑖𝑛𝑔 𝑝𝑒𝑟𝑖𝑜𝑑

𝑃ℎ𝑝 174 000.00

Average daily balance =
31
Average daily balance = Php 5, 612.90

Step 3. Find the total finance charge

Finance Charge = Average daily balance x Periodic Rate
Finance Charge = Php 5 612.90 x 0.03
Finance Charge = Php 168.39

Worktext in Mathematics in the Modern World 169

 Cash Advance Fee = Amount of Cash Advance x Rate
Cash Advance Fee = Php 6 000.00 x 0.025
Cash Advance Fee = Php 150.00

Total Finance Charge = Regular finance charge + Cash Advance Fee

Total Finance Charge = Php 168.39 + Php 150.00
Total Finance Charge = Php 318.39

Step 4. Determine the current balance

Current balance = Previous balance - Payments + New Charges
+ Finance Charge
Current balance = 0 - 0 + Php 14 500.00 + Php 318.39
Current balance = Php 14 818.39

Worktext in Mathematics in the Modern World 170

Name: Date:
Curriculum and Section: Score:

Try this!
Direction: Answer the following problems.

1. In a credit card statement of Mr. Cruz shows that he had the unpaid balance
of Php 3 800.00 on the billing date of August 16. He made the following
transactions after August 16: Purchase of Php 4 200.00 on August 20,
purchase of Php 3 900.00 on August 30 and payment of Php 5 000.00 on
September 5. 465 Given the finance charge of 2.5% on the daily balance,
find the finance charge and the balance owed on September 16.

2. Mr. Santos has a credit card amount with 21% annual percentage rate. The
finance charge calculated using the average daily balance method. The
billing date is every 25th day of the month.

The table showed the transaction made by Mr. Santos.

Date Transaction Charges
September 2 Previous months balance Php 3 500.00
September 10 SM grocery Php 5 100.00
September 15 Payment Php 6 000.00
September 20 SM department Store Php 3 200.00
September 22 Electric bill Php 2 000.00
How much is the average daily balance, finance charge, and the
new balance for September 25?

3. The activity in the credit card account of Raffy for one billing period is
shown in the following transaction. The billing date is every 1st day of
each month.
Date Transaction Charges
March 2 Previous month’s balance Php 3 500.00
March 10 Purchase Php 4 100.00
March 20 Cash Advance Php 2 500.00
March 25 Payment Php 6 700.00
March 27 Purchase Php 1 900.00
If the finance charge of 2.5% on the daily balance, find the finance
charge and the daily balance owed on April1.

Worktext in Mathematics in the Modern World 171