Ms.
Mavie Vallente
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.
- Is a quick and easy method of
calculating the interest charge on a loan.
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.
Formula:
Simple interest = (Principal)(rate of interest)
(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
Solution:
Answer :
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 :
Solution :
Answer :
= 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/Ordinary 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.
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) 17
February 28
March 31
April 23
______________
Total 99 days
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
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
I = Prt, where t =
Exact Interest
I = Prt, where t =
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
I = Prt, where t =
b. Ordinary interest using actual time
Month No. of Days
May (31-30) 2
June 31
July 30
August 22
______________
Total 85 days
Ordinary Interest
I = Prt, where t =
c. Exact interest using approximate time
Exact Interest
I = Prt, where t =
d. Exact interest using actual time
Exact Interest
I = Prt, where t =
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?
I = Prt, where t =
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
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
( )
−𝒏
𝒓
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
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
Formula for Time
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
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
Effective Rate
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%
