General Mathematics
Basic Business Mathematics
On the previous lessons, the basic concepts on functions were
introduced. Functions were used as mathematical models. These are
abstract models that use mathematical language to describe relationships.
With the notion of mathematical modeling, mathematics is concerned not
only with the measures of the physical world, but it has also expanded its
applicability to sciences, both social and biological, business, and finance.
So, with this, lessons relating to business and finance will then be
introduced specifically on simple interest.
Simple and Compound
Interests
Depositing money in a bank is like lending money to
the bank in return for which the bank pays interest. By
contrast, borrowing money from bank or lending institutions
requires payment of interest. Hence, money has present and
future values. How does gained and charged interests computed?
Bo Sanchez
Warren Buffet
A debtor pays the bank an amount which is
more than the amount they borrowed. An
investor may withdraw from the bank more
than the amount deposited. This additional
sum is called INTEREST
Definition of Terms
Definition of Terms
Simple Interest (𝑰𝑺 )
For every financial transaction, whether you borrowed or
invested a certain amount 𝑷, a corresponding percentage of
the principal called interest is being paid. Simple Interest
(𝑰𝑺 ) is the interest charged on the principal alone for the
entire duration or period 𝒕 of the loan or investment, at a
particular rate 𝒓. After the term of the loan or investment,
the maturity value or future value 𝑭 is computed by getting
the sum of the principal and the interest due.
𝑰𝑺 = 𝑷𝒓𝒕 𝑭 = 𝑷 + 𝑰𝑺
𝐼𝑆 𝐹 = 𝑃 + 𝑃𝑟𝑡
𝑃=
𝑟𝑡
𝐹 = 𝑃(1 + 𝑟𝑡)
𝐼𝑆
𝑟= 𝑷 = 𝑭 − 𝑰𝑺
𝑃𝑡
where 𝐼𝑆 – simple interest
𝐼𝑆 𝑃 – principal 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑚𝑜𝑛𝑡ℎ𝑠
𝑡= 𝑟 – rate of interest
𝑡=
12
𝑃𝑟
𝑡 – time (in years)
𝐹 – future value/maturity value
EXAMPLES:
Directions: Complete the table below by solving the unknown quantities in each row
MORE EXAMPLES:
A man had an allowance of ₱20,000.00, and
it was deposited to an account that earns a
simple interest of 2.75% per annum. Find the
simple interest after 9 months, one year, and 18
months.
Suppose you won ₱10,000.00 and you plan to invest it for 5
years. A cooperative group offers 2% simple interest rate per
year. Compute for the interest yield.
Time Principal Interest Rate Simple Interest Amount after t years
(t) (P) (r) Solution Answer (Maturity Value)
1 10,000 2% (10000)(0.02)(1) 200 10 000 + 200 = 10 200
2 10,000 2% (10000)(0.02)(2) 400 10 000 + 400 = 10 400
3 10,000 2% (10000)(0.02)(3) 600 10 000 + 600 = 10 600
4 10,000 2% (10000)(0.02)(4) 800 10 000 + 800 = 10 800
5 10,000 2% (10000)(0.02)(5) 1,000 10 000 + 1 000 = 11 000
*simple interest remains constant throughout the year and you only multiply it
depending on the number of years that you are computing
Compound Interest (𝑰𝑪 )
It is the interest computed on the principal and also on
the accumulated past interest, so compound interest is a
way to earn money because you don’t just earn using your
original money, but also the interest you earned.
Suppose you won ₱10,000.00 and you plan to invest it for 5
years. A bank offers 2% compounded annually. Compute for
the interest yield.
Amount at Compound Interest
Time Amount at the end of year t
the start of Rate (r)
(t) the year t Solution Answer (Maturity Value)
1 10,000 2% (10000)(0.02)(1) 200 10 000 + 200 = 10 200.00
2 10,200 2% (10200)(0.02)(1) 204 10 200 + 204 = 10 404.00
3 10,404 2% (10404)(0.02)(1) 208.08 10 404 + 208.08 = 10 612.08
4 10,612.08 2% (10612.08)(0.02)(1) 212.24 10 612.08 + 212.24 = 10 824.32
5 10,824.32 2% (10824.32)(0.02)(1) 216.49 10 824.32 + 216.49 = 11 040.81
*compound interest includes the interest from the current year and added on
the principal at the start of the following year; the previous interest earns
interest as well, together with the principal until fully paid
Time Principal Interest Rate Simple Interest Amount after t years
(t) (P) (r) Solution Answer (Maturity Value)
1 10,000 2% (10000)(0.02)(1) 200 10 000 + 200 = 10 200
2 10,000 2% (10000)(0.02)(2) 400 10 000 + 400 = 10 400
3 10,000 2% (10000)(0.02)(3) 600 10 000 + 600 = 10 600
4 10,000 2% (10000)(0.02)(4) 800 10 000 + 800 = 10 800
5 10,000 2% (10000)(0.02)(5) 1,000 10 000 + 1 000 = 11 000
Amount at Compound Interest
Time Amount at the end of year t
the start of Rate (r)
(t) the year t Solution Answer (Maturity Value)
1 10,000 2% (10000)(0.02)(1) 200 10 000 + 200 = 10 200.00
2 10,200 2% (10200)(0.02)(1) 204 10 200 + 204 = 10 404.00
3 10,404 2% (10404)(0.02)(1) 208.08 10 404 + 208.08 = 10 612.08
4 10,612.08 2% (10612.08)(0.02)(1) 212.24 10 612.08 + 212.24 = 10 824.32
5 10,824.32 2% (10824.32)(0.02)(1) 216.49 10 824.32 + 216.49 = 11 040.81
𝒕
𝑭=𝑷 𝟏+𝒓 𝑰𝑪 = 𝑭 − 𝑷
𝐹
𝑃= 𝑡
1+𝑟
−𝑡
𝑃 =𝐹 1+𝑟
where 𝐹 – maturity/future value at the end of the term
𝑃 – principal or present value
𝑟 – interest rate
𝑡 – term/time (in years)
𝐼𝐶 – compound interest
EXAMPLES:
Directions: Complete the table below by solving the unknown quantities in each row
MORE EXAMPLES:
Find the maturity value and interest if ₱50,000.00
is invested at 5% compounded annually for 8 years.
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 ₱200,000.00 after 6 years?
“Bilhin ang kailangan at huwag
kailanganin ang hindi kayang bilhin”
- magulang ng bata
