Interest and Commission

Prepared By:

Mr. Christian Rae D. Bernales, LPT

I. Learning Objectives:
At the end of the lesson the learner should be able to;
1) Illustrate how interest is computed specifically as applied to mortgage,
amortization, and on services/utilities and on deposits and loans.
(ABM_BM11BS-Ij-10)
2) Illustrate the different types of commissions. (ABM_BM11BS-IIa-11)
3) Compute commissions on cash basis and commission on instalment
basis. (ABM_BM11BS-IIa-12)
4) Illustrate how to obtain down payment, gross balance, and current
increased balance. (ABM_BM11BS-IIa-13)
5) Solve problems involving interests and commissions.
(ABM_BM11BS-IIb-14)

II. Development of the Lesson:

is the fee or rent that lenders charge to

borrowers for the temporary use of the borrowed
money. The amount borrowed
is called principal.
The rate of interest is the percentage of the
principal that will be charged for specified
period of time.

is a fee paid to a person who makes a sale.

The commission is usually a percent of the selling
price. The percent is called the commission rate.
III. Lesson Proper

Definition of Terms
• Lender or Creditor – person (or institution) who invest the money
or makes the funds available.

• Borrower or Debtor – person (or institution) who owes the money

or avails of the funds from the lender.

• Origin or Loan Date – date on which money is received by the

borrower.

• Repayment date or Maturity date – a date on which the money

borrowed or loans is to be completely repaid.

• Time or Term (t) – amount of time in years the money is borrowed

or invested; length of time between the origin and maturity date.

• Principal amount (P) – amount of money borrowed or invested on

the origin date.

• Rate (r) – annual rate, usually in percent, charged by the lender, or

rate of increase of the investment.

• Interest (I) – amount paid or earned for the use of money.

• Maturity value or Future value – amount after t years; that the

lender receives from the borrower on the maturity date.
 is a quick and easy method of calculating the
interest charge on a loan. Simple interest is determined by multiplying the
daily interest rate by the principal by the number of days that elapse
between payments.

Basic Formula:
Simple Interest = Principal × Interest rate × Time

Example #1: A bank offers 0.25% annual simple interest rate for a
particular deposit. How much interest will be earned if 1 million pesos is
deposited in this savings account for 1 year?

Solution:
Given: P = 1,000,000
r = 0.25% = 0.0025
t = 1 year
Find: 𝐼𝑠 (𝑠𝑖𝑚𝑝𝑙𝑒 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡)
𝐼𝑠 = 𝑃 × 𝑟 × 𝑡
𝐼𝑠 = (1,000,000) × (0.0025) × (1)
𝐼𝑠 = 2,500
Answer: The interest earned is P2,500.
Question: Find the Maturity (Future) Value
F = P + 𝐼𝑠
F = 1,000,000 + 2,500
F = 1,002,500
Answer: The total amount earned in the bank is P1,002,500.
Example #2: What are the amounts of interest and maturity value of a loan
1
for P150,000 at 6 % simple interest rate for 3 years?
2

Solution:
𝐼𝑠 = 𝑃 × 𝑟 × 𝑡
𝐼𝑠 = (150,000) × (0.065) × (3)
𝐼𝑠 = 29,250
Answer: The interest earned is P29,250.
Question: Find the Maturity (Future) Value
F = P + 𝐼𝑠
F = 150,000 + 29,250
F = 179,250
Answer: The total amount of loan is P179,250

Solve the following problems on simple interest:

1. At what simple interest rate per annum will P25,000 accumulate

𝐼
to P33,000 in 5 years? (Finding rate use 𝑟 = )
𝑃𝑡

2. How long will P40,000 amount to P51,200 if the simple interest

𝐼
rate is at 12% per annum? (Finding time use 𝑡 = )
𝑃𝑟

3. In order to have P200,000 in 3 years, how much should you invest

𝐼
if the rate is 5.5%? (Finding principal amount use 𝑃 = )
𝑟𝑡
 is the interest on a loan or deposit
calculated based on both the initial principal and the accumulated interest
from previous periods. Thought to have originated in 17th century Italy,
compound interest can be thought of as "interest on interest," and will make
a sum grow at a faster rate than simple interest, which is calculated only on
the principal amount.

Basic Formula:

𝒓 𝒏𝒕
𝑭 = 𝑷(𝟏 + )
𝒏

Where:
P = principal or present value
F = maturity (future) value at the end of the term
n = number of times the interest is compounded per year
r = interest rate
t = term/ time in years

The compound interest 𝐼𝑐 is given by:

𝑰𝒄 = 𝑭 − 𝑷
Example #1: Find the Maturity value and the compound interest if P10,000
is compounded annually at an interest rate of 2% in 5 years.

Solution:
Given: P = 10,000
n = compounded annually (1)
r = 2% = 0.02
t = 5 years

Find the Maturity (Future) Value

𝑟
𝐹 = 𝑃(1 + )𝑛𝑡
𝑛
0.02 (1∗5)
𝐹 = (10,000)(1 + )
1
5
𝐹 = (10,000)(1 + 0.02)
𝐹 = (10,000)(1.02)5
F = (10,000) (1.10408)
F = P11,040.80

Find the 𝐼𝑐 (𝑐𝑜𝑚𝑝𝑜𝑢𝑛𝑑 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡)

𝐼𝑐 = 𝐹 − 𝑃
𝐼𝑐 = 11,040.80 − 10,000
𝐼𝑐 = P1,040.80

Answer: The future value is P11,040.80 and the

compound interest is P1,040.80
 Solve the following problems on compound interest:

1. Find the maturity value and compound interest if P50,000 is

invested at 5% compounded annually for 8 years.

2. Find the maturity value and compound interest if P10,000 is

deposited in a bank at 2% compounded quarterly for 5 years.

3. Find the maturity value and compound interest if P10,000 is

deposited in a bank at 2% compounded monthly for 5 years.

Representation of Interest in Real-Life Situations

A.) Interest as Applied to Mortgage and Amortization

Mortgage is a process that will let you not to pay for the whole cost of
the property purchased immediately. It is also defined as a type of loan
that is secured with real estate or personal property.

Mortgage Loan is the term used when you make your property as
collateral for a loan from a financial institution.

Collateral is the property that is held as security on a mortgage.

Basic Formula:
Mortgage Loan = Purchase Price – Down Payment

Down Payment is a certain percent of the purchase price of the property.

Generally called the buyer’s equity. The first payment that one makes
when one buys something with an agreement to pay the rest later.

Basic Formula:
Down Payment = Purchase Price × Down Payment Percentage
Example: Assume that you wish to purchse a house and lot worth
Php 2, 205, 600.00 and the seller requires a 20% down payment.

1) How much is the down payment?

2) How much is the mortgage loan?

Down Payment = Purchase Price × Down Payment %

= 2, 205, 600 × 0.20
= Php 441, 120.00
Mortgage Loan = Purchase Price – Down Payment
= 2, 205, 600 – 441, 120
= Php 1, 764, 480.00

Amortization refers to the installment payment of the loan. It is a process

of spreading out or gradual repayment of a loan or debt over a period of
time, such as monthly payments on a mortgage loan (house or auto) into
a series of fixed payments.

Terms of the Loan is the total number of payments.

Amortization Table it is the table or chart that shows the installment

payment schedule for the period of payment.

Example: Assume that you need to pay for 20 years the house and lot
you purchased. In how many months will it take for you to fully pay
your loan?

20 years × 12 months = 240 monthly payments

Basic Formula:
𝒊 ×𝑷×(𝟏+𝒊)𝒏
𝐴=
(𝟏+𝒊)𝒏 −𝟏
A = Monthly Payment
P = Loan’s initial amount
i = Monthly interest rate
n = total number of payments
Example: Assume that you wish to purchase a house and lot worth
Php 2, 205, 600.00 and the seller requires a 20% down payment. Then
you will loan the balance from a bank that charges 7.5% annual interest
rate to be paid for 20 years.

1. How much is your monthly amortization?

2. How much is the total interest on your loan?

Given:
Purchase = Php 2, 205, 600.00
Down Payment = Php 441, 120.00
Mortgage Loan = Php 1, 764, 480.00
Monthly interest rate = 7.5% / 12 = 0.625% = 0.00625
Total number of payments = 240 months

How much is your monthly amortization?

𝒊 ×𝑷×(𝟏+𝒊)𝒏
𝐴= (𝟏+𝒊)𝒏 −𝟏

(0.00625) ×(1,764,480)×(1+0.00625)240
𝐴= (1+0.00625)240 −1

(11,028)×(1.00625)240
𝐴= (1.00625)240 −1
49,193.89022
𝐴= 3.460817031

𝐴 = 𝑃ℎ𝑝 14, 214.53 → monthly amortization/payment

How much is the total interest on your loan?

Total Payment = Php 14, 214.53 × 240
= Php 3, 411, 487.20
Total Interest = Php 3, 411, 487.20 – Php 1, 764, 480
= Php 1, 647, 007.20
Amortization Table it is a table that lists each regular payment on a
mortgage over time. It is also a portion of each payment is applied
toward the principal balance and interest, and the amortization achedule
details how much will go toward each component of your mortgage
payment.

Construct an Amortization table using the example used in Mortgage.

Given:
Monthly Amortization = Php 14, 214.53
Mortgage Loan Amount = Php 1, 764, 480.00
Monthly interest rate = 7.5% / 12 = 0.625% = 0.00625

Due Monthly Interest Principal Outstanding

date Amortization Balance
Jan. 06, P14,214.53 P11,028.00 P3,186.53 P1,761,293.47
2021
Feb.06, P14,214.53 P11, 008.08 P3, 206.45 P1,758, 087.02
2021
Mar.06, P14,214.53
2021
Apr.06, P14,214.53
2021

Compute the First Month (Jan. 06,2021)

Interest = Php 1, 764, 480.00 × 0.00625 = Php 11, 028.00
Principal = Php 14, 214.53 - Php 11, 028.00 = Php 3, 186.53
Outsdanding Balance = Php 1, 764, 480.00 - Php 3, 186.53
= Php 1,761,293.47

Compute the Second Month (Feb. 06,2021)

Interest = Php 1,761,293.47 × 0.00625 = Php 11, 008.08
Principal = Php 14, 214.53 - Php 11, 008.08 = Php 3, 206.45
Outsdanding Balance = Php 1,761,293.47 - Php 3, 206.45
= Php 1,758, 087.02

And so on until 240 months completed.

 it is a payment used mainly for salespeople. It is a
percentage of the selling price of an item sold or may be a percent of the
value of sales.

Types of Commission

A.)Straight Commission
It is paid on every sales transaction. It is where an employee gets his
entire pay through commission.

B.) Salary Plus Commission

Most common commission structure. It is where an employee
receives a base salary and an additional compensation in the form of
commission.

Steps to Compute Commission and Total Pay

Step 1: Commission = Amount Sold × Rate of Commission

Step 2: Total Gross Pay = Salary + Commission

Example: Jaycee is areal estate agent and earns a 3% commission

on each home sale. If he sells a home for Php 2, 400, 000.00, how
much commission did he receive?

Given:
Amount of sales = Php 2, 400, 000.00
Commission Rate = 3% or 0.03

Commission = 2, 400, 000 × 0.03

= Php 72, 000.00

Jaycee received a commission of Php 72,000.00

C.)Commission based on Quota
Some employees only receive a commission when they reach a
certain amount of sales or quota. Those who receives this type of
commission usually earn a salary or an hourly rate in addition to the
commission.

Steps to Compute Commission Based on Quota and Total Pay

Step 1: Commission = (Amount Sold – Quota)× Rate of Commission

Step 2: Total Gross Pay = Salary + Commission

Example: Patricia receives a basic monthly salary of Php 13, 000.00.

as a saleslady, she must reach Php 25,000.00 worth of items per
month. Aside from the basic salary, she is entitled to a 6.5%
commission in excess of the monthly quota. If patricia sold
Php 44, 000 worth of items in a month, what is her total earnings for
the month?

Given:
Monthly salary = Php 13, 000.00
Quota = Php 25, 000.00
Commission rate = 6.5% or 0.065
Amount of sales = Php 44, 000.00

Commission = (44,000 – 25,000)× 0.065

= 19,000 × 0.065
= Php 1, 235.00

Total Gross Pay = 13,000 + 1,235

= Php 14, 235.00

Patricia’s total earnings is Php 14, 235.00

D.)Graduated Commission
An employee who is paid a graduated commission is paid an
increasing rate of commission as the amount of sales increases. This
commission focuses on performance and is intended to provide
bigger sales to the company.

Steps to Compute Commission under a Graduated Rate Plan

Step 1: Calculate each level’s commission; multiply each level’s

sales by the commission rate.

Step 2: Add the products computed in step 1 to determine the total

commission.

Example: Kurt is earning Php 18, 000.00 as his basic salary and was
offered a compensation package where he gets 10% commission on
the first Php 30,000.00 sales and 12% for sales in excess of Php
30,000.00. On his First month, his sales have a total of
Php 45, 000.00. How much was his total commission and total gross
pay?

Given:
Basic Salary = Php 18,000.00
Amount of Sales = Php 45, 000.00
Commission Rates = 10% for Php 30,000.00
= 12% in excess of Php 30,000.00

Commission 1 = 30,000 × 0.10

= Php 3,000.00

Commission 2 = (45,000 – 30,000) × 0.12

= Php 1,800.00

Total Commission = 3,000 + 1,800

= Php 4, 800.00
Total Gross Pay = 18,000 + 4,800
= Php 22, 800.00
 Try to reflect!
If you were to choose, which among the types of commission do you
want to receive? And why?

Task 1 Solve problems involving Mortgage and Amortization.

1.) You are planning to buy a house that costs Php 2, 500,000.00. Since
your savings is not enough to fully pay for the house in cash, you
applied for a mortgage from a bank. The seller requires a 30% down
payment. Then you will loan the balance from a bank that charges
5.5% annual interest rate to be paid for 15 years.

a.) How much is the down payment?

b.) How much is the mortgage loan?
c.) How much is your monthly amortization?
d.) How much is the total interest on your loan?
e.) Construct an Amortization Table of first 10 months of payment.

Task 2 Solve Problems involving Commission.

2.) Gianna is paid a weekly salary of Php 2,800.00 plus a commission of
4% of the profit made by the company on the products she sells. How
much does Gianna earn in a week during which an Php 85, 000.00 was
generated by her sales?

3.) If a shoe salesman is paid a Php 250.00 commission on sale of Php

2,500.00, what is his commission rate?
 Task 3 Video Performance Task!
1.) Maria, a computer salesperson is paid a retainer’s fee of Php 5,350.00
per week, plus a commission of 8% of the profits made by the
company on computers that she sells. How much does she earn in a
week if Php 15,000.00 profit was generated by her sales?

2.) Juan works as a salesman in an electronics shop. He earns a weekly

salary of Php 4,250.00 plus a 3% commission on sales over Php
20,000.00 per week. If Juan’s sales in one week reaches Php
35,000.00, how much his gross pay for the week?

Reference: Sirug, Winston S. Ph.D., General Mathematics for Senior High School,
MINDSHAPERS CO., INC. Copyright 2016.