Republic of the Philippines

CAMARINES NORTE STATE COLLEGE

F. Pimentel Avenue, Brgy. 2, Daet, Camarines Norte – 4600, Philippines

NAME OF DELIVERY UNIT

Learning Material for Mathematics

in the Modern World

1st
Semester
AY 2022-2023

Learning Material No. 6

C. THE MATHEMATICS OF FINANCE

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 Republic of the Philippines
CAMARINES NORTE STATE COLLEGE
F. Pimentel Avenue, Brgy. 2, Daet, Camarines Norte – 4600, Philippines

NAME OF DELIVERY UNIT

GEC 3 – MATHEMATICS IN THE MODERN WORLD

ENGR. JANICA MAE C. DE MESA, REE
Instructor I

OUTLINE OF LEARNING TOPICS TIME ALLOCATION

C. The Mathematics of Finance Week 16 to Week 18
C.1 Simple and Compound Interest
C.2 Credit Cards and Consumer Loans
C.3 Stocks, Bonds, and Mutual Funds
C.4 Home Ownership

INTENDED LEARNING OUTCOMES (ILOs)

At the end of the topic, students should be able to
 Support the use of mathematics in various aspects and endeavors in life
-Compute interest on loans and investments;
-Compute the maturity value of loans and future value of investments;
-Calculate monthly payments on consumer loans and mortgage payments; and
-Explain the advantages and disadvantages of investments in stocks, bonds and mutual funds

INSTRUCTIONS TO THE LEARNERS

This learning material serves as a reflection among one of the flexible learning strategies that complement
the outcomes-based education approach. This material contains the essential discussions for the specified
topic together with a learning activity in order to achieve the indicated intended learning outcomes.

In addition, students will undergo pre-test and post-test short-examination. The pre-test questionnaires will
be given at the start of each rating period (Midterms, Finals) while the post-test questionnaires will be given
at the end of each rating period. The results of the assessment will serve as one of the key indicators that
determine the effectiveness of this learning material. Thus, exemplifying honesty and rectitude in this
particular undertaking are highly appreciated and commendable.

Always keep connected and updated with announcements and relevant information concerning this course.
Lastly, do not hesitate to ask for assistance and raise your concerns to your instructor / professor.

C. The Mathematics of Finance

Introduction
Mathematics of Finance is the application of mathematical methods to financial problems. It draws on
tools from probability, statistics, stochastic processes, and economic theory. Traditionally, investment
banks, commercial banks, hedge funds, insurance companies, corporate treasuries, and regulatory

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NAME OF DELIVERY UNIT

agencies apply the methods of financial mathematics to such problems as derivative securities, valuation,
portfolio structuring, risk management, and scenario simulation. Industries that rely on commodities also
use financial mathematics. Quantitative analysis has brought efficiency and rigor to financial markets and to
the investment process and is becoming increasingly important in regulatory concerns.[1]

C.1 Simple and Compound Interest

Interest is a percentage of some amount of money. It is the payment for the use of borrowed money.
The capital or the sum of money invested is called Principal. The fractional part of the principal that is paid
on the loan is the interest rate and is usually expressed as percent. The time or term of the loan is the
length of time which the money is borrowed. The sum of the Principal and Interest which is accumulated
at a certain time is referred to as Final Amount or Maturity Value.

C.1.1. Simple Interest

The interest “I” earned by an amount of money “P” under simple interest is I = Prt, where “r” is the
rate of interest a year and “t” is the number of years.

Let us refer on the following set of examples

Example No. 1
Find the interest paid to a loan of Php100,000 for 2 years at a simple interest rate of 13%.

Solution:
Given: P = Php 100,000 r = 13% or 0.13 t = 2 years
Using the formula I = Prt
I = (100,000)(0.13)(2)
I = 26,000 The interest paid to the loan is Php 26,000.00

Example No. 2
Martin Lim borrowed Php 75,000 from a lender at a simple interest to be paid in 2 years. If the
interest paid to the load is Php 25,875, what is the rate of interest?

Solution:
Given: P = Php 75,000 I = Php 25,875 t = 2 years
I
Using the formula I = Prt  r= since we are going to compute for r
Pt
25,875
r=
75,000(2)
r = 0.1725 or 17.25% The rate of interest is 17.25%.
Maturity Value and Future Value

When one borrows money from a bank, the borrower must pay the bank an amount of money equal
to the amount of loan plus interest. When one makes a bank deposit, after some period of time, the
depositor expects to get his money back plus interest. The manner by which these two different
business instances.

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The total amount of money a borrower pays a lender is called maturity value of a loan which is the
sum of loan and interest. The total amount of money a depositor receives for his deposit is called
future value of an investment (principal) and interest.

The maturity value for simple interest “A” is expressed as A=P+I but since I = Prt
A = P + Prt
A = P (1 + rt)

Let us refer on the following set of examples

Example No. 1
Find the maturity value of a 9-month loan of Php 18,500. The rate of interest is 9% per annum.

Solution:
Since the rate of investment is given per annum, the value for t is 9/12 or 0.75 year. Then, the
rate of interest is 0.09.
Using the formula A = P (1 + rt)
A = 18,500 [1 + (0.09)(0.75)]
A = 18,500 [1 + 0.0675]
A = 19,748.75 The maturity value is Php 19,748.75

Example No. 2
The electric cooperative charges their customer 10% simple interest for late payments. You
receive a bill of Php 5,850 for the month of June. If you will pay the bill 2 months past the due
date, how much do you owe to the electric cooperative excluding the amount of electrical
consumption that will be accumulated on the 2-month lapse? (Excluding bill for July and
August).

Solution:
The amount to be paid is the maturity value which consists of the current bill as the present
value and the penaly as the interest value.
Then, the value of t should be expressed in terms of year. Therefore, t = 2/12 year
Using the formula A = P (1 + rt)
2
A = 5,850 [1 + (0.10)( )]
12
A = 5,850 [1 + 0.0166667]
A = 5,947.50

The customer will pay a total bill of Php 5,947.50 to the electric cooperative which includes the
penalty for late payments.
C.1.2. Compound Interest
When interest is periodically added to the principal and this new sum is used as the new principal
for a certain number of periods, the resulting value is called final or compound amount “A”.

r nt
It is expressed in the formula A=P(1+ ) I=A–P
n
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Where: A = Compound Amount

P = Present Value
I = Compound Interest
r = annual rate of interest
t = length of time in a year
n = number of compounding period each year

Let us refer on the following set of examples Frequency Value of n

Annually 1
Example No. 1 Semiannually 2
A company engaged in recycling scraps obtained a Quarterly 4
loan of Php 650,000 from a bank that charges an Monthly 12
annual interest rate of 13% yearly. The load must be Daily 365
repaid in 3 years. What is the maturity value of the loan at the end of 3 years?

Solution:
Given: P = Php 650,000 r = 13% or 0.13 n =1 t = 3 years

r nt
Using the formula A = P(1 + )
n

( )
1∗3
0.13
A = 650,000 1+
1
A = 650,000 ( 1.13 )3
A = 650,000 (1.442897)
A = 937,883.05 The maturity value is Php 937,883.05

Example No. 2
An account promised to pay 2% interest, compounded daily for 2 years. What is the interest
earned if someone invested Php 25,000?

Solution:
Given: P = Php 25,000 r = 2% or 0.02 n = 365 t = 2 years

r nt
Solve first the future value using the formula A = P(1 + )
n

( )
365∗2
0.02
A = 25,000 1+
365
A = 25,000 (1.040809634) = 26,020.24
Then, the interest earned can be computed as I = A – P
I = 26,020.24 – 25,000.00
I = 1,020.24

The interest earned by an individual who will deposit Php 25,000 is Php 1,020.24.
Learning Activity No. 1 – Abstraction (Critical Thinking)
Instructions: Solve each item correctly by providing the necessary solutions for what is required.

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1. How many months will it take for an investment of Php 30,000.00 to earn Php 112.50 at 1.5%
simple interest rate?
2. What is the simple interest on a Php 5,000.00 loan at 3.25% interest to be paid at the end of 9
months?
3. What is the present value of Php 95,000.00 at 13% compounded annually for 7 years?
4. A Php 500,00.00 trust-fund was set up and to be used by an 8-year old niece when she goes to
college. In 10 years, how much will the fund be if the investment rate is 9.75% compounded
quarterly?
5. What amount of money will be required to pay back a loan of Php 78,400.00 at 12% compounded
quarterly for 8 years and 6 months?

C.2 Credit Cards and Consumer Loans

C.2.1. Credit Cards
Whenever consumers use credit cards to buy goods and services, they are receiving a loan from a
credit card company or from a bank which issues the credit card. As a result, they are paying for an
added cost whenever they buy with credit cards. These costs can be in the form of annual fees,
interest charges on purchases, or finance charges.

Finance Charges (based on PNB Credit Cards)

Much of the interest paid as a result of using credit cards has to do with finance charges. The most
common method to determine finance charges is based on daily balance.
Under the daily balance method, interest incurred a day is computed from the product of the daily
rate of interest ( rd ) and daily balance. Most banks in the Philippines advertise their rates of interest in
terms of monthly interest rate, but when computing for the daily interest, they use the daily interest rate
rd. To compute total interest earned for one billing period, we simply obtain the sum of daily interests
for that billing period.

DAILY INTEREST RATE “rd”

r
Given a monthly interest rate of r, the daily interest rate is rd =
30

DAILY INTEREST d”
Given a balance for the day of x , daily interest is Id = rd ( x )

MONTHLY INTEREST “ Ι I = Σ Ιd

Table for FINANCE CHARGE ON CREDIT CARD PURCHASES FOR ONE BILLING PERIOD

r
1. Given monthly interest r, find rd rd =
30
2. Given a balance of x for a day, find daily interest Id Id = rd ( x )

3. Find total interest I earned for the billing period. Ι = Σ Id

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Let us refer on the following set of example

Example – FINANCE CHARGE ON CREDIT CARD PURCHASES
An unpaid bill of Php 2,000.00 had a due date of April 10. A payment of Php 1,000.00 was
made to the credit card company on April 15. Another expense of Php 500.00 was charged to
the credit card on April 30. The credit card is used under a monthly interest rate of 3.25%, find
the finance charged on the May 10 bill.

Solution:
Let us introduce a summary of daily unpaid bills, payments, and credit card purchases from the
billing period 10 April to 9 May.

Date Payment or purchases Daily Balance

10 April 2,000
15 April -1,000 1,000
30 April 500 1,500
Monthly interest rate of r = 3.25%

We shall open an excel document and compute the daily interest based on a monthly interest
0.0325
rate of 3.25%. Take note that rd =
30 . See table on the next page.

A financial charge of Php 43.875 for the period 10 April to 9 May will appear in the billing
statement for 10 May. Thus, the starting balance for 10 May is Php 1,543.875.

To reduce finance charges, one simply has to pay the balance promptly. Zero balance for a day
means zero interest earned for that day. After you make a purchase with your credit card, the
bank gives you a grace period – typically between 20 and 30 days – during which you can pay
off that purchase before interest begins to accrue.

Unlike a loan which has a fixed end date and regular monthly payments, with a credit card, you
choose how much you repay each month – a minimum payment, a partial payment or your
entire balance. With few exceptions, responsible credit card users always pay their balances in
full every month.

Grace periods are powerful because they give you the opportunity to use your credit card as a
short but interest – free loan. As long as you pay every penny you charged last month before
the due date, you won’t pay interest on credit card purchases. Unfortunately, many people do
not pay their credit card balance in full each month, resulting to accumulated results.

Follow these credit card tips to help avoid common problems:

1. Pay off your balance every month.
2. Use the card for needs, not wants.
3. Never skip a payment.
4. Use the credit card as a budgeting tool.
5. Use a reward card.
6. Stay under 30% of your total credit limit.
7. Protect yourself from credit fraud.

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Payment or Daily
Day Date Balance Daily rate
Purchase Interest

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1 Apr-10 2,000.00 0.0010833 2.1666667

2 Apr-11 2,000.00 0.0010833 2.1666667
3 Apr-12 2,000.00 0.0010833 2.1666667
4 Apr-13 2,000.00 0.0010833 2.1666667
5 Apr-14 2,000.00 0.0010833 2.1666667
6 Apr-15 2,000.00 -1,000 0.0010833 2.1666667
7 Apr-16 1,000.00 0.0010833 1.0833333
8 Apr-17 1,000.00 0.0010833 1.0833333
9 Apr-18 1,000.00 0.0010833 1.0833333
10 Apr-19 1,000.00 0.0010833 1.0833333
11 Apr-20 1,000.00 0.0010833 1.0833333
12 Apr-21 1,000.00 0.0010833 1.0833333
13 Apr-22 1,000.00 0.0010833 1.0833333
14 Apr-23 1,000.00 0.0010833 1.0833333
15 Apr-24 1,000.00 0.0010833 1.0833333
16 Apr-25 1,000.00 0.0010833 1.0833333
17 Apr-26 1,000.00 0.0010833 1.0833333
18 Apr-27 1,000.00 0.0010833 1.0833333
19 Apr-28 1,000.00 0.0010833 1.0833333
20 Apr-29 1,000.00 0.0010833 1.0833333
21 Apr-30 1,000.00 500 0.0010833 1.0833333
22 May-01 1,500.00 0.0010833 1.6250000
23 May-02 1,500.00 0.0010833 1.6250000
24 May-03 1,500.00 0.0010833 1.6250000
25 May-04 1,500.00 0.0010833 1.6250000
26 May-05 1,500.00 0.0010833 1.6250000
27 May-06 1,500.00 0.0010833 1.6250000
28 May-07 1,500.00 0.0010833 1.6250000
29 May-08 1,500.00 0.0010833 1.6250000
30 May-09 1,500.00 0.0010833 1.6250000
SU
43.875
M

C.2.2. Consumer Loans

Loan, which in Filipino is utang, is a part of Filipino culture. Most Filipinos rarely get by without
asking someone or some institution to lend them money. As a society, we observe two cultures on
issues of loans. One is based on the informal lending culture where agreements are never set on paper.
It is verbal. Five-six is the example of this lending culture. It is called five-six because the interest paid is
20% of the loan. If one borrows 5 pesos, the borrower ought to pay the lender 6 pesos, which is equal
to the principal amount of loan (5 pesos) plus interest of 1 peso which is 20% of 5 pesos.

Formal lending culture takes place between consumers on one side and private lenders and banks
on the other. Private lenders are not banks, they are registered companies whose occupation is to lend
money and collect interest. Consumers seek out their services mostly for short term loans, small loans,
and loans that do not require too many documents.

Lenders observe different schemes to compute interest: diminishing interest, recurring interest, etc.
In this section, we shall illustrate how to compute monthly payments to loans based on simple and
compound annual interest only.

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Calculating Periodic Payment

We shall introduce the payment formula for periodic payments on many consumer loans, such as
car loans, housing loan, etc. The PMT formula calculates the payment for a loan that has constant
payments and a constant rate of interest. Most scientific calculators have a formula for PMT, and all
accounting software also do. Excel has a PMT function whose inputs are periodic interest rate, and total
number of payment. PMT is short for payment.

PMT Formula for Consumer Loans

Payment for a loan with an annual rate of interest r is given by
PV (i)
PMT =
1−¿ ¿

r
where PMT is the amount of payment, PV the amount of loan, i the periodic rate of interest I = ,n
n
number of payments in a year, and t number of years.

EXCEL PMT FUNCTION

= PMT (rate, nper, pv, [fv], [type])

Rate is the periodic rate of interest, nper the number of periodic payments (n times t), fv and type are

Let us refer on the following set of examples

Example No. 1
Mr. and Mrs. Cruz bought a laptop computer for Php 29,000.00 for their son. They paid 20%
down payment and agreed to pay the balance and finance charge in 12 equal monthly
installments. Finance charge on the balance is 18% simple interest. Find the a) Amount of down
payment; b) Balance: c) Finance charge and d) Monthly installment.

Solution:
a) For the down payment
Down payment = 29,000.00 x 0.20 = Php 5,800.00

b) For the balance

Balance = 29,000.00 x 0.80 = Php 23,200.00 or
Balance = 29,000.00 - 5,800.00 = Php 23,200.00

c) For the finance charge

Finance charge = 23,200.00 x 0.18 = Php 4,176.00

d) For the monthly installment

Monthly installment = (23,200.00 + 4,176.00) / 12 = Php 2,281.33

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Example No. 2
Mr. Cruz promises to buy his daughter a sports utility vehicle if she graduates on time. The car
he has in mind has a sticker price of 2 million pesos and under the new tax scheme is subject to
20% excise tax. Down payment is 40% full contract price (2 million + excise tax) and annual
interest rate is 5.9%. Ignoring other fees, what is his monthly payment for the car if he wishes to
complete it in 60 months?

Solution:
Item Particulars Computation
Sticker price Php 2,000,000.00 Php 2,000,000.00
Excise tax 20% of tag price 2,000,000.00 x 0.20
= Php 400,000.00
Full contract price Price + taxes Php 2,400,000.00
5.90% 0.059
Number of payments a year “n” 12 12
Number of years “t” 5 5
Total number of monthly 12 x 5 = 60 12 x 5 = 60
Payments “n x t”
Periodic rate of interest i r 0.00492
i=
n
Down Payment 40% of full contract price 2,400,000.00 x 0.40
= Php 960,000.00
Loan (balance) 60% of full contract price 2,400,000.00 x 0.60
= Php 1,440,000.00
Monthly payment PMT = __PV ( i )__ (1,440,000)(0.00492)
1 – ( 1 + i )-nt −60
1−( 1+0.00492 )
= Php 27,775.00

Learning Activity No. 2 – Abstraction (Critical Thinking)

Instructions: Fill in the blanks and calculate the monthly payments for a car loan having the details as
provided below.

Item Computation
Sticker price of a car Php 1,700,000.00
Excise tax 20%
Licensing Fee Php 20,000.00
Down Payment 35%
Annual interest rate “r” 6.0%
Number of payments a year 12
Number of years 3
Periodic rate of interest i Answer:

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Loan PV Answer:
PMT Answer:

C.3 Stocks, Bonds, and Mutual Funds

C.3.1. Stocks
A stock is a share in the ownership of a company. Anyone who can wave a stock of a company can
rightfully claim he or she is part owner of that company. A stock also goes by other names, such as a
share or equity.

Imagine you won a stock certificate of Bank of the Philippine Islands (BPI). This means you are part
owner of a big bank. The percentage of ownership depends on how many of the company’s share
owns. For example, if you own 10,000 shares of common stock in a corporation that has 100,000
outstanding shares, you own 10,000/ 100,000 or 10% of company’s assets.

Why would anyone be interested to own stocks? Since a stockholder is a part owner of a company,
he or she has a claim on everything the company owns including the company’s earnings. However, it
does not mean that a person who is part owner would have a big say in how the company is managed.
Stockowners do have a say, for example, on who sits as members of the board of directors of the
company, but that right is one vote per share. The more stocks one owns, the more influence he or she
has in the affairs of the company.

Benefits
A stockholder can make money from his shares when the company pays dividends. A dividend is a
sum of money paid by the company to its shareholders out of its profits. A stockholder can also make
money when the company gets bankrupt and must be liquidated. Liquidation is a process in which the
company’s assets and properties are redistributed to its shareholders. Moreover, a stockholder can
make money from his stock certificates by selling them to buyers at a price higher than what he or she
paid for them.

A DIVIDEND is a sum of money paid by the company to its shareholders out of its profits.

LIQUIDATION is a process in which the company’s assets and properties are redistributed to its shareholders.

A DIVIDEND YIELD is the ratio of dividend over stock price. It is expressed in percent.

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Figure: Stock Certificate. A stock certificate is a piece of paper that is a proof of ownership. Today,
Stock certificates are kept by stockbrokers in the form of an electronic document so that it can be easily
traded in the stock market.
Why companies issue Stocks?
Sometimes a company needs money to expand business or buy machineries. Instead of borrowing
money from the banks, a company can decide to issue stocks. By issuing stocks, the company acquires
capital but not obligated to pay back stockholders.

Risks
There are risks that come with buying stocks. Risk is synonymous with stock market business.
Companies do sometimes pay out dividends, but many of them do not (Fontinelle A., 2017). Further,
when companies go bankrupt, stock certificates becomes worthless. Without dividends, a stockholder
makes money on stocks only through its appreciation in the open market, that is, when somebody buys
a stock at a price more than what a stockholder paid for it. Even though risks that accompany stock
market investments sound discouraging, the bright side of stock ownership is it historically outperforms
other investments such as bonds and savings accounts. Over the longer term, stock ownership
historically had an average return of around 10% a year (Perrit Capital Management Inc., 2018).
Ordinary time deposits in the Philippines earn only 1.125% a year on average.

Dividend, Dividend Yield and Stock Price

How we compute for these quantities, dividend, dividend yield, and stock price, is analogous with
how we compute for interest rate, and principal. Stock market language is a bit intimidating for novice
investors, but the fundamental mathematical relation is one about simple interest.

Dividend, Dividend Yield and Stock Price

I = Pr
P is stock price(principal), r dividend yield, and I dividend

MARKET VALUE refers to the price of a share of stock for which a shareholder is willing to sell that share
and a buyer is willing to buy it.
OPEN is the column in a stock market report indicating the opening price of a stock.
CLOSE is the column in a stock market report indicating the closing price of a stock.

Let us refer on the following set of example

Example
A company pays an annual dividend of Php 0.50 per share to their shareholders. You own 1,000
shares of the company’s common stock which you bought at Php 10.00 a share. Find the a)
total dividend you ought to receive for your shares; and b) dividend yield of your share.

Solution:
For a) A total dividend is dividend per share times number of shares.
Php
0.50 x 1,000 share = Php 500.00
share

For b) Dividend yield is divided per share divided by purchase price of each share.

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Php Php 0.50

0.50 ÷ 10.00 = = 0.05
share share 10.00

Dividend yield is 0.05 or 5%

C.3.2. Bonds
A bond is a loan. A holder of a bond is the lender (creditor), the one who issues the bond is the
borrower (debtor), and the interest that has to be paid is called coupon. Through bonds borrowers
receive external funds to finance investments, or in the case of government bonds, to finance
government planned expenditures.

A BOND is a fixed income investment in which an investor lends money to companies or governments which
borrow funds for a defined period of time at a variable or fixed rate of interest, called coupon.

Bond owners are creditors or debt holders. Entities who receive a loan through bonds are issuers.

Difference between Stocks and Bonds

Both are securities, but the major difference being, stockholders have an equity stake in the
company (part owners of the company). Bondholders, on the other hand, have a creditor stake in the
company (lenders to the company) and are not part owners. In the event of the bankruptcy for example,
bondholders must be repaid first before stockholders get their share of the company after the
liquidation. Another difference is bonds have a defined term or maturity. When it reaches its term, the
bond must be redeemed, the debtor must repay the lender. Stocks however, are typically outstanding.
A shareholder keeps the stocks until he or she decides to sell them.

Let us enumerate some parallel terms between stocks and bonds.

Issuer of
Investment Owners Interest Money out Future Value
Securities
Stockholders/
Stocks Company Interest Rate Principal Future Value
Shareholders
Bonds Lenders Borrower Coupon Loan Maturity

FACE VALUE is the nominal value or price paid for a bond, also called par value or simple par.
MATURITY DATE refers to the date when the borrower must pay back the bondholder.
COUPON refers to the rate of interest that must be paid to a lender.

Let us refer on the following set of example

Example
A bond with a par value of Php 1,000,000.00 has a coupon of 4.625% and a 5-year maturity
date. Use simple interest to find the interest and maturity value of the bond.

Solution:
For the interest: P = Php 1,000,000.00 r = 0.04625 t = 5 years

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 Republic of the Philippines
CAMARINES NORTE STATE COLLEGE
F. Pimentel Avenue, Brgy. 2, Daet, Camarines Norte – 4600, Philippines

NAME OF DELIVERY UNIT

I = Prt = (1,000,000.00)(0.04625)(5) = Php 231,250.00

For the Maturity Value A = P (1 + rt)

A = (1,000,000.00)[1 + (0.04625)(5)] = Php 1,231,250.00

C.3.3. Mutual Funds

A mutual fund is a pool of money managed by a company which buys and sells stocks, bonds, and
other assets for profit. An investors who buys shares in a mutual fund contributes to the fund along with
other investors. As mutual fund, investors share the fund’s profit and losses. A company engaged in
managing mutual funds is called an investment trust.

Investment trusts are companies not engaged in manufacturing goods or providing services to
consumers. Their assets are primarily stocks and bonds. Essentially, they are investors in stock and
bond markets: they buy stocks and bonds in the hopes these will increase in value and return profit
when sold.

Net Asset Value

The net asset value of a mutual fund is partly a measure of fund’s performance based on value per
share. It reflects the value of each share of stock in the fund. Like stock prices, they are regularly
computed once a day, and reported in stock markets.

A−L
Net Asset Value of a mutual Fund NAV is given by NAV =
N
Where A is total assets, L Liabilities and N the number of total outstanding shares.

Let us refer on the following set of example

Example
An investment trust manages a mutual fund which has Php 100,000,000.00 worth of stocks, Php
50,000,000.00 worth of bonds, Php 25,000,000.00 in cash, and liability of Php 1,000,000.00.
The fund has 10 million shares outstanding. Find the net asset value.

Solution:
Given: A = 100,000,000.00 + 50,000,000.00 + 25,000,000.00 = 175,000,000.00
L = 1,000,000.00
N = 10,000,000

A−L 175,000,000−1,000,000
Using the formula NAV = =
N 10,000,000
NAV = 17.4

C.4 Home Ownership

Filipino couples who acquire a home through a loan often do it through mortgage. A mortgage is a legal
agreement between an owner of a property, for example house and lot, and a lender which gives a
conditional right of ownership to the lender as security for the loan.

GEC 3 – Mathematics in the Modern World Page 15 of 15

 Republic of the Philippines
CAMARINES NORTE STATE COLLEGE
F. Pimentel Avenue, Brgy. 2, Daet, Camarines Norte – 4600, Philippines

NAME OF DELIVERY UNIT

The lender’s security interest is recorded in the register of title documents to make this agreement
public. The mortgage is voided upon full payment of the loan. All legal acquired assets can be mortgage
but assets most commonly put on mortgage are land and buildings.

Mortgage Payments
To calculate mortgage payments, we follow PMT formula to obtain regular payments for consumer loans.

Let us refer on the following set of example

Example
Find monthly amortization for a housing loan of Php 750,000.00 to be paid in 4 years with an
interest rate of 12% a year.

Solution:
Loan Php 750,000.00
Annual rate of interest 12%
Number of payments in a year 12
Number of years 4
Total number of payments 12 x 4 = 48
Periodic rate of interest i r
i= = 0.01
n
Monthly amortization PMT = _ PV ( i ) _ = 750,000.00 (0.01)
1 - (1 + i)-nt 1 - (1 + 0.01)-48

= Php 19,750.38

Learning Activity No. 3 – Abstraction (Critical Thinking)

Instructions: Solve each item correctly by providing the necessary solutions for what is required.
1. A company pays an annual dividend of Php 0.50 per share to their shareholders. You own 1,100
shares of the company’s common stock which you bought at Php 10.00 a share. Find the a) total
dividend you ought to receive for your shares; and b) dividend yield of your share.
2. A bond with a par value of Php 1,000,000.00 has a coupon of 5% and a 5-year maturity date. Use
simple interest to find the interest and maturity value of the bond.
3. An investment trust manages a mutual fund which has Php 100,000,000.00 worth of stocks, Php
60,000,000.00 worth of bonds, Php 20,000,000.00 in cash, and liability of Php 1,500,000.00. The
fund has 10 million shares outstanding. Find the net asset value.
4. Find monthly amortization for a housing loan of Php 1,000,000.00 to be paid in 4 years with an
interest rate of 12% a year.

References:
https://financial.math.ncsu.edu/what-is-financial-math/
Reyes, Juan Apolinario C., Mathematics in the Modern World, c. 2018
Guillermo, Raflyn M. et.al, Mathematics in the Modern World, c. 2018
Rodriguez, Mary Joy J. et.al, Mathematics in the Modern World, c. 2018

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