Hinatuan Southern College

Department of Mathematics
First Semester 2023-2024

Mathematics
of Investment
Course Code:
Course Number:

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Name: ________________________________________________________________________________________
Course & Year Level: ____________________________________________________________________________
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I. Course Description:
 This course covers the basic understanding of the application of mathematical concepts and
skills met in investment problems. It includes simple and compound interest, present values, annuities,
amortization and sinking funds, bonds, and depreciation.

II. Course Objectives:

At the end of this course, you are expected to;

1. Define simple and compound interest, annuities, amortization and sinking funds, bonds, and
depreciation;
2. Solve for simple and compound interest, annuities, amortization and sinking funds, bonds, and
depreciation; and
3. Realize the importance of understanding the concept of simple and compound interest,
annuities, amortization and sinking funds, bonds, and depreciation in calculating real-world
business problems.

III. Course References:

Mathematics of Investment Revised Edition by Zenon R. Abao and Jose B. Maribbay

IV. Grading System:

V. Course Requirement:
1. Examination and Quizzes
Institutional (Prelim, Midterm, Finals)
Quizzes will be given at the end of each module.
2. Other Course Requirements:
 Written Exercises/Board work, Homework

Module 1: SIMPLE INTEREST

Week 1-2
Learning Objectives:

At the end of this module, you are expected to;

1. Understand the concept of simple interest and discount;
2. Compute simple interest and simple discount;
3. Manipulate the simple interest formula when the unknown is the principal, time or rate;
4. Calculate the maturity value using exact interest and ordinary interest;
5. Solve for the time between the two dates; and
6. Solve word problems involving promissory notes.

Pre-Assessment! Recall your prior knowledge in your Mathematics in the Modern World subject.
Write your solution on the space provided and underline your final answer. (10-15 minutes only)

1. The formula for simple interest is: _____________

2. Rearrange this formula to find:
a) Time:
b) The interest rate:
c) The Principal:

3. If Michael invests $2000 in the bank at a rate of 5.5% for 6 years how much interest will he make?

4. Kelsey takes out a loan for $6000 to start a business after high school. The bank charges her 8%
interest for the loan. After 5 years how much interest will be added on to the loan?

5. Jessie invests $3345 in the stock market. Over the 3 years she has this invested she gets an average
return of 7.8%. How much will her investment be worth after the 3 years?

6. Scott takes gets a student loan to go to college after high school. If he pays $750 in interest at a rate
of 3%, how much must the loan have been for originally?
 7. Taylor has just won $4,250 from the 50/50 at the Sea Dog's game and decides to invest all of it. If he
makes $1275 with a 5% interest rate, how long must he have had the money invested?

8. At what rate would you need to invest $12000 and make $2880 after 8 years?

9. What will the total value of an investment of $5000 be if it has an interest rate of 7% and is invested for
20 years?

10. Morgan has an investment worth $130,000 dollars after 20 years. If his original investment was for
$50,000 what must the interest rate have been?

1.1 The Concept of SIMPLE INTEREST

 Individual borrows money to finance car, to settle overdue obligations, to put up a new business and so
on. The price for the use of money is called INTEREST. Generally, interest can be classified into three
categories; simple interest, simple discount and compound interest.

Interest - refers to the amount paid for the use of money.

Lender - refers to the individual or entity who lends money.
Lendee - refers to the one who borrows money.

Amount of interest depends on the following factors:

Principal(p) - is the sum of the money borrowed.
Rate(r) - is the percent of the principal that is paid for the loan.
Time(t) - refers to the length of time from the origin date to the maturity date and is expressed in
unit year. When time is given in months, then the number of months is divided by 12.

SIMPLE INTEREST
-the interest which is computed on a principal Just once for the whole term of the loan.
Formula:
Interest= Principal x rate x time
or I= Prt

Principal= Interest/ Rate x Time

If principal is unknown, then the formula is:
Or P= I/rt

Rate= Interest/ Principal x time

If rate is unknown, then the formula is:
Or r= I/Pt

time= Interest/ Principal x rate

If time is unknown, then the formula is:
or t= I/Pr

Examples:
1. What is the interest on a P30,000 loan for 18 months at an interest rate of 12%?
Given:
Interest= x Rate= 12% or 0.12
 Principal= 30,000
Time= 18 months or 18/12 = 1.5 years
Solution:
I= Prt
I= 30,000(0.12)(18/12)
I= 30,000(0.12)(18/12)
I= P5,400

2. Mr. Paul Lopez borrowed P200,000 from his company. If he paid an interest of P37,500 for one and a
half years, what is the rate of interest?

Given: Solution:
Interest= 37,500 r= I/Pt
Principal= 200,000 r= 37,500/(200,00x1.5)
Time= 1.5 years r= 37,500/300,000
Rate= x r= 0.125 or 12.5%

3. If Miss Pat Trillo paid an interest of P3000 for a loan obtained at 9% per annum for eight months, what
is the original loan?

Given: Solution:
Interest= 3000 P= I/rt
Principal = x P= 3000/ (0.09)(8/12)
Time= 8 months P= P50,000
Rate= 0.09

Try this!!

4. Mrs. Paredes obtained a loan of P50,000 from the SSS. If the total interest of the loan was PI9,500 at
9.75% per year, how long was the loan?

1.2 Accumulated Value and Present Value

 In a simple interest lending transaction, the interest is paid at the end of the term. We call this the single
payment term. The sum of the principal plus the interest earned is called the amount or the
accumulated value or future value. In symbols:

Future/Accumulated
Value= Principal +
Eq.1.2.1 Interest

If we replaced I by Prt, then we have;

F= P+ Prt

By factoring, we will have a new formula; F= P(1 +rt) Eq.1.2.2

Examples:

1. Joenard borrowed P20,000 from a bank that charged 12% simple interest rate. The loan plus the
interest paid in one lump sum at the end of 3 years will be how much?

Given: Solution:
Future value= x F= P(1+rt)
Principal= 20,000 F= 20,000(1+0.12x3)
Time= 3 years F= 27,200
Rate=0.12

2. At what rate is P45,000 be invested in order to have P46,800 in 6 months?

Given: Solution:
Future value= 46,800 To find r with the given F,p, and t, use the
Principal=45,000 formula; r= F-P/Pt
Time= 6 months r= 46,800-45,000/(45,000x.5)
Rate= x r= 1,800/22,500
r= 0.08 or 8%

3. For how long must P45,000 be invested at 8% simple interest rate in order to have P46,800?

Given: Solution:
Future value= 46,800 To find t with the given F, r & p, use the formula;
 Principal= 45,000 t= F-P/Pr
Time= t t= 46,800-45,000/45,000x.08
Rate= 0.08 t= 1,800/3,600
t= 0.5 years or 6 months

4. The accumulated value paid on a loan is P72,000.00. If a loan was for 3 years at 9% simple interest,
how much was the origin loan? Compute the total amount of interest.

Given: Solution:
Future value= 72,000 To find the origin loan (P), use the formula;
Principal= x P= F/ 1+ rt
Interest = x P= 72,000/ 1+ (0.09x3)
Time= 3 years P= 56, 692.91
Rate=0.09 To compute for the total amount of interest, use the
formula; F= P + I
72,000= 56,692.91 + I
I= 72,000-56,692.1 = 15,307.09

5. Peter deposited an amount of PI2,800.00 in a savings bank that gives 6.5% interest for 8 years. How
much would he have in his account at the end of 8 years assuming that no withdrawals were made?

Given: Use the formula; F= P(1 + rt)

Future value= x F= 12,800(1 + 0.065x8)
Principal = 12,800 F= 19, 456.00
Rate= 0.065
Time= 8 years

Try This!

6. Mario Sandoval paid an interest of P5,000 on a loan for 3 years at 8% simple interest. Compute the
value of:
a) the original loan
b) the amount Mario paid at the end of 3 years
1.3 Exact and Ordinary Interest
It was noted in the previous discussion that the period t shall always be expressed in years. If t is
given in months, then the number of months shall be divided by 12. For example, if t= 3 months, then t
equals 3/12= 0.25 year. In some instances, however, time is measured in days. We have two approaches on
how to compute the amount of interest in this case.

a) Exact interest – is used when interest is computed on the basis of 365 days a year or 366 in leap year.
We shall use the symbol Ie to indicate exact interest.
b) Ordinary interest- is used when interest is computed on the basis of an assumed 30 day/ month or
360-day year. We shall use the symbol Io to indicate ordinary interest.

Examples:

1. An amount of P28,100.00 was invested at 7% simple interest for 100 days. Compute the value of the:
a) exact interest
b) ordinary interest

Given: Solution:

P= 28,100 a) Ie = Prt b) Ib = Prt

R= 0.07 Ie = 28,100(0.07)(100/365) Io = 28,100(0.07)(100/360)

T= 100 days Ie = 538.90 Io = 546.39

2. Ms. Jane Salvador deposited an amount of P12,800.00 in a time deposit account at 8% simple interest
for 150 days. Find:
a) exact interest
b) the accumulated value at the end of the term

Given: P= 12,800 r= 8% t=150 days

Solution:
a) Ie = Prt b) F= P + I
Ie = 12,800(0.08)(150/365) F= 12,800 + 420. 82
Ie = 420.82 F= 13,220.82

Try this!!
3. Matthew invested P10,000 in a bank which offers a 5% annual interest rate for 400 days. Find;
a) Exact interest
b) Ordinary interest
1.4 Time Between the Two Dates
Exact and ordinary interests are computed when the number of days is given. However When dates
are given, the number of days can be determined in two ways:

a) Actual time— refers to the exact number of days between two days. It is obtained by counting the
number of days of each month within the period of the transaction except the origin date. Table I
can also be used to obtain the number of days between two given dates.

Table 1
Month Days
January 31
February 28
March 31
April 30
May 31
June 30
July 31
August 31
September 30
October 31
November 30
December 31

b) Approximate time — refers to the assumption that each month has 30 days. The number of days
is obtained therefore by counting each day of each month within the period of the transaction
except the origin date.

Table 2

Month Days
January 30
February 30
March 30
April 30
May 30
June 30
July 30
August 3
September 30
October 30
November 30
December 30

Examples:
1. Determine the actual time and approximate time from April 11, 2013 to August 16, 2013 using the two
methods.
 Solution.
a) Using the actual time of counting the number of days, we have;

April (30- 11) 19

May 31
June 30
July 31
August 16
Actual number of days 127

Alternative Solution: Using Table I

August 16 228
April 11 101
127 days

b) To determine the approximate time, we have

April (30- 11) 19

May 30
June 30
July 30
August 16
Actual number of days 125

Alternative Solution: To find the approximate time, first express August 1 6 on the basis of months starting
from January 1.

August 16, 2013 8 16

-
April 11, 2013 4 11

4 5
The time is 4(30) + 5 = 125 days

When dealing with transactions where origin and maturity dates are given, we have four possible ways of
computing the period t These tour possibilities are:

actual time
1.
360
actual time
2.
365
 approximate time
3.
360
approximate time
4.
365

Example:

2. An amount of P2,300 was invested at 8% simple interest on May 25, 2013. How much shall be the
amount of interest earned on October 12, 2013 using four methods of computing period t solution: We
shall determine first the number of days.

Solution: We shall first determine the number of days.

Actual Time; Approximate Time;

October 12, 2013 285 October 12, 2013 10 12 9 42

-
-
May 25, 2013 145 May 25, 2013 5 25 5 25

140 4 17
days

Month Days
January 31
February 28
March 31
April 30
May 31
June 30
July 31
August 31
September 30
October 31
November 30
December 31

Hence, at 8% simple interest, we have:

a) Actual time, ordinary interest (Banker’s Rule)
I = Prt
= 2,300 (.08) (140/360)
I = P71.56

b) Actual time, exact interest

I = Prt
= 2,300 (.08) (140/365)
I = P70.58

c) Approximate time, ordinary interest

I = Prt
= 2,300 (.08) (137/360)
 I = P70.02

d) Approximate time, exact interest

I = Prt
= 2,300 (.08) (137/365)
I = P69.06
Notice that of the four possibilities, 'actual time, ordinary interest" method yields the highest interest. This
method is known as the "Banker's Rule". In this text, unless otherwise specified, the "Banker's Rule" shall be
used.

3. On August 25, 2013, Miss Lani Santos deposited the amount of P15,800.00 in a bank that pays 6.5%
simple interest. Compute the accumulated value on December 8, 2013, using the
a) Banker's Rule
b) Approximate time, exact interest
Given: P = P15,800.00 r = 6.5% or .065
Counting the number of days, we have

Month Actual time Approximate Time

August 6 (31 - 25) 5 (30 - 25)
September 30 30
October 31 30
November 30 30
December 8 8
Total 105 103

a) Using the Banker's Rule, we have

F = (1+ rt)
= 15,800[ (1+0.065) (105/360)]
= P16,099.54

b) Using approximate time, exact interest, we have

F = (1 + rt)
= 15,800 [(1+0.065)(103/365)]
= P16, 089.8

Try this!!
4. The owner of a variety store borrowed P30,000 from a bank at simple interest rate. The loan is to be
repaid in 210 days in a single payment. How much will the owner pay the bank when the loan falls
due? Use the exact interest formula.
 5. What is the ordinary interest on the loan in example 4?

1.5 Simple Discount

Simple Discount - the amount of interest is deducted in advance and is computed based
on the maturity value.

1.5.1 The Concept of Simple Discount

The term discount refers to the amount deducted from maturity value of an obligation. The price of using
money is, therefore, deducted in advance. In this case, the borrower pays the original sum of money borrowed
at the end of the term at a specified discount rate. Thus, the amount F due at the end of the term t is charged
an interest in advance at simple discount rate d. As a formula, the amount of discount also denoted by I, as in
the case of a simple interest, is given by:

I = Fdt Eq. 1.5.1

The formula for F, d and t can also be obtained by employing simple
algebraic manipulation, thus,
F = I/dt Eq. 1.5.2
D = I/Ft Eq. 1.5.3
t = I/Fd Eq. 1.5.4
Examples:
1. How much interest will be collected in advance from a loan of P15,000.00 for 2 years if the discount rate
is 8%?

Given: F = P15,000 d = 8% t = 8 years

Solution:
I = Fdt
= 15,000(0.08)(2)
= P2,400.00

2. On June 1 1, 2012, Mr. Suarez borrowed P6,00from a credit union and was charged for the loan. If
interest was deducted in advance, what was the discount rate? Assume that the loan shall be paid on
December 20 of the same year.

Given: F = P6,000 I = P410.00

Solution:
Using the Banker's Rule, we can determine the term of the loan. Thus,
June (30- 1 1)
July
August
September
October
November
December
Total number of days
Hence,
t = 192/360
solve for the discount rate, we shall use equation;
d = I/Ft
= 410/ (6,000)(192/360)
= 12.81%