Chapt

er6TheMat
hemat
icsofFi
nance

Chapt
er6:

Mathemat
ics
of
Fi
nance

Overv
iew:
Everybodyusesmoney .Sometimesyouwor kforyourmoneyandot herti
mesy our
moneywor ksforyou.Forexample,
unlessyouareat t
endingcol
legeonafullscholar
ship,i
tis
ver
yli
kelytoyouthatyouandy ourfamil
yhaveeit
hersav edmoneyorbor r
owedmoney ,orboth,
t
opayf oryoureducati
on.Whenwebor r
owmoney ,wenor mall
yhav et
opayt heinter
estfor
t
hatprivi
l
ege.Whenwesav emoney ,f
orafutur
epur chaseorret
irement
,wear elendi
ngmoney
t
oaf i
nanciali
nsti
tuti
onand
weexpecttoearnt hei
nter
estonourinvest
ment .
I
nthismodul e, wewi l
ldiscussaboutsi mpleinter
est,compoundi nterest,creditcards
andconsumer s,stocks, bondsandmut ualfunds,andhomeowner shi
ptounder standbet tert
he
pri
ncipl
esofborrowi ngandsav ing.I
twillal
sopr ovi
dedifferenttypesoffinancialassets,such
asshares,bonds,andhowt owor kouthowmucht heyarewor th.Studentswilllearnhow
mortgagesandot herl oansar e
cal
culat
ed.Thesei deaswi l
lthenbeusedt ocompar ediff
erentfinancial
oppor tunit
ies,explai
ns
howt ousemat htof inancialdecisi
ons,suchashowi nvestorshoul dpayforfinancialassetor
howacompanycandeci dewhi chprojectstoinvestinorhowmuchmoneyt obor r
ow.

Lesson1 Si
mpl
eInt
erest

Learni
ngOut comes:
Attheendofthisl
esson,youmusthave:
a)Definesimpl
eint
erest.
b)Discusssimpl
einter
est.
c)Solveprobl
emsinvolvi
ngsimpl
eint
erest

1
Chapt
er6TheMat
hemat
icsofFi
nance

(
ACTI
VATE)
Di
rect
ion:I
nyourownunder
standi
ng,
giv
eatl
eastt
hreedef
ini
ti
onofsi
mpl
eint
erest
.
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(
ANALYZE)
Wi ththeadv ancementoft echnologyt hroughcomput er i
zat i
on, mostpeopl edeposi t
moneyt hroughbanki ngsy stem andot herfi
nanci ali
nstit
utionst ofinancebusi nessact i
v i
ty.
Thisactofdeposi tingmoneyshoul dbehel pfultothedeposi torandt heor i
ginatorforother
i
ncome- generatingact i
v i
ti
esoft hebank.Thus, therewillbegr owt hinthei ndivi
dual̀sdeposit.
Inadditiontot his,t
hebor rowerget sbenefitsbecauset hemoneyhebor rowedcanbeusedt o
profit
ablebusi ness.Li kewi se, thelenderalsoear nsf r
om t hebusi nesst r
ansact i
onwher ei
nhe
chargesacer tai
nf eef orl endi nghismoney .
Interestreferst ot hesum ofmoneypai dfortheser vicesoruseofmoney .Indiv
iduals
needcashorf i
nanci al creditav ailt
hemsel vesofl oanfrom banksorcr editinsti
tuti
onswi than
agreementt opayt heor iginal amountwi t
hcor respondingi nterest.Ther ear ethreeimpor t
ant
factorstodet erminet hei nterestear nedonadeposi tort hechar gesagai nstal oan.Thesear e
thefollowing:
1)Ther ateofi nt erestwhi chi sgivenbyt hebankorchar gedbyt hel eader
2)Thel engthordur ationoft imef orwhicht hemoneyi sbor rowedordeposi t
ed
3)Thet otalsum ofmoneybor r
owedordeposi tedwhi chi scalledthepr incipal

Simpleinteresti
sdefinedasthei
nterestonadeposi
torloan,
whichiscomputedonce
fort
hefull
term oftheloan.Thesimplei
nter
estorliscomputedbymulti
ply
ingthepri
nci
pal(
P)
byther
ateofinterest(r
)andt hel
engthordurati
onofti
me(t)ofthedeposi
torloan.

Thef
ormul
ais: I=Pr t
wher
e: P-princi
pal amountoftheloanorinvestment
r-annualrateofsimpleint
erest
t-ti
meper iod(t
erm)oft heloanorinvest
ment
l
-amountofi nt
erestpai
dorr ecei
ved
F-mat
uri
tyv
alueoft
hel
oanori
nvest
ment

Example1)Fi
ndt
hei
nter
estandt
hef
inal
amountonP5,
000f
or3y
ear
sat5%.
Solut
ion:
Gi
ven: P =P5,
000 r=5% t=3y
ear
s
l=Pr
t=P5, 000(
0.05)
(3)=P750
F=P + l=P5,000+ 750=P5, 750

2
Chapt
er6TheMat
hemat
icsofFi
nance

Example2)Chinadeposi
tedP3,000inabankpay
ing7% simplei
nter
estf
or3y ear
s.How
wouldshehav
ei nheraccountatt
heendoft
hreey
earsassumingt
hatnowithdr
awalswer
e
made?
Solut
ion:
Gi
ven: P =P3,
000 r=7% t=3y
ear
s
l=Pr
t=P3, 000(
0.07(
3)=P630(
int
erest
)
F=P + l=P3000+ 630=P3630(amount)

Basedf rom thesimpleinterestformula,l= Pr twecandr ivethef

oll
owi
ngfor mulasf orP,r
,
andt:
l
1) P = (Tof i
ndthePr i
nci
palP)
rt
l
2) r= (Tof i
ndther ater)
Pt
l
3) t= (Tofindthet i
met )
Pr
Exampl e3)Mr s.Garci
abor rowedP10,000f r
om abankchar gi
ng12%simpl
ei nter
estwi than
agreementthatshewoul dpayt heprincipalandthei
nterestatt
heendoftheterm.I fshepaid
P12,400att heterm,forhowl ongdidheuset hemoney ?
Sol
uti
on:
Gi
ven: P =P10000 F=P11500 r=12 Fi
nd:t=?
Si
nceF=P =l ,t
henl=F-P=P10,000–11,
500=P2400

2400
t=
0.
12(10,00)
t=2years

Exampl
e4)Bart
olomeinvest
edP70,000i
nacooper
ati
vewher
ethei
nter
estwasP30,
000af
ter
twoandahal
fyears.Whati
sther
ateofhi
sinv
est
ment?

Sol
uti
on:
Gi
ven: P =P70,
000 l=P30,
000 t=2.
5year
s Fi
nd:r=?

30,
000
r=
70,
000(
0.25)
r=0.
1714or17.
14%(
conv
ert
edt
othenear
estcent
avo)

A.Determini
ngt heTimePer i
od
Whenwear eeitherf
indingtheexactti
meoract ualt
imeortheapproxi
matetimewear e
count
ingthenumber sofday sbetweentwodat es.
Theexactti
mei sdeterminedbycounti
ngeachdayofeachmont hoftheter
m except
theor
igindate.
Theappropri
ateisdeterminedbyassumi ngeachmonthtohave30day sandthen
count
ingeachdayofeachmont hexcepttheori
gindate.

Example1)Fi
ndtheexactt
imeandapproxi
matet
imebet
weena)June7,
2019andOct
ober27,
2019;
b)January10,
2020andApri
l24,2020.

Sol
uti
on1)June7,2019uptoOct
ober27,2019
a.Tofi
ndt
heexactti
me
June 23 ( 30-
7)Excl
udet
hef
ir
stdayofJunehas30day
s

3
Chapt
er6TheMat
hemat
icsofFi
nance

Jul
y 31
August 31
September 30
October 27 incl
udet
helastday
142day
s
b.Tof i
ndtheappr
oximat
eti
me,assumeeachmonthhas30day
s
June 23 ( 30-
7)
Jul
y 30
August 30
September 30
October 27
140day
s

Sol
uti
on2:Januar y10,2000upt oApri
l24,2000
c.Tofindt heexacttime
Januar y 21 ( 30-
7)Excl udethefi
rstdayofJanuar
yhas31day
s
February 29
March 31
Apri
l 24
October 27 includethelastday
105days
d.Tof i
ndt heapproximat
et i
me,assumeeachmont hhas30days
a)Januar y 20 (30-10)
b)Febr uary 30
c)Mar ch 30
d)April 30
104days

Therearef
ourdi
ff
erentti
mefactor
spossi
blei
ncountingthenumber
sofdaysbetween
t
wodates.Whenweconsi
derthe360or365(366i
faleapyear)inadenomi
nat
or,
weex press
t
henumberofdaysasafr
acti
onofay ear
.Westudyt
hef ol
l
owi ng:

ExactTi
me
a)
365
Appr
oxi
mateTi
me
b)
365
ExactTi
me
c)
360
Approxi
mateTi
me
d)
365

Theusetimeei t
herofthef
ir
storthesecondy i
eldexactint
erestwhil
ethethi
rdorfour
th
yi
eldanor di
naryi
nterest.
When365or366i susedasdenomi nat
orinconver
tingthenumberofday stoyear
,the
i
nterestobtai
nedisreferr
edtoexacti
nterest(l
e)andordinaryint
erest(
lo)uses360asits
denomi nat
or.

exactt
ime
BANKER`
SRULEuses i
nthecomput
ati
on.
360

Exampl
e1)LastJul
y7,2001,
Mrs.RowenaReyesappli
edforaP10,000loanat12%si
mple
i
nter
est
.Shepromisedt
opayonOctober27,2010.Computefort
heinterestont
hel
oan

4
Chapt
er6TheMat
hemat
icsofFi
nance

appl
yi
ng:
a)exactti
me,
exactinterest
b)approxi
mat
etime, exactint
erest
c)approxi
mat
etime,or di
naryinter
est
d)exactti
me,
ordinar
yi nter
est

Sol
uti
on:Wehav esolvedf
ort
heexactt
imeandappr
oxi
mat
eti
me,
whi
chi
sequal
to126and
124days,
respect
ivel
y.
a)
exactt
ime,
exacti
nter
est
l
e
=P10,
000(
12)
(112/
365)=P368.
22

b)
appr
oximat
eti
me, exacti
nter
est
le
= =P 10,
0009.12)
(111/365)=P364.
93

c)
appr
oximatet
ime,or
dinaryi
nter
est
lo
= =P10,
000(12)(
111/365)=P370.
00

d)
exactti
me,or
dinar
yint
erest
l
o
=P10,
000(12)
(112/365)=P373.
33

Basedf
rom t
heabov
eexampl
ewecanseet
hatusi
ngBanker
`sRul
eyi
eldst
hehi
ghest
i
nter
est.

(
APPLY/
PRACTI
CE)
Di
rect
ion:Fi
ndt
hesi
mpl
eint
erestoft
hef
oll
owi
ngl
oans.
1)Findt
heexactsi
mpl
eint
erestonapr
inci
pal
ofP40,
000.
00f
or2y
ear
sand4mont
hsat
10.
2%.

2)Dahl
iabor
rowedP15,820.
00at6%simpleint
erest
.Shewaschar
geanamountofP1,
280.
00asint
erest
.Computet
hedurat
ionofthel
oan.

5
Chapt
er6TheMat
hemat
icsofFi
nance

3)Whati
stheor
dinar
ysimpl
eint
erestonP8,
500at4%usi
ngt
heappr
oxi
mat
eti
mef
rom
March6,
2019toFebruar
y7,
2020?

4)Fi
ndt
hei
nter
estandamountonP10,
700at4½%f
or2mont
hs.

5)Deter
minet
hesi
mpl
eint
erestt
obepai
dbyAnt
honi
fhebor
rowedP2,
800at4½%f
or6
months.

(
ASSESSMENT)
Name:_
___
___
___
___
___
___
___
___
___
___
___
___
___
___
_Year&Sect
ion:_
___
___Scor
e:_
___
___
Di
rect
ion:Sol
vet
hef
oll
owi
ngpr
obl
ems.
1)I
nhowmucht
imef
orP15,
000t
oear
nP3,
500.
00i
fiti
sinv
est
edat7½%i
nter
est
?

2)Nathanbor
rowedP100,
000andpr omisedt
opaythepri
nci
palat12¼%f
or5y
ear
sand6
months.Howmuchdidsherepayaf
terthedur
ati
onoftheper
iod?

6
Chapt
er6TheMat
hemat
icsofFi
nance

3)Atwhatsi
mpl
eint
erestr
atei
fJanebor
rowedP148,
000.
00andpai
dP31,
500i
nter
estf
or2
year
sand5months?

4)Mari
sRascal
lendsP55,
000.
00at53/
8%si
mpl
eint
erest
.Howl
onghadi
tbeenl
enti
fit
ear
nedP4,100i
nterest
?

5)I
f8,000bor
rowedatannual
int
erestr
ateof16%mustber
epai
din9mont
hs,
findt
hei
nter
est
andtheamountdue.

6)IfDonPedr
ol entputP55,
000.
00at8%annual
int
erest
,ear
nedP4500i
nter
est
,howmuch
ti
mewi l
li
tbelent?

7)Fi
ndt
hesi
mpl
eint
erestr
atei
fani
nvest
mentofP47,
500.
00accumul
atest
oP55,
937.
50i
n
18mont
hs.

8)Ther
epaymentoft
heloanwasP14,100.
00.Howmuchwast
hepr
inci
pal
ift
hel
oanwasf
or
15monthsat16.
8%int
eresti
nayear
.

7
Chapt
er6TheMat
hemat
icsofFi
nance

9)Howmuchmoneyi sdueatt
heendof4y
ear
sand8mont
hsi
fP40,
000.
00i
sdeposi
tedi
n
cooper
ati
vet
hatpay
s11%perannum?

10)Carl
deposit
edP7,550.00wit
h9%simpl
eint
eresti
nsavi
ngbank.Whenhedeci
dedto
cl
osehisaccounthi
smoneygr ewtoP8,
640.
00.Assumingt
hatnowit
hdrawal
sweremade,
howlongdidhedeposi
thismoney ?

Rel
atedReadi
ngs
ht
tps:
//www.
sli
deshar
e.net
/sul
tanakhan1/
simpl
e-i
nter
est
-41909152
ht
tps:
//www.
sli
deshar
e.net
/vi
rj
eny
a/si
mpl
e-i
nter
est
-9431271
ht
tp:
//www.
mapl
eschool
s.com/
user
fi
les/
2480/
Classes/
4065/
3CH6L7.
ppt
ht
tp:
//www.
mapl
eschool
s.com/
user
fi
les/
2480/
Classes/
4065/
3CH6L7.
ppt

Ref
erences

Si
rug,
WS.( .Mat
2018) hemati
csintheModernWorldCHEDCurr
icul
um Compli
ant.1st
Edi
ti
on.Mi
ndshaper
sCo.,I
nc.,Rm.08,
Int
ramurosCor
por
atePlazaBl
dg.,Recolet
osSt
.
I
ntr
amurosManil
aPhil
ippi
nes.

Cer
val
l
ionC.et.al
.,
( .Mat
2010) hemati
csofInvest
mentaworkt .2ndEdi
ext t
ion.Nat
ional
Bookstore,
QuadAl phaCent
rum Bl
dg.,
125PioneerSt
reet,MandaluyongCit
y.

Si
mpl
eInter
estr
etr
iev
efrom ht
tp:/
/www.
mapl
eschool
s.com/
user
fi
les/
2480/
Classes/
4065
/3CH6L7.
pptonJuly14,2020

AbaoZ.et
.al
.,
(2008).Busi
nessMathemati
cs.BooksAt bp.Publ
ishi
ngCor
p.,
436M.
Lev
yaSt.
,DelaCruzCmpd.,
MandaluyongCit
y,1stEdit
ion.

Mal
abor
bor
,P.et
.al
.,
( .Mat
2000) hemat
icsofI
nvest .1stEdi
ment ti
on.Nat
ional
8
Chapt
er6TheMat
hemat
icsofFi
nance

Bookst
ore.J-
Creat
iveLabel
Ent
erpr
ise,
265D.Aqui
noSt
reet
,10thAv
enue,
Cal
oocanCity.

Lesson2 CompoundI
nter
est
Learni
ngOut comes
Attheendoft hi
slesson,y
oumusthave:
a)Definedcompoundi nter
est
.
b)Discussthestepinfindi
ngthecompoundinterest
.
c)Solvedprobl
emsusi ngcompoundint
erestformula.

(
ACTVATE)

9
Chapt
er6TheMat
hemat
icsofFi
nance

Di
rect
ion:Usi
ngabubbl
emap,
descr
ibet
hecompoundi
nter
est
.

Compound
Int
erest

(
ANALYZE)
Compoundi nt
eresti
sani nterestcomputedeveryconversionperiodwhosepr i
ncipal
amountincl
udesthespecif
iedint erestearnedever
yendoft heconv er
siondat e.The
computati
onofcompoundi nteresti nvol
vesthecomputati
onofsi mpleinterest.Whenthe
i
nter
estiscompoundedmor ethanonceay eart
heint
erestrat
ei snominal butifcompounded
onceayeartherat
eiseffecti
ve.

Thei nter
estear
nedduringtheperi
odis“conv er
ted”topri
ncipalattheendoft heperi
od
becauset hepr i
nci
palandtheint
erestar
ecombi nedandt reat
edast henewpr inci
palforthe
succeedingper i
od.Theeffectofconver
ti
ngi nt
eresttopri
ncipali
st hatt
heinterestearnedi
na
peri
odwi llalsoearni
nter
estinall
succeedingperiods.

Thecompoundf
requencyorconv
ersi
onf
requencyi
sthenumberofcompoundi
ngt
hat
t
akepl
acei
nayear.

Compoundi
ngFr
equenci
esandPer
iods

Compoundi ngfor No.ofCompoundi

ngor Compoundingor
ConversionFrequency conver
sionpery
ear conv
ersi
onperiods
Annual 1 1year
Semi annual 2 6mont hs
Quar t
er ly 4 3mont hs
Bimont hly 6 2mont hs
Mont hly 12 1month

Thef
ormul
ais:
n
F=P(
1+i
)

10
Chapt
er6TheMat
hemat
icsofFi
nance

Thus,i
nfi
ndi
ngthepr esentv
alueP,
wecander
ivei
tusi
ngt
heabov
efor
mul
a.Whenwedi
vi
de
n
bothsi
desby(1+i), weget

F n
P= n orequi
val
ent
lyt
oP=F( 1+i)presentval
uef
ormula
(1+i
)
n n
Basedfrom t
heabov
ef or
mulas,
wecall(
1+i
) astheaccumulati
onf
actorand(
1+i
) as
di
scountfact
or.

I
nterestcoul
dbecompoundedorconv
ert
edannual
l
y,semi
-annual
l
y,quar
ter
ly,
mont
hly
orcont
inuousl
y.

Whenthei
nter
estiscompoundedannual
l
y,t
hecomput
ati
onofi
nter
esti
smadeatt
heendof
eachy
ear,
hence,m=1.

Whent hei
nter
estcompoundedsemi -annuall
y,t
hismeanst hatthecomputati
onof
i
nter
estisdoneattheendofeachsixmont hs,ortwiceayear,hence,m =2.
Whent hei
nter
estisconver
tedquart
er l
y,thi
smeanst hatthecomput at
ionoft
heint
erest
i
smadeatt heendofeacht hr
eemonths,orf ourti
mesay ear,hence,m =4.
Whent hei
nter
estisconver
tedmonthly ,t
hecomputationoftheinter
estismadeatthe
endofeachmonth,ortwelv
et i
mesay ear
,hence, m =12.

A)Comput
ingCompoundI
nter
estPr
obl
em

Letusexami
net
het
woexampl
es:
Exampl
e1)SalomepaidP8, 600.
00onaloanmade2y
ear
sbef
oreat6%compounded
bi
monthl
y.Fi
ndthei
nterestgener
ated.
Sol
uti
on:
Gi
ven: F=P8,
600 j=6% t=2y
ear
s
j 0.006
m =6 m =2(
n=t 6)=12 i= = =0.
01
m 6
Wewi
l
lbegi
nbysol
vi
ngt
hev
alueofP,
weget
n
P =F(
1+i
)
-12
P =8,
600(
1+ 0.
01)
-12
=8,
600(
1.01)
=8,
600(
0.8874492253)
P =P7,
632.
06
Af
terobtai
ningthevalueF,wecanthensolvef
ort
hecompoundi
nter
est
.
I=F–P
=8, 600–7,632.06
=P967. 94
Thus,
Sal ome`
sloanearnedi
nteresti
sP967.
94.

Exampl
e2)Dr.Del
gadowantstohav
eP25,000.
00inhi
saccountbytheendof3years.How
muchshoul
dheinvestt
odayi
nthebankpay
ing8.
5%int
erestcompoundedsemi
-annuall
y?
Sol
uti
on:
Gi
ven:F=P25,
000 j=.085m =2 t=3y
ear
s Fi
nd:
P =?
Uset
heGener
alFor
mul
a:P = F1+
M ( )
j-tm

11
Chapt
er6TheMat
hemat
icsofFi
nance

P = P25,
0001+
.
(
085-2
2 ) subst
it
utet
hegi
ven
P =P19,475.
28 t
hencomput
e

Thus,
theamountt
obei
nvest
edi
sP19,
475.
28.

B)Nomi
nalandEf
fect
iveRat
es

Nominali
nter
estrateistheannualinter
estonwhichthecompoundinter
estcal
cul
ation
i
sbased.Thewor d“nominal
”,meaning“i
nt henameonly”isappr
opri
atebecausethenominal
annual
rat
eofint
erestisnotnumerical
lyequaltotheact
ualrat
eofint
erestr
eali
zedoverafull
year
.

Ont
heotherhand,
effecti
vei
nter
estrat
eistheequi
val
entannual
l
ycompoundr
ate.
=m( 1+r-1)
m
Thef
ormul
afornominalr
ateis j
jm
Thef
ormul
aforeff
ecti
verat
ei s r=(
1+ )–1
m

Exampl
e1)
Findt
heef
fect
iver
ateofi
nter
estequi
val
entt
o17%compoundedbi
mont
hly
.

Sol
uti
on:
Giv
en:j=17% =0.
17 m =6
jm
r=(
1+ )–1
m
0.
17 6
r=(
1+ )–1
6
6
r=(
1+.
0283333333)–1
r=0.
182506351
r=0.
1825or18.
25%
Ther
efor
e,t
he17%ef
fect
iver
atei
sequi
val
entt
o18.
25%compoundedbi
mont
hly
.

Exampl e2)I
fi nt
erestisconv
ertedmont hly,f
indt
heef
fect
iver
atewhent
henomi
nal
rat
eis
3.
56%.
Solut
ion:
Giv
en:r1=3 .56% m1=12 m2=1
Requi
red: r 2

[ r m
]
1

Formula: r 2= (1+ 1 )
2
m
-1(m2)9100%)
m1
0.
0356 2
Comput at
ion: r
2=( 1+ )–1=0.03619=3.26%
12

Thus,
theef
fect
iver
ate3.
62%i
sequi
val
entt
othenomi
nal
rat
eis3.
56%compoundedmont
hly
.

(APPLY/PRACTI
CE)
Dir
ecti
on:Sol
vet
hefol
l
owi
ngpr
obl
ems.

12
Chapt
er6TheMat
hemat
icsofFi
nance

1)Deter
minethepresentv
alueP55,
000.
00dueatt
heendof5y
ear
swi
th15%i
nter
est
compoundedsemi-
annuall
y.

2)Whati
sthecompoundamountifMr.Manuel
Chav
ezdeposi
tedP45,
000.
00i
nabankwhi
ch
pay
s9%compoundedquart
erl
yfor5years?

3)Esmeral
dadeposi
tsP2,
250.
00inasavi
ngsbankt
hatpaysi
nter
estat65compoundedsemi
-annual
l
y.Howmuchmoneywouldshegetaf
ter10y
ears?

4)Amaninvest
edP8,
500.
00f
or3y
ear
sat11%conv
ert
edsemi
-annual
l
y.Whati
sthe
compoundamount
?

5)Deter
minethecompoundamountandcompoundi
nter
estofP40,
000.
00f
or7.
5year
sat8%
compoundedannual
l
y?

(
ASSESSMENT)
Di
rect
ion:Sol
vet
hef
oll
owi
ngpr
obl
ems

13
Chapt
er6TheMat
hemat
icsofFi
nance

1)Mr
s.Gar
ciabor
rowedP130,000f
rom abankwhi
chcharged17%compoundedquar
ter
ly.
Howmuchmoneywouldshepayatt
heendoffoury
ears?

2)If20,000isdeposi
tedat12%f or7year
s,whatwi
l
lbet
hecompoundamounti
fthei
nter
est
i
sconv ert
edmont hl
y?
3)Accumul at
eP20,800.00for6yearsat
a)16%si mpleint
erest
b)16%compoundannual l
y

4)Di
scountP95,
000.00f
or5y ear
sand4monthsat
a)20½%compoundedsemi -
annual
l
y
b)20½%si mplei
nter
est

5)Jerr
ySant
iagowantst
ohaveP120,
000.00si
xyearsf
rom t
oday
.Howmuchhedeposi
t
todayi
nthebankpayi
ng14%compoundedquar
ter
ly?

6)Samanthabor
rowedP34,
000.
00fr
om Ay ahat16½%compoundedquar
ter
lyonJanuar
y5,
2019.HowmuchwouldshepayonOctober20,2019?

14
Chapt
er6TheMat
hemat
icsofFi
nance

7)Mr
s.Pat
ri
cioi
nvest
edP10,
500.
00inacooper
ati
vepay
ing5%compoundedever
ysi
x
mont
hs.Howmuchmoneydoesshehaveatt
heendof3y ear
sand4months?

8)Accumul
ateP80,
000.
00at16%compoundedannual
l
yfor9y
ear
sand9mont
hs.

9)Fi
ndthecompoundamountifP7,
800.
00f
or3y
ear
sand5mont
hsi
sinv
est
edat12%
compoundedev
eryfourmont
hs.

10)Benborr
owedP24,
000.00fr
om abankchar
ging13½%,
m=4.Howmuchwoul
dhepay
aft
ertwoyear
sand8months?

Rel
atedReadi
ngs
ht
tp:
//www3.
gov
st.
edu/
kri
ordan/
fil
es/
ssc/
mat
h161/
ppt
/bar
nfm10e_
ppt
_3_
2.ppt
ht
tps:
//www.
sli
deshar
e.net
/par
ubsc/
compound-
int
erest
-72164881
ht
tps:
//www.
sli
deshar
e.net
/vi
rj
eny
a/si
mpl
e-compound-
int
erest
-46378889
ht
tp:
//www.
kyr
ene.
org/
cms/
li
b2/
AZ01001083/
Cent
ri
cit
y/Domai
n/984/
Lesson%208.
6%20

15
Chapt
er6TheMat
hemat
icsofFi
nance

-%20Compound%20Int
erest
.ppt
ht
tp:
//www. svsd.
net/
cms/
li
b5/PA01001234/
Cent
ri
cit
y/Domai
n/1045/
Lesson_
5.5_
compoundi
ng
_int
erest.
pptx

Refer
ences
Stanf
ordEncycl
opedi
aofPhi
l
osophyr
etr
iev
efr
om ht
tps:
//pl
ato.
stanf
ord.
edu/
ent
ri
es/l
ogi
cal
tr
uth/onJul
y27,2020.

BYJU`
STheLear
ningApp.Funct
ionsandi
tsTy
pesr
etr
iev
efr
om ht
tps:
//by
jus.
com/j
ee-
and-
i
ts-
onJul
y27,
2020.

AbaoZ.et
.al
.,( .Busi
2008) nessMathemati
cs.BooksAtbp.Publ
i
shi
ngCor
p.,
436M.Lev
yaSt
.,
Del
aCruzCmpd.,
Mandaluy
ongCit
y,1stEdi
ti
on.

Wi
nst
onSS.( 2018).Mathemati
csintheModernWor
ldCHEDCurri
cul
um Compli
ant.1st
Edit
ion.MindshapersCo.,
Inc.,
Rm.08,I
ntr
amurosCor
por
atePl
azaBldg.
,RecoletosSt
.
Int
ramur osManil
aPhili
ppines.

Lesson3 Cr
edi
tCar
dsandConsumerLoans
Lear
ningOut
comes
Att
heendoft
hisl
esson,
youmusthav
e:

16
Chapt
er6TheMat
hemat
icsofFi
nance

a)Di
scussedcr
edi
tcar
dsandconsumerloans
b)Cal
cul
atedcr
edi
tcar
dtr
ansacti
ons.
c)Computedpr
obl
emsusingcr
editcar
dtransact
ionf
ormul
a.

(APPLY/ PRACTICE)
Direction:Tryt
osol vethef
oll
owingpr
obl
ems.
1)Abi l
lforP65,300wasdueonAugust2.ApurchaseofP3,
800wer emadeonAugust8and
P1, 600waschar gedonAugust23.Apay
mentofP2,500wasmadeonAugust17.The
i
nter estontheav eragedai
l
ypaymentbal
ancei
s2.1%permonth.Fi
ndthefi
nancechar
geon
theSept emberbill.

2)Mr.Gomezboughtagoldnecklaceamountingt
oP15,000.A10%wasgi v
enasar equi
red
downpaymentandt hebal
anceistobepaidin12equal
mont hl
yinst
all
ment
.Thef
inance
char
geonthebalanceis5%simpleint
erest
.
a)Sol
veforthefi
nancecharge.
b)Cal
cul
atetheannualpercent
agerateint
ent
hsplace.

3)Adoct
orpurchasedasecond-handvehicl
efr
om hisbestf
ri
end`
sshowr oom f
orP175,
000.
Hewasgivena20%annual i
nter
estrat
ef or2year
s.Findhi
smonthlypay
ment.

4)Charl
esappl
iedaloanfor6months.Hi
smonthl
ypaymenti
sP750ona2y
earl
oanatan
annual
percent
agerateof10%.Fi
ndthepayof
famount
.

5)Anar
chi
tectbor
rowedP3,
400f
or30day
saf
eeofP85.Whati
stheAPR?

17
Chapt
er6TheMat
hemat
icsofFi
nance

(
ANALYZE)
Acreditcardisathinr
ectangularsl
abofplast
icormetali
ssuedbyaf i
nancial
company ,
thatl
etscardholdersborrowfundswithwhicht
opayf orgoodsandserv
ices.Credi
tcards
i
mposet hecondi t
ionthatcar
dholderspaybacktheborrowedmoney,pl
usinterest
,aswellas
anyaddit
ionalagreed-uponcharges.

A)Creditcardtransacti
on
Thecreditcardtr
ansacti
onismostwidel
yusedbyindivi
dualstopaypurchasewithout
bri
ngingcashonhand.
Thefinancechargeisthepesoamountthati
spaidforthecredit
.Ontheotherhand,
annualpercentagerate(APR)ref
erstot
heamounteffect
iveinter
estratebei
ngcharged.

Twopaymentopti
onsf
orconsumer`
sprear
rangedcredi
tli
mit
:
1)Thebal
ancei
sthepaidof
fatt
heendoft hemonthwithnof
inancechar
ge
2)Mini
mum pay
mentorport
ionoft
hepaymentbutl
essthantheful
lbal
anceand
Car
ryov
erbal
ance,
whichaccr
uesfi
nancechar
gesbyusingthesi
mpleint
erest
f
ormul
a.

Ther evolv
ingcrediti
sal oanmadeonacont inuousbasi
sandbill
edperi
odical
l
y.
Aver
agedai lybalancetr
acksthedailytr
ansacti
onsinacredi
taccount
.Thissect
ionprovi
des
someinsightsonhowt ocomput efi
nancechargeswheneverweusedcredi
tcardandits
monthl
ybal ancecomput ati
on.Thefoll
owingformul
acanbeusedt ocomputeforthecredi
t
car
dtransaction:

÷(
(SuEmachd ) od)
oft
heamountowed NumberofDays
Av
erageDai
l
yBal
ance=
ayoft
hemonth intheBi
ll
ingPer
i

Fi
nanceChar
ge=ADBxPer
iodi
cRat
e

CashAdv
anceFee=AmountofCashAdv
ancexRat
e

Cur
rentBal (
ance= Pr
ev
Bal
i
ance )
ous -(
Pay )+
ment (
New
Char
+
Fi
)(
nance
ges Char ge )
Exampl e1)Kar
enmadeaP3, 500pur
chaseonMar ch7,aP10,700.Theref
ore,
0pur chaseon
Mar ch
19,andcashadvanceofP10,000onMar ch21usinghercredi
tcar
d,whichprevi
ouslyhadzero
balance.Hermont
hlystat
ementsarebil
l
edonthe31stofeachmonth.Theinter
estont he
averagedail
ybal
anceis2.5%permonthandforcashadvancess2%.Findthefinancecharge
andt hebal
anceowedonMar ch31bil
l
.

Sol
uti
on:
Todeter
minet
hefi
nancecharge,pr
epar
eatabl
eindi
cat
ingtheunpaidbal
ancef
oreach
pur
chase,t
henumberofday
st hebal
ancei
sowed,andtheproductoft
heseamount
s.
St
ep1:cal
cul
atet
hedai
l
ybal
ances.
Dat
es Pay
ment
s/Pur
chase Unpai
dBal
ance No.of Dai
lybal
ance
Days
Mar
c7-18 3,
500.00 3,
500.00 12 42,
000.
00
Mar
ch19-20 10,700.00 14,200.00 2 28,
400.
00
Mar
ch21-31 10,000.00 24,200.00 11 242,
000.00

18
Chapt
er6TheMat
hemat
icsofFi
nance

Tot
al 312,400.00
TheamountownedonMar ch31i sthebeginni
ngunpaidbal
ancedlessanyreturnsor
paymentsplusnewchargesandfinancedcharge.
Thesum ofthetotalamountowedbyKar eneachdayofthemont hisP31,400.00and
thet
otalnumberofdaysfrom March1t oMarch31i s31days.
St
ep2:Computeforthedail
ybalances.
AverageDail
yBalances= (
Sum oftheAmount
EachDayoft
heMonth
÷
t )(
sOwed NumberofDay
heBi
l
li
si
ngPer
i
n
od )
AverageDail
yBalance(ADB)=312, 400÷31=P10,077.
42

St
ep3:Fi
ndt het
otalf
inancecharge.
Comput efi
rstt
hef i
nancechargeandcashadv
ancef
ee,
thensol
vet
het
otal
finance
charge.
Fi
nanceChar
ge=ADBxPeri
odi
cRat
e
Fi
nanceChar
ge=10,
077.
42x0.
025=P251.
94
CashAdv
anceFee=AmountofCashAdv
ancexRat
e
CashAdv
anceFee=10,
000x0.02=200.
00

Tot
alFi
nanceChar
ge=Regul
arFi
nanceCharge+CashAdv
ancesFee
Tot
alFi
nanceChar
ges=251.
94+200.00=P451.
94

St
ep4:Det
ermi
nethecur
rentbalance.
Curr ance= Pr
entBal
Bal(
evi
ous -(
ance
Pay)
ments)+
New
Char
ges(+
Fi
Char)(
nance
ge )
Curr
entBal
ance=0–0+24, 200+451.
94=P24, 651.
94
Thet
otal
financechar
gei
sP451.
94andt
hecur
rentbal
ancei
sP24,
651.
94.

Example2:Clairehasar evol
vingcr editamountwi th18%annual per cent ager
ate.Thef i
nance
char
geiscalculatedusingtheav eragedai l
ybalancemet hod.Thebi lli
ngdat ei
st hefi
rstdayof
eachmonth,andt hebill
ingcycleist henumberofday sinthatmont h.Dur i
ngt
hemont hof
August
,Clai
re`saccountshowedt hef ollowingact i
vit
ies.
Date Tr
ansact ions Char ges
August1 Previousmont h`
sbal ance P8, 00.00
August8 Shakey `
sPi zz
a 2,500. 00
August10 Toby `sSpor ts 3,800. 00
August12 Payment 10, 000. 00
August17 Robinson` sSuper market 7,100. 00
August23 Musi cStor e 500. 00
August23 SM Depar tmentSt ore 3,200. 00
August24 PetrolOil 1,600. 00
Howmuchi st hef i
nancechargeandwhati sClair
e`snewbal ancefort hemont hofAugust ?
Sol
uti
on:
St
ep1:Cal
cul
atet
hedai
l
ybal
ances.
Dates Pay
ment s/Purchase Unpai
dBal ance No.ofDay
s Dai
lybalance
August1-7 8,000.00 8,
000.00 7 48,000.
00
August8-9 2,500.00 10,500.00 2 21,000.
00
August10-11 3,800.00 14,300.00 2 28,600.
00
August12-16 (10,000.00) 4,
300.00 5 21,500.
00
August17-22 7,100.00 11,400.00 6 68,400.
00
August23 500.00 11,900.00 1 11,900.
00
August23 3,200.00 15,100.00 1 15,100.
00

19
Chapt
er6TheMat
hemat
icsofFi
nance

August24-
31 1,
600.
00 16,700.
00 8 133,600.
00
Total 348,100.
00
Thesum ofthetot
alamountsowedbyCl ai
reeachdayoft
hemonthisP348,
100.
00andthetotalnumberofday
sfrom august1toAugust31i
s31days.

St
ep2:Computeforthedail
ybalances.
AverageDail
yBalances= (Sum oftheAmount
EachDayoft
heMonth )(
sOwed NumberofDay
÷
t
heBi
l
li
si
ngPer
i
n
od )
AverageDail
yBalance(ADB)=348, 100÷31=P11,
229.
03
St
ep3:Det
ermi
net
heperi
odi
crat
e.
Peri
odi
cRat
e=AnnualPer
cent
ageRate(APR)÷12
Peri
odi
cRat
e=0.15÷12=0.0125or1.
25%
St
ep4:Findthet
otalf
inancechar
ge.
FinanceCharge=ADBxPer iodi
cRate
FinanceCharge=11,299.
03x0.0125=P140.
36
St
ep4:Det
ermi
nethecur
rentbalance.
Curr
entBal (
ance= Prev
Bal
i
ous -(
ance )
Pay s)+
ment (
New
Charges )(
+
Finance
Charge )
Curr
entBal
ance=8,000.
00–10, 000.
00+18,
700.00+140.36=P16, 840.
36

Thef
inancechar
gei
sP140.
36andt
hecur
rentbal
ancei
sP16,
840.
36.

B)AnnualPercentageRate
AnnualPer
centagerat
e(APR)ist
heeffect
iveannuali
nterestwhi
chisthebasi
sof
credi
tpayments.APRstatest
hattheonl
yunpaidbalancewil
learnanint
erest
.
2mr
Thef or
mulaisAPR≈ wher
em isthenumberofpay mentsandristhesimpl
einter
est
m+1
rate.

Example1)SupposeSoni
apurchaseaLEDt el
evi
sionforP50,000.Shepays20%down
paymentandagreestopayt
hebalancein12equal payments.Thefi
nancechargeonthe
bal
anceis8%simplei
nter
est
.Findthefi
nancechargeandest i
matetheannualpercent
ager
ate.

Solut
ion:
Step1:Computefortheamountofdownpaymentandamountf
inance.
DownPayment=PurchasePri
cexPercentDown
DownPayment=50,000x0.20=P10,000.00
AmountFi
nance=PurchasePri
ce–DownPay ment
AmountFi
nance=50,000–10,000=P40,000.00
St
ep2:Determi
nethefi
nancecharge.
FinanceCharge=AmountFinancexFi
nanceRat
e
FinanceCharge=40,
000.00x0.08=P3,200.
00

Step3:Esti
mat etheAnnualPercent
ageRate.
2mr
APR≈
m+1
2(12)(
0.20)
APR≈ ≈0.16or16%
12+1
Thefi
nancechar geisP3,200.00andtheAPRis16%

C)ConsumersLoans
Consumerl
oansappl
ytheAPRi
nter
estr
atei
ncarl
oan,
housi
ngl
oan,
fur
nit
urel
oan,

20
Chapt
er6TheMat
hemat
icsofFi
nance

appl
iancel
oan,andothertypesofloanwi
thr
egul
arpaymentschedule.Thefor
mul
aforthi
s
paymentis
Ai
R= -
n
1-
(1+i
)
where:r=r
egul
arpay ment m=numberofpaymentspery ear
A=l oanamount n=tm
r=annual i
nterestr
ate i=r÷m t=numberofyear
s

Example1)Aprofessorinalargeuni
ver
sit
ypurchaseanSUVf orP1,500.00.Thesales
taxi
s7%oft hepurchasepri
ceandhemakesadownpay mentofP300,000.00.
Assumingthatt
her emai
ningbalancei
sloanatannuali
nter
estrat
eof12%f or5y ear
s,f
ind(a)
theamountofsalestax,
(b)theamountoftheloanthepr
ofessorneeds,and( c)t
hemont hl
y
payment.

Soluti
on:
Giv
en:SalesTaxRat
e=7%=0.
07 DownPay
ment=P300,
00
PurchasePr
ice=P1,
500.
00

St
ep1:Computefortheamountofsalestax.
SalesTax=Pur chasePr
icexSalesTaxRat
e
SalesTax=1,500.00x0.
07=P105, 000

St
ep2:Comput
efort
heloanamount.
LoanAmount=PurchasePr
ice+Sal
esTax–DownPayment
LoanAmount=1,
500,000+105,
000–300,
000=P1,
305,
000

Step3:Comput ef orthemont hl
ypayment .
A=1, 305,000 m =12(monthlypay
ment)i=r÷m =0.12÷12=0.01
r=12%=0. 12 t=5y ear
s n=tm =5(12)=60
Ai
R= -
n
1-(1+i)
(1,305,000) (
0.01)
R= -
60 =29,029.00
1-(
1+0. 01)
Theref
ore,
themont hlypay mentfortheSUVisP29,
029.
00.

Example2)EPCElect
roni
csi sofferi
ngcust
omerswhosepur chasethel
atestmodelof
Smartphonesanannuali
nterestrateof9%for3years.I
fMaribelpur
chasesanIphone8f
or
P46,700fr
om DBSElectr
onics,determi
neherquart
erlypay
ment .
Sol
uti
on:
Gi
ven:A=46,
700 m =4(
quar
ter
lypay
ment
)i=r÷m =0.
09÷4=0.
0225
r=9%=0.
09 t
=3y
ear
s
Ai (46,700)(
.0225)
R= n=
- 12 =4
- ,
484.
01
1-
(1+i
) 1- (1+0.0225)

(APPLY/PRACTICE)
Dir
ecti
on:Checkyourpr
ogressbyansweri
ngt hef
oll
owi
nggivenprobl
ems.
1)SupposethatRei
gnhasaf i
ve-
yearcarl
oanatanannuali
nter
estrat
eof5.2%andamonthl
y
paymentofP15,400.Af
ter2years,
shedecidedtobuyanewcar.Whatist
hepayoffoft
he
l
oan?
21
Chapt
er6TheMat
hemat
icsofFi
nance

2)Awatchst
oreadvert
isesanewmodel
ofCasi oG-
ShockforP25,000,incl
udi
ngtaxes.I
fyou
fi
nancet
hepurchaseofthi
swatchf
or1yearatanannual
int
erestof9.3%,whatist
hemont hl
y
payment
?

3)Benpurchaseaspor t
scarf
orP5,500,
000.HemakesP2, 000,000downpaymentand
fi
nancet
her emaini
ngamountf or4y
earsatanannual
int
erestrateof8.
2%.Thesal
estaxi
s
6.
2%ofthesel l
i
ngprice.Fi
ndthemonthl
ypayment.

4)Vickyhasafour-
yearl
oanatanannualint
erestr
ateof8%andamont hlypaymentofP28,
250.After1y
ear,Vi
ckydeci
dedtopurchaseanewcar .Whati
sthepay
of fofthel
oan?

5)Marcohasatwo-yearl
oanatanannual
int
erestrat
eof9.
2%andamont hl
ypaymentofP4,
120.Aft
er1yearand6months,hedeci
dedtopurchaseamotor
cycl
e.Whati
sthepayof
fofthe
l
oan?

(
ASSESSMENT)
Name:_
___
___
___
___
___
___
___
___
___
___
___
___
___
___
__Year&Sect
ion:_
___
___Scor
e:_
___
___
Di
rect
ion:Sol
vet
hef
oll
owi
ngpr
obl
ems
1)SupposeAntonhasafive-
yearcarloanatanannuali
nter
estr
ateof6.
2%andamont hl
y
paymentofP30,100.Af
ter5years,hedecidedt
opurchaseanewcar.Whati
sthepay
offof
thel
oan?

22
Chapt
er6TheMat
hemat
icsofFi
nance

2)Mirarequestedtocalcul
atetheav er
agedai
lybal
ance,thefi
nancechar ge,
andt hecurr
ent
t
h
bal
ancegiventhe2.85%i nter
estpermont honhercredi
tcardwhichisbil
ledevery25 oft he
month.Thef ol
l
owingaret hetransacti
onmade:Jul
y30pr evi
ousbalanceofP6, 000,August3
pay
mentofP5, 000,August7pur chaseofP4,200,
andAugust14pur chaseofP10, 350.

3)RogerDel Lunasoldapi
eceofpropertyforP1,300,000.Adownpay mentofP500,000was
madeandt her emai
nderwastobepaidinequal quarteri
nstall
ments,t
hefi
rstdue3months
aft
erthedateofsale.Theannual
int
erestratewas15%andt hedebtwastobeamorti
zedin7
year
s.Find(a)thequart
erl
ypaymentisrequired,
(b)totalamountofregul
arpayment
s,and(c)
thetot
alcostoftheproper
ty.

4)Ronbor r
owsP66,000f
rom thebankthatadver
ti
sesa7%simplei
nter
estr
ateandrepays
theloaninsi
xequal
monthlypayments.Fi
ndthefi
nancechar
geandesti
matetheannual
percent
agerate.

5)SupposeMi chaelhadanunpai
dcreditcardbi
llf
orP4,000withaduedateofJune24.A
purchaseofP1, 300wasmadeonJul y4,andP2,400waschargedonJul y20.Apay mentof
P3,000wasmadeonJul y25.Thenextbill
i
ngdateisAugust5.Theinter
estont heaver
age
dail
ybalanceis2.75%permonth.Fi
ndthef i
nancechar
geandt hecurr
entbalanceofthebi
llf
or
thecutoffper
iod.

6)Amusicst
oreoff
ersanelect
ri
cgui
tarforP16,
200,
incl
udi
ngtaxes.I
fPailfi
nancedthe
pur
chaseoft
hisel
ectr
icgui
tarf
or1yearand6monthsatanannualpercent
agerateof5.4%,
whati
sthemonthl
ypayment?

23
Chapt
er6TheMat
hemat
icsofFi
nance

7)MBAFurni
tureoff
ersadi
ningtabl
eforP24,500,
incl
udingtaxes.IfDr
akefi
nancedthe
pur
chaseofthi
stabl
efor1yearand2mont hsatanannualpercentagerat
eof6.3%,f
indthe
monthl
ypayment.

8)Dary
l buysast er
eosystem f
orP28, 200andmakesa20%downpay ment
.IfDary
lagreest
o
repayt
hebal ancein24mont hl
ypay mentsatanannual
int
erestr
ateof12%,
estimatet
he
annualpercentagerat
eforDaryl̀sl
oan.

9)Chinahasar evol
vi
ngcr edi
tamountwith12%annual percentagerat
e.Thefinancechargei
s
cal
culat
edusingtheaveragedailybal
ancemethod.Thebill
i
ngdat eisthefi
rstdayofeach
month,andthebil
li
ngcycleisthenumberofdaysinthatmont h.Duri
ngthemont hofMar ch,
Chi
na`saccountshowedt hefoll
owingact
ivi
ti
es.

Date Transactions Charges

March1 Pr
eviousmont h`sbalance P2,100.00
March5 88Gr ocery 6,
000.00
Mar
ch11 Payment 8,
000.00
Mar
ch15 StarbucksCof f
ee 1,
000.00
Mar
ch17 AyalaMal lDept.Stor
e 3,
700.00
Mar
ch20 Mitsubi
shi Motors 10,400.00
Mar
ch28 CashAdv ance 2,
000.00

Howmuchi
stheav
eragedai
l
ybal
ance,
financechar
geandt
henewbal
ancef
orMar
ch?

24
Chapt
er6TheMat
hemat
icsofFi
nance

10)WSSEl ect
ronicsadvert
isesacomputerpri
nterf
orP10,800,
includi
ngtaxes.IfSar
ah
fi
nancedthepurchaseofthi
spr i
nterf
or1yearatanannual
percentagerat
eof7. 2%,fi
ndthe
monthlypayment.

Rel
atedReadi
ngs
ht
tps:
//sl
i
deplayer
.com/ sli
de/6923319/
ht
tps:
//www.enter
card.com/ consumer -
inf
o/cr
edi
t-
card-
or-
consumer-l
oan/
ht
tps:
//www.fcs.
uga.edu/docs/ cr
edit
.ppt
ht
tps:
//www.sli
deshare.net/
Dami lol
aOyewusi/
consumer-
loans-
62137007
ht
tps:
//www.debt.
org/credit
/loans/

Ref
erences
Wi
nst
onSS.( 2018).Mathemati
csintheModernWor
ldCHEDCurri
cul
um Compli
ant.1st
Edit
ion.MindshapersCo.,
Inc.,
Rm.08,I
ntr
amurosCor
por
atePl
azaBldg.
,RecoletosSt
.
Int
ramur osManil
aPhili
ppines.

Cer
val
l
ionC.et.al
.,
( .Mat
2010) hemati
csofInvest
mentaworkt .2ndEdi
ext t
ion.Nat
ional
Bookstore,
QuadAl phaCent
rum Bl
dg.,
125PioneerSt
reet,MandaluyongCit
y.

Lesson4 St
ocks,
Bonds,
andMut
ualFunds

Lear
ningOut comes:
Attheendoft hi
sl esson,youmusthav e:
a)Discussedsticks,bondsandmut ualfunds.
b)I
dent if
iedst
ocksf rom bonds.
c)Descr i
bedthedifferentmarketf
orstocksandbonds.
d)I
nt erpr
etthetheoryofeffi
cientmarkets.

Di
rect
ion:Answert
hef
oll
owi
ngr
iddl
es.
1)Howf
arcanaf
oxr
uni
ntot
hewoods?
Cl
ue:Nott
ool
ong.
2)Iam anoddnumber
.Takeawayal
ett
erandIbecomeev
en.Whatnumberam I
?

25
Chapt
er6TheMat
hemat
icsofFi
nance

Cl
ue:Notmor
ethan10butnotl
esst
han5.
3)Whathashandsbutdoesn’
tcl
ap?
Cl
ue:I
tist
imel
ess.
4)Ifaredhousei
smadeofr
edbr
icks,
anday
ell
owhousei
smadeofy
ell
owbr
icks,
whati
sa
greenhousemadeof
?
Cl
ue:Tr
anspar
ent
.
5)Whatgoesupbutnev
ercomesbackdown?
Cl
ue:Ev
eryy
eary
ougr
owol
d.

(
ANALYZE)
Muchofthewor ld'
sbusinessact i
vi
tywouldbeimpossiblewi thoutst
ocksandbonds.
Stocksandbondsar ecerti
fi
catesthataresoldtorai
semoneyf orstarti
nganewcompanyor
forexpandi
nganexi st
ingcompany .St
ocksandbondsarealsocal ledsecurit
ies,andpeopl
e
whobuyt hem arecall
edinvestors.Theownershipshar
eiscalledst ocks,whil
et hebuy
ersof
thestocksarecall
edstockholderswhor ecei
vestockcert
if
icateswhi chver
if
yt henumberof
sharestheyown.

Abondispr omisef rom thecompanyt opaythefacev al

uet othebondownerataf utur
e
datealongwit
ht heinterestpay mentatast atedrat
e.
Aparvalueorf acev alueofabondi stheori
ginalamountofmoneybor rowedbya
company .Mostcompani esissueaparv alueofP1, 000.Thedistr
ibutionofacompany`s
prof
itstoit
sshareholdersi srefer
stodividends.Ont heotherhand, personswhoownshar es
ofstocksinacor por
ationiscal l
edsharehol der
s.

TypesofStock
1)Prefer
redst
ocki
saclassofcor
porat
estocki
nwhi
chthei
nvest
orhaspr
efer
ent
ial
right
s
overthecommonshar
eholder
stodi
vi
dendsandacompany`
sasset
.

2)Commonst ockisacl
assofcorporat
einwhicht
hei
nvest
orhasv
oti
ngr
ight
sandshar
es
di
rect
lyi
nthesuccessorf
ail
ureofthebusi
ness.

3)No-parv
aluest
ockisst
ockt
hatdoesnothav
eaparv
alueandt
hedi
vi
dendi
squot
edasa
pesoamountpershar
e.

4)Cumul
ati
vepr
efer
redst
ocki
sat
ypeofpr
efer
redst
ockt
hatr
ecei
vest
hedi
vi
dendeachy
ear
.

5)Nonpar
ti
cipat
ingst
ockmeanst
hatt
heshar
ehol
der
srecei
veonl
yfi
xeddi
vi
dend.

6)Par
ti
cipat
ingstockmeanst
hatt
heshar
ehol
dermayr
ecei
veaddi
ti
onal
div
idendsi
fthe
companyperfor
mswell.

26
Chapt
er6TheMat
hemat
icsofFi
nance

Thedi
videndsinar
rear
sistheamountofdiv
idendsthataccumulat
eandowedt
o
cumul
ati
veprefer
redshar
ehol
dersbef
orepastyear
sinwhichnodi vi
dendsar
epai
d.

Conver
ti
blepref
err
edmeanst hestockmaybeexchangedforaspeci
fi
ednumberof
commonshar
esinthefut
ure.Thef
oll
owingaret
hefor
mul asusedinst
ocks:
Tot
alcommondi
vidend
Di
vi
dendpershar
e(common)=
Numberofshar
es(
common)
Tot
alpr
efer
reddi
vi
dend=Numberofshar
esxDi
vi
dendpershar
e
Tot
alcommondi
vi
dend=Tot
aldi
vi
dend–Tot
alpr
efer
reddi
vi
dend
Di
vi
dendpershar
e(pr
efer
red)=Parv
aluexDi
vi
dendr
ate

Example1)TheUSEnt er
pri
seshas1,500,
000shar
esofcommonst ockoutst
andi
ng.Ifa
di
videndofP30,000,
000wasdeclar
edbyt hecompanydi
rect
orsl
astyear
,whatarethe
di
videndpershar
eofcommonst ock?

Sol
uti
on:
Becausethecompanyhasnopr
efer
redst
ock,
thecommonshar
ehol
der
swi
l
lrecei
vet
heent
ir
e
di
vidends.

Gi
ven:Tot
alcommondi
vi
dend=P30,
000,
000
Numberofshar
es(
common)=1,
500,
000
Tot
alCommonDivi
dend
Di
vi
dendpershar
e(common)=
NumberofCommonShares
30,
000,
000
Di
vi
dendpershar
e(common)= =20pershar
e
1,
500,
000
Thus,t
hedi
vi
dendpershar
eofst
ockisP20.

Exampl e2)MishCorporati
onhas70,000sharesofP2, 000parv
alue,5%cumulativepref
err
ed
stockand25,000sharesofcommonst ock.Al
thoughnodivi
dendwasdeclaredlastyear,
aP25,
000,000divi
dendwasdecl aredt
hisyear.Det
erminetheamountofdiv
idendsduet hepref
err
ed
shareholder
sandthedividendpershareofcommonst ock.
Sol
uti
on:
Takenotethatthepreferr
edstockiscumul
ati
veandt
hecompanydi
dnotpayadivi
dend
i
ntheprevi
ousyear,thepreferr
edsharehol
dersar
eenti
tl
edt
othedi
vi
dendsi
narr
earsandthe
di
vi
dendforthecurrentperi
od.
Gi
ven:
Parvalue=P2,000
Di
vi
dendrate=5%=0. 05
Numberofshar
es(prefer
red)=70,
000
Numberofshar
es(common)=250, 000
St
ep1:Computefort
hediv
idendpershareonapref
erredst
ock.
Divi
dendpershar
e(pref
err
ed)=Parv al
uexDivi
dendrat
e
Divi
dendpershar
e(pref
err
ed)=2,000(.
05)=P100divi
dendpershar
e
St
ep2:Computeforthet
otaldi
vi
dendonapr eferr
edstockinarrears.
Total
prefer
reddiv
idend=Numberofshar esxDividendpershare
Total
prefer
reddiv
idend=70,000(100)=P7, 000,
000
Total
prefer
reddiv
idend=7,000,000(arr
ears)+7,000,000(curr
enty
ear
)
Total
prefer
reddiv
idend=P14, 000,
000

27
Chapt
er6TheMat
hemat
icsofFi
nance

Thus,
theamountofdi
vi
dendsduef
orpr
efer
redst
ocki
sP14,
000,
000.
St
ep3:Comput
efort
heamountofdiv
idendsdueforcommonst ock.
Total
commondiv
idend=Totaldi
vidend–Totalpref
err
eddivi
dend
Total
commondiv
idend=25,
000,000–14,000,000=P11,000,000
St
ep4:Comput efort
hedividendpershare.
Totalcommondividend
Di
videndpershare(common)=
Numberofshares(common)
11,
000,000
Di
videndpershare(common)= =P44pershare
250,
000
Ther
efore,
thediv
idendpershareofcommonst ocki
sP44.
Cur
renty
iel
disawayofdeter
mini
ngthecur
rentval
ueofast
ock.Itshowshowmuch
di
vi
dendyoucangetasaper
centageoft
hecurr
entpri
ceofst
ockpershare.Thef
ormul
ais:
Annualdi
vi
dendpershar
e
Cur
rentYi
eld=
Curr
entpri
cepershar
e
Anotherthi
ngthatsomepeopl
euset
ohel
pthem deci
dewhi
chst
ockt
obuyi
sthepr
ice-
ear
ningsr
atio.Thefor
mulais:
Currentpr
icepershar
e
Pr
ice-
ear
ningsRat
io=
Earni
ngspershare

Proceedsar etheamountofmoneyt hataninv

estorreceivesaft
ersel
li
ngast
ock.Iti
s
computedast hevalueofshareslesst
hebroker`
scommi ssion.Thebroker`
scommission
ref
erstothefeechar gesforassi
sti
ngi
nthepurchaseorsaleofshar esofst
ock;
apercentof
thecostofthestockt r
ansacti
on.

Astockbrokeri
sapr ofessi
onali
nstockmar kettr
adingandi
nvestmentwhoactsasan
agentinthesel
li
ngandbuy ingofstocksorothersecuri
ti
es.Thedi
ff
erencebetweenthecost
ofpurchasi
ngandt heproceedsrecei
vedwhensel l
ingthestocki
scall
edgainorloss.

Example1)MMMSInc.i
scurr
entl
ysel
li
ngforP2,
685pershare.I
fthecompanyhadear
nings
pershar
eofP89.
50i
nthepastyear
,whati
sthepri
ce-
ear
ningsrat
ioofMMMS?
Sol
uti
on:
Giv
en: Curr
entpr
icepershar e=P2, 685
Earni
ngspershare=P89. 50
Currentpricepershar
e
Pri
ce-earni
ngsRati
o=
Earningspershare
2,685
Pri
ce-earni
ngsRati
o= =30or30: 1
89.50
Thi
smeansi nvestor
sarecurrent
lywi l
li
ngtopay30t i
mest
heear
ningsf
oroneshar
eofWVSS
st
ock.

Example2)Karenwouldli
ketoownst ockinSSSandGSI S,butdoesnotknowi fei
therst
ocki
s
agoodbuy.Onethingshecandoi stolookattheprice-
earningsrat
ioforeach?
a)SSS,pri
ceshareP2,464,annualneti
ncomepershar eP88,and
b)GSIS,pri
ceshareP1,900,annualnetincomepershar eP76.

Sol
uti
on:
a)Pr
ice-
earningsr at
iof
orSSS
Given:Currentpri
cepershare=P2, 464
Earningspershar
e=P88
Currentpr
icepershar
e 2,464
Pri
ce-earningsRati
o= = =28
Earni
ngspershare 88
28
Chapt
er6TheMat
hemat
icsofFi
nance

Thepr
ice-
ear
ningsr
ati
oofSSSst
ocki
s28t
imespershar
e.

b)Pr
ice-
earningsr at
ioforGSIS
Giv
en:Cur rentpri
cepershar e=P1, 900
Earningspershare=P76
Currentpr
icepershar
e 1,900
Pri
ce-earningsRatio= = =25
Earni
ngspershare 76
Thepr i
ce-earni
ngsr at
ioofGSI Sstocki
s25timespershar
e.

B)Mut ualFunds
I
nvestmentt
rusti
swhentheasset
softhecompanyareinst
ocksandbonds.St
ocks
andbondsar eusedasahopethatt
hevalueoft
hesecuri
ti
eswil
li
ncrease.Ift
hef
undi
s
successful
lyi
nvest
ed,i
tpay
sdivi
dendsandcapi
talgai
nstoit
sshar
eholders.

Oneex ampl
eofinvestmenttr
ustist
hemut ualfunds.Iti
sthei nvest
orschoosefund
withfinancialgoal
ssimil
artothem.Themoneyi nvest
edinmut ualfundi shandl
edby
professionalswhosejobistoresear
chandevaluatestocks.Thevalueofshar eint
hefund
dependsont hedail
yperf
ormanceoft hest
ocksiscall
ednetassetv alueoffunds.

NetAssetVal
ue=(
Tot
alFundAsset
s–Li
abi
l
iti
es)÷NumberofOut
standi
ngShar
es

Exampl e1)Amut ualfundhasP18bi ll

ionwor t
hofst ocks,P1.15bil
li
onwor t
hofbonds,and
P1.7bi ll
ionincash.Thef und`stotall
iabil
it
iesamountt oP750mi l
li
on.Thereare1bil
li
on
sharesout st
anding.Rocsani nvestedP12, 000i nthi
sf und.Calcul
atethenetassetv
alueofa
mut ual fundandf indthenumberofshar eswi llshepurchase?
Solution:
Given: TotalFundAsset s=18bi ll
i
on+1. 15bill
i
on+1. 7bill
ion=P20.85bill
i
on
Liabil
i
ties=P750mi l
l
ion
NumberofOut st
andingShar es=Ibi ll
i
onshar es
AmountofI nvestment=P12, 000

St
ep1:Computeforthenetvalueofthemut ualfund.
NetAssetValue=( Tot
al FundAssets–Liabili
ti
es)÷NumberofOut
standi
ngShar
es
NetAssetValue=( 20,
850,000,000–750,000,000)÷1,
000,
000,
000=P30.15
Thenetassetv al
ueofthef undisP30.15

St
ep2:Computef
orthenumberofsharestobepurchase.
No.ofShar
estobePurchase=Amountt obeInvested÷NetAssetVal
ue
No.ofShar
estobePurchase=12,000÷30.15=398shar es
Rocsanwil
lpur
chase398sharesofthemutualfund.

(APPLY/PRACTI
CE)
Dir
ecti
on:Fi
ndapar
tnerandsol
vet
hef
oll
owi
ngpr
obl
ems.

1)ETSLimitedhas120,
000shar eofP4,250parvalue,
9%cumul at
iveprefer
redstockand
200,000sharesofcommonst ock.Alt
houghnodi
videndwasdeclaredlastyear
,aP32, 000,
000
div
idendwasdeclaredt
hisyear.Deter
minetheamountofdivi
dendsduet hepref
erred
sharehol
dersandthedi
videndpershareofcommonst ock.

29
Chapt
er6TheMat
hemat
icsofFi
nance

2)Amut ualfundhasP12bill
i
onworthofstocks,P1.3bil
li
onworthofbonds,andP12bill
ioni
n
cash.Thefund`stot
all
i
abil
i
tiesamounttoP800mi l
li
on.Ther
eareP1bi l
li
onshares
outst
anding.Rexinv
est
sP30, 000i
nthi
sf und.Calcul
atethenetassetv
alueofamut ual
fund
andfindthenumberofshareswil
lshepurchase.

3)Marcelapurchased4,200sharesofFRSCor por
ati
oncommonst ockatP7, 500pershare.A
fewmont hslater
,shesoldthesharesatP6,800.Herstockbr
okercharges2.5%commi ssi
on
onroundlotsand3. 5%onoddl ot
s.Calcul
atethetot
alcostoftheproceeds,
andt hegainor
l
ossont hetransacti
on.

4)Norm Dalenisahol
derofcommonst ockwhi
chsheboughtatP273pershar
e.Iff
orthefi
rst
yearsherecei
vedP45divi
dendpershar
eattheendofever
y6mont hs,
whatistheannualy
iel
d
rat
eont hi
sparti
cul
arst
ock?

5)JUNXI ndust
ri
esstocki
scurr
entl
ysell
ingatP2,385.I
fcompanyhadear
ningspershar
eof
P122lastyear,
deter
minethepr
ice-
ear
ningsrat
ioofthestock.

(
ASSESSMENT)
Name:_
___
___
___
___
___
___
___
___
___
___
___
___
___Year&Sect
ion:_
___
___Scor
e:_
___
__
Di
rect
ion:Sol
vet
hef
oll
owi
ngpr
obl
ems.
1)Johnpur
chases190shar
esofETSI
nc.commonst
ockatP4,
700pershar
e.Af
ewmont
hs

30
Chapt
er6TheMat
hemat
icsofFi
nance

l
ater
,hesoldthesharesatP5,
200.Hisstockbrokercharges6%commi ssi
ononr
oundsl
ots
and7%onoddl ots.Compute(
a)tot
alcost,(b)theproceeds,
and(c)t
hegainorl
ossont
he
tr
ansact
ion.

2)Annapur chase340shar
esofGal vezCompanycommonst ockatP5,230pershar
e.Afew
monthslater,shesol
dthesharesatP6,100.Herstockbrokercharges4.
3%commi ssi
onon
roundl
ots.Comput ethet
otalcost
,theproceeds,
andt hegainorlossonthetr
ansacti
on.

3)Fi
ndthecurrenty
iel
dofabondwhosefacev
aluei
sP12,
140andpay
say
ear
lyi
nter
estof
9.
6%ifpurchasedatafacev
alueandP9,
740.

4)Amut ualfundhasP10bi l
li
onworthofstocks,P500mil
li
onwor t
hofbonds, andP1.
3bi
ll
ion
i
ncash.Thef und`
stotall
iabil
i
tiesamounttoP200mi ll
i
on.ThereareP1bill
i
onshares
outst
anding.Marl
oninvestedP25,000inthi
sf und.Cal
cul
atethenetassetval
ueofamutual
fundandf i
ndthenumberofshar eswil
lhepurchase.

5)Shei
lapurchased250sharesatAUSInc.commonst ockatP3,500pershar
e.Afewmonths
l
ater
,shesoldthesharesatP5,000.Herst
ockbr
okercharges4%commi ssi
ononroundl
ots
and5%onoddl ot
s.Calcul
atet
hetotal
cost,t
heproceedsandthegainorl
ossonthe
tr
ansact
ion.

6)Astockpaysanannual
div
idendofP.
75.cal
cul
atet
hedi
vi
dendpai
dtoashar
ehol
derwho
has350sharesoft
hecompany`sst
ock.

7)Joshuai
nvest
edP120,000inst
ocksandbonds.I
fhemadea20%prof
itonhisst
ocksanda
5%profi
tonhisbonds,
andthecombinedpr
ofi
twasP10,500,
howmuchdidJoshuainv
esti
n
31
Chapt
er6TheMat
hemat
icsofFi
nance

st
ocks?

8)Harol
dinv estedP30, 000invari
ousstocksandbonds.Heear
ned6%onhisbondsand12%
onhisstocks.IfHar ol
d`stot
alprofi
tbot
ht ypeofi
nvest
mentwasP2,460,
howmuchoft he
P30,000didhei nv
estinbonds?

9)Amut ualfundhasP600, 000worthofstocks,

P5,000,000wort
hofbondsandP1,000,
000
i
ncash.Thef und`
st otal
liabil
it
iesamounttoP2,000,000.Ther
eare25,
000,000shar
es
out
standing.YouinvestP15, 000inthi
sfund.
a)SolvefortheNetAssetVal ue.
b)Howmanyshar eswi l
l y
oubuy?

10)Alexborr
owsP66,000f
rom t
hebankt
hatadv
erti
sesa7%simpl
einter
estrat
eandrepay
s
theloaninsi
xequal
monthl
ypayment
s.Fi
ndthef
inancechar
geanest
imatetheannual
percent
agerate.

Rel
atedReadi
ngs

ht
tps:
//f
inancei
nthecl
assr
oom.
org/
downl
oads/
StocksBondsMut
ual
Funds.
ppt
ht
tps:
//www.
stl
oui
sfed.
org/
~/medi
a/Educat
ion/
Lessons/
power
poi
nt/
Div
ersi
fi
cat
ion-
and-
Ri
sk.
ppt
x?l
a=en
ht
tps:
//www.
sli
deshar
e.net
/pj
gret
hel
/st
ocks-
bonds
ht
tps:
//www.
googl
eadser
vices.
com/
pagead/
acl
k?sa=L&ai
=DChcSEwj
qqMeYq9br
AhUTn8I
KHf
DO
ht
tps:
//www.
sli
deshar
e.net
/Zor
ro29/
bui
l
ding-
a-por
tfol
i
o-wi
th-
stocks-
bonds-
and-
mut
ual
-f
unds

Ref
erences

Wi
nst
onSS.( 2018).Mathemati
csintheModernWor
ldCHEDCurri
cul
um Compli
ant.1st
Edit
ion.MindshapersCo.,
Inc.,
Rm.08,I
ntr
amurosCor
por
atePl
azaBldg.
,RecoletosSt
.
Int
ramur osManil
aPhili
ppines.

Cer
val
l
ionC.et.al
.,
( .Mat
2010) hemati
csofInvest
mentaworkt .2ndEdi
ext t
ion.Nat
ional
Bookstore,
QuadAl phaCent
rum Bl
dg.,
125PioneerSt
reet,MandaluyongCit
y.

AbaoZ.et
.al
.,( .Busi
2008) nessMathemati
cs.BooksAtbp.Publ
i
shi
ngCor
p.,
436M.Lev
yaSt
.,
Del
aCruzCmpd.,
Mandaluy
ongCit
y,1stEdi
ti
on.

32
Chapt
er6TheMat
hemat
icsofFi
nance

Mal
abor
bor,P.et
.al.
,( .Mat
2000) hemat
icsofI
nvest .1stEdi
ment tion.Nati
onalBookst
ore.J-
t
h
Creat
iveLabelEnter
pri
se,
265D.AquinoStr
eet,
10 Av enue,CaloocanCit
y.

Stanf
ordEncycl
opedi
aofPhi
l
osophyr
etr
iev
efr
om ht
tps:
//pl
ato.
stanf
ord.
edu/
ent
ri
es/l
ogi
cal
tr
uth/onJul
y27,2020.

Lesson5 HomeOwner
shi
p
Lear
ningOutcomes:
Attheendofthisl
esson,youmusthave:
a)Defi
nedhomeowner ship
b)Appli
edtheannualpercent
agerat
eonloans.
c)Perf
ormedoperati
onsonmat hemati
calexpr
essi
onscorr
ect
ly.
d)Art
icul
atedthei
mpor t
anceofmathematicsi
none`sl
if
e.

Di
rect
ion:Sol
vet
hef
oll
owi
ngpr
obl
ems.
1)Aninvest
orwasr
equi
redbyabanktogi
veadownpaymentof30%onahousethatshe
boughtamount
ingt
oP950,000.Fi
ndt
hecorr
espondi
ngamountoft
hemor
tgage.

33
Chapt
er6TheMat
hemat
icsofFi
nance

2)Ahouseinasecond-
classsubdi
vi
sionwassol
datP910,000witharequi
reddownpayment
of20%.Thebankchar
gesP780i nf
eesplus3½point
s.Fi
ndt het
otal
amountoft hedown
paymentandthecl
osi
ngcost.

3)Graceboughtacondomini
um andobtaineda25y earloanofP1,500,000atanannual
i
nter
estof8%. a)Whati
sthemor t
gagepay ment?
b)Whatist
hetotal
paymentovertheli
feoftheloan?
c)Fi
ndtheamountofi
nter
estpaidont hemortgageloanoverthe25years.

4)A25%downpay mentwasgi
veni
nthepur
chaseofahouseamount
ingtoP835,000.A
char
geofP7,809feespl
us5poi
ntwasgi
venbythebank.Fi
ndt
hetot
alofthedownpayment
andthecl
osi
ngcost.

5)Thepurchasepri
ceofanapart
menti
sP985, 000.Adownpay
mentof205ismade.The
bankchar
gesP9, 500i
nfeesplus5poi
nts.Fi
ndthetot
aloft
hedownpaymentandt
heclosi
ng
cost
.

Homeownershi
pi sl
ikel
yoneofthel
argestpurchasesofyourlif
eti
me.Homeownershi
p
givestheownerast
akeinhisneighbor
hoodortown`slongterm ofstabi
li
ty.Mort
gageist
he
amountborrowedtopurchaseahomeorotherrealestat
eproperty.I
tisthedif
fer
ence
betweenthesell
i
ngpri
ceandt hedownpayment.Mor t
gatorist
heowneroft hepr
opert
yand
thelenderi
scall
edmort
gagee.

Itisst
atedi
nthemor
tgagecont
ractthat
,theproper
tyownergrantst
hel
enderthelegal
r
ightt
ot akeovert
hesai
dpr
opert
yshouldtheborrowerdefaul
tontherepay
mentoftheloan.

Example1)Thepur chasepriceofahomei
nasubdi v
isioninMari
kinaCit
yisP4,200,000.A
downpay mentof20%i smadeandsecuresal oanont heremaini
ngbalancef
or25y earsatan
annualint
erestr
ateof5.4%.Find(a)t
hemonthlymortgagepayment ,
(b)thet
otalpayment
overtheli
feoftheloan,(
c)theamountofi
nterestpai
dont heloanoverthe25years.
Sol
uti
on:
Gi
ven:
Sel
l
ingpr
ice=P4,
200,
000 m =12

34
Chapt
er6TheMat
hemat
icsofFi
nance

t=25y
ear
s n=t m =25(
12)=300
r=6%=0.
06 i
=r÷m =0.06÷12=0.005

St
ep1:Comput
efort
hedownpayment.
Downpayment=Sel
l
ingPri
cexRat
eofDownPay
ment
DownPayment=4,
200,
000x0.02=P840,
000
St
ep2:Comput
efort
hemortgage.
Mort
gage=Sel
li
ngPr i
ce–DownPayment
Mort
gage=4,
200,000–840,
000=P3,360,
000
St
ep3:Comput
efort hemont hlymortgagepayment
Ai
R= -
n
1-(
1+i )
(3,
360, 000)(
0.005)
R= =21,648.
53
1-(1+0.005)300
-

Themont hlymortgagei
sP21, 648.
53

St
ep4:Comput
efort
hetotal
mort
gagepay
ment.
Tot
alMort
gagePay
ments=MonthlyPay
ment
sxNo.ofMont
hlyPay
ment
s
Tot
alMort
gagePay
ment=21,648x300=P6,
494,
559

St
ep5:Computefortheamountofint
erestpai
d.
Int
erest=TotalMort
gagePay ments–AmountofMor
tgage
Int
erest=6,494,
559–3,360,000=P3,134,
559
Ther
efor
e,t
heamountofi
nter
estpai
dov
ert
hel
i
feoft
hel
oansi
sP3,
134,
559.

Example2)Mr.Del
aCr uzhadaloanbecausehepur
chasedahouseamounti
ngt
oP520,000.
Thebankgavehim 1.
8pointsasachargefee.Howmuchist
hechargef
orthegi
venpoi
nts?
Sol
ution:
Poi
nts=1.8%of520,000
=(.
018)(520,
000)
=P9,360chargef
orpoi
nts
Theref
ore,
P9,360i st
hechar
geforthegi
venpoi
nts.

Example3)Ahouseinasecond-
classsubdiv
isi
onwassol
datP910,000wit
harequi
reddown
paymentof20%.Thebankchar
gesP780f eesplus3½poi
nts.Fi
ndt
hetotal
oft
hedown
paymentandthecl
osi
ngcost.

Sol
uti
on:
DownPayment=20%of910,000
=(
.20)(
910,000)
=P182,000

Mor
tgage=Sell
ingPri
ce–DownPay
ment
=910,000–182,
000
=P728,000

Poi
nts=3.
5%ofP728,000
=.035x728,000
=P25,480chargef
orpoi
nts

Tof
indt
hetot
aldownpay
mentandthecl
osi
ngcosts
=DownPayment+bankChar
ges+Chargesforpoi
nts

35
Chapt
er6TheMat
hemat
icsofFi
nance

=182,000+780+25,480
=P208,260
Thust
het
otaldownpay
mentandthecl
osi
ngcosti
sP208,
260.

(
APPLY/
PRACTI
CE)
Di
rect
ion:Checky
ourpr
ogr
essbysol
vi
ngt
hef
oll
owi
ngpr
obl
ems.
1)Aft
ermakingpayment
sofP15,000for8year
sonCandi
ce25-
yearhousi
ngl
oanat8.
5%,
she
deci
dedtosell
herhome.Whati
stheloanpayof
f?

2)Gabr i
elpur
chaseasingl
edetachmenthouse.Heobt
aineda20-yearwi
thanannualinterest
rat
eof12. 4%,af
terpay
ingadownpay mentof25%.Fi
ndhemont hlymort
gagepayment ,
t he
tot
al paymentovert
heli
feoft
hel oan,
andtheamountofint
erestpai
dontheloanoverthe20
years.

3)Emmanuellehasa20-y
earmort
gageloanatanannuali
nter
estr
ateof8.1%.Aft
ermaking
paymentsofP24,300f
or12year
s,hedecidedt
osellhi
shomeandr entaplacei
nCavi
te.What
i
stheloanpayoff
?

4)Aft
ermaki
ngpayment
sofP13,500for19year
sonSheena30-
yearhousi
ngl
oanat7.
8%,
shedeci
dedt
osell
herhome.Whatist
heloanpayof
f?

5)Blesspur
chasedahouseforP4,
250,
000andobtai
neda15-
yearl
oanwit
hanannual
interest
rat
eof8.4%,aft
erpay
ingadownpay mentof20%.Fi
ndt
heamountofi
nter
estpai
dontheloan
overthe15year
s.

(
ASSESSMET)
Name:_
___
___
___
___
___
___
___
___
___
___
___
___
___
___
_Year&Sect
ion:_
___
___
Scor
e:_
___
___
_
Di
rect
ion:Sol
vet
hef
oll
owi
ngpr
obl
emsandshowy
oursol
uti
ons.
1)Michel
lepurchasedasecondhomef orP3,
100,
000andobtai
neda25-y
earl
oanwit
han
annuali
nter
estrateof12%,af
terpayi
ngadownpaymentof10%.Findt
heamountofi
nter
est
pai
dont heloanoverthe25years.

36
Chapt
er6TheMat
hemat
icsofFi
nance

2)Dext
erpurchasedahomei nLagunaf orP5,700,000andobtai
neda25-yearloanwi
than
annual
int
erestrateof6%,aft
erpayi
ngadownpay mentof10%.Fi
ndthemont hlymor
tgage
payment,
thetotalpaymentovert
helif
eoft heloan,andtheamountofi
nterestpai
donthe
l
oanover25y ears.

3)Aft
ermakingpayment
sofP20,400for12year
sonRenat
e28-
yearhousi
ngl
oanat6.
9%,
he
deci
dedtosell
hishome.Whati
stheloanpay
off?

4)Lonniepurchasedacondomi nium i
nGlobalCi
tyforP4,
800,
000andobtaineda20- y
earl oan
wit
hanannual i
nterestr
ateof6.6%,af
terpayi
ngadownpay mentof15%.Findthemont hly
mortgage,t
het ot
al paymentoverthel
if
eoftheloan,andt
heamountofinterestpai
dont he
l
oanov ert
he20y ears.

5)Almahasa28-y
earmortgageloanatanannuali
nterestr
ateof9.
3%.Af
termaki
ng
payment
sofP11,600for15years,shedeci
dedtosell
herhomeandbuyanewonei nI
loi
l
o
Cit
y.Whati
sthepayof
foftheloan?

6)Thepurchasepr
iceofanapar
tmenti
sP100,900.Adownpay
mentof25%i
smade.The
bankchar
gesP10,200infeespl
us4½points.Fi
ndthet
otal
downpay
mentandt
heclosi
ng
cost
.

7)A20%downpay mentwasgi
venint
hepurchaseofahouseamounti
ngtoP835,
000.A
chargeofP7,500feespl
us6poi
ntswasgi
venbyt hebank.Fi
ndt
hetot
aldownpaymentand
theclosi
ngcost.
37
Chapt
er6TheMat
hemat
icsofFi
nance

8)Aft
ermaki
ngpay
mentsofP15,
500for9yearsonSav
anna25-
yearhousi
ngl
oanat8.
35%,
Lor
enedeci
dedt
osell
herhome.Whati
stheloanpay
off
?

9)Sarapurchasesasingledet
achmentapartmentf
orP98,900.Sheobtai
neda20-
yearwi
than
annuali
nterestr
ateof10.5%afterpayi
ngt
hedownpay mentof20%.Findthemont
hly
mortgagepay mentandthetot
al pay
mentforovert
hel
if
eoft heloan.

10)Emmahasa25-y
earmort
gageloanatanannuali
nter
estr
ateof7.
2%.Aft
ermaki
ng
payment
sofP21,
000for12y
ears,
shedecidedtosel
lherhome.Fi
ndthepay
offoft
hel
oan.

Rel
atedReadings
ht
tps:
//www.consumer
-act
ion.
org/
downl
oads/
engl
i
sh/
Buy
AHome_
Class_
EN.
ppt
ht
tps:
//f
cs.
osu.
edu/
sit
es/
fcs/
fil
es/
imce/
PPT/
Ch1-
Owni
ng_
a_Home.
ppt
ht
tps:
//www.
sli
deshar
e.net
/ar
tesi
ant
it
le/
adv
ant
ages-
of-
homeowner
shi
p
ht
tps:
//kat
tau-
sunshi
ne.
com/
wp-
cont
ent
/upl
oads/
2013/
06/
Power
Poi
nt.
ppt
ht
tps:
//www.
hud.
gov
/si
tes/
document
s/msdhomeowner
shi
p3-
20-
03.
ppt

Ref
erences:

Si
rug,
WS.( .Mat
2018) hemati
csi
nt heModernWorldCHEDCurr
icul
um Compli
ant1st
.
Edi
ti
on.Mi
ndshaper
sCo.,
Inc.,Rm.08,
Int
ramurosCor
por
atePlazaBl
dg.,Recolet
osSt
.

38
Chapt
er6TheMat
hemat
icsofFi
nance

I
ntr
amur
osMani
l
aPhi
l
ippi
nes.

Cer
val
l
ionC.et.al
.,
( .Mat
2010) hemati
csofInvest
mentaworkt .2ndEdi
ext t
ion.Nat
ional
Bookstore,
QuadAl phaCent
rum Bl
dg.,
125PioneerSt
reet,MandaluyongCit
y.

AbaoZ.et
.al
.,
(2008).Busi
nessMathemati
cs.BooksAt bp.Publ
ishi
ngCor
p.,
436M.
Lev
yaSt.
,DelaCruzCmpd.,
MandaluyongCit
y,1stEdit
ion.

Mal
abor
bor,P.et.al
.,
(2000).Mathemati
csofInv
est
ment.1stEdit
ion.Nat i
onal
Bookstore.J-
Creat
iveLabelEnt
erpri
se,
265D.AquinoStreet,10thAvenue,
CaloocanCity.
st
Baui
L.(2007).Busi
nessMathemati
cswi t
hRecr eat
ionalMat
hematics.
1 Edit
ion.Ymas
Publi
shingHouse,
22CamiaSt .BahayangPag-asaSubdi
vi
sion,Mali
nta
ValenzuelaCi
ty,
MetroMani
la,Phil
i
ppines.

Refl
ect
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Whathav
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stopi
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