FM 415 ○ Interest = 20,000 x 5% x (3/12)

■ Kung mapapansin nyo, ginawa kong 3/12 since 3 months lang po ang ating period. Yung 5%
GENERAL RULE: po natin stands for the interest para sa ibang buong year pero since hindi 1 year yung
period, need po nating i-modify yung formula through the time period given. 3/12 stands
- Iba't iba po ang ating mga schemes at may keywords po tayong ginagamit para i-limit sa isang scheme ang for 3 months lang sa isang buong year.
isang problem/situation. Hindi po dahil may nabasa kayong compound ay gagamit na po kayo ng compound ○ Interest = 20,000 x 5% x (0.25)
interest na formula. ■ Simplify po muna natin yung items na nasa loob ng parenthesis which is (3/12)
- Ugaliing tandaan ang PEMDAS Rule (Parenthesis > Exponent > Multiplication/Division > ○ Interest = Php 250.00
Addition/Subtraction). Once na magmali po kayo ng gamit sa kanila, potentially, magmakakamali din po ■ Dito, since lahat na ng remaining sa formula ay multiplication, simplify nalang po natin and
kayo ng final answer. the answer shall be Php 250.00
- Para malimit po ang difference ng ating answers, ugaliing gumamit ng at least 6 decimal places po during
the computation and 2 decimal places naman po sa final answer. ● Formula para sa Maturity Value ng Simple Interest
- Icheck nyo kung ano ba ang hinahanap sa questions. ○ Maturity Value = Principal + Interest
- INADJUST KO PO ANG FORMULA, GAMITIN NYO PO ITO AS STANDARD BASIS NATIN. ■ Again, keep it in mind na interest palang ang nakukuha natin. To get the actual maturity
value, we have to add yung mismong Principal at Interest na nakuha natin
General Terms ○ Maturity Value = 20,000 + 250
■ Apply na natin yung values sa formula
- Principal - amount ng inutang/pinautang
○ MV = Php 20,250
- Interest Rate - percentage rate ng increase o decrease sa principal amount
■ After nating masimplify, the total maturity value should be 20,250.
- Time - period o duration ng contract/kasunduan para between parties
- N(for compounding interest and) - number of times na nagco-compound (sorry wala akong maisip na ______________________________________________________________________________
tagalog term for compound) ang value. Example, compounding monthly, every month, ang interest na na-
accumulate ay madadagdag sa principal amount at makakasama sa computation sa mga susunod pang
buwan. Compound interest - Unlike sa simple interest na based lang sa principal amount ang computation ng interest gains,
- Annuity - form ng compound interest wherein equal payments are made every period. Ibig sabihin, same ang compound ay cumulative method ng gains/losses. Ano po ang ibig sabihin nun? Yung gains/losses ng investment
lang sya ng compound interest na cummulative po ng principal and gained interest ang basis ng increase mo ay naaadd from time to time at nagiging part ng basis sa computation ng maturity value.
from one period to another but the difference is may additional na principal pa na ibabayad/ii-invest from ● Keyword natin is “compound”, pero, magiging compound interest lang sya kung one time payment din.
time to time. Key term ng lahat ng annuity ay regular payments or anything equal. Check nyo sa sentence structure kung sya ba ay one-time payment/investment para malaman nyo kung sya
ay regular na compound interest or annuity.
______________________________________________________________________________
Para mas magets, here is the explanation for the illustration
Simple Interest - what makes it simple ay yung mismong structure po nito wherein yung factors po natin na Principal, If an amount of Php 5,000 is deposited into a savings account at an annual interest rate of 5%, compounded monthly,
Interest Rate and Time will be multiplied sa isa’t isa to come up with the interest amount. Dito, wala namang the value of investment after 10 years is?
masyadong keywords or specific term to determine na ang scheme ay simple interest unlike sa compound, annuity - Compound Interest ang ginamit natin since wala namang namention na yung 5,000 shall be paid from time
and so on. Additionally, interest lang po ang nakuha natin sa formula so, to get the maturity value, you have to add to time. This means na one time payment/investment lang sya.
the principal sa interest gains/losses na nacompute natin.
● Ito po ang formula natin
Gamitin po natin yung illustration:
○ Maturity Value = Principal x (1 + (Rate/N))^Time*(N)
■ Again, sa formula po natin, may 1 na nagseserve as constant
How much is the interest expense of a 3 month Notes Payable worth P20,000, with a stated interest rate of 5%?
How much is its Maturity Value? ■ N represents yung number of times na kinocompound (meaning; inaadd ang nagain na
interest sa certain period at ginagawang bagong basis for computation ng mga
sumusunod pang period)
● Ito po ang formula natin
● Again, apply lang po natin ang formula based sa given
○ Interest = Principal x Rate x Time
○ Maturity Value = 5,000 x (1 + 5%/12)^10(12)
● Apply natin yung mga values from the illustration
○ Maturity Value = 5,000 x (1 + 0.004167)^120
 ■ Inuna ko pong i-simplify yung rate and yung time period natin according nadin sa PEMDAS Future Value of Annuity Due - Another form po ng annuity but here, ang main difference is that at the start of the
rule. Ituloy lang hanggang sa matapos ang pagsisimplify ng given. contract and beginning of the period po ang pagcompound ng ating payment/investment. Sa formula itself,
○ Maturity Value = 5,000 x (1.004167)^120 mapapansin nyo that there is plus 1 ang ating time period since iniindicate nito yung initial payment at the start of
○ Maturity Value = 5,000 x (1.647075) the contract.
○ Maturity Value = 8,235.38 - Keywords po natin to identify na sya ay annuity is dapat may phrase na nag-iindicate ng regular payments
■ Again, mas prefer ko po na wag nyong basta i-insert sa calcu at gumamit kayo ng 6 decimal sa certain period of time.
places from time to time. Kung may difference man, minor and acceptable po unlike sa - Para maidentify natin na annuity due is dapat ang payment should be made immediately or at the start of
rounded off ng 2 decimals. every period.

______________________________________________________________________________

Future Value of Ordinary Annuity - kapag ordinary annuity, ito po yung mode of payment/investment wherein may Let’s use this illustration
regular interval sa pagbabayad ng same amount. Eun Woo intends to save a small portion of his salary on a bank account every year for three years. The annual
- Ang key term for us to determine na ordinary annuity sya ay kung at the end of the period po nangyayari amount of P10,000 will be deposited with a bank that pays 10% of interest each year. How much will be the amount
yung payment/investment. accumulated at the bank if the first payment will be made immediately? / Compute for the Future Value of Annuity
Due.
Case. Eun Woo intends to save a small portion of his salary on a bank account every year for three years. The - Again, pano po natin nafigure out that it has to be the future value of annuity due? Yung parts po ng
annual amount of P10,000 will be deposited with a bank that pays 10% of interest each year. How much will be the illustration na “save a small portion of his salary on a bank every year for three years” para sa annuity
amount accumulated at the bank if the first payment will be made at the end of the first year? / What is the future relevance nya and yung “first payment will be made immediately” naman to solidify na ito ay annuity due.
value of P10,000 payments that will be made to a bank at the end of each year for three years at an interest rate of
10%? ● Ito po ang formula natin.
- Kung mapapansin nyo, dun sa ating case minention na “save a portion of his salary on a bank every year for ○ Future Value of ad = Principal x [((((1 + (rate/n))^time(n)) - 1) / (rate/n)) - 1]
three years”, dito palang naidentify na natin sya as annuity since may regular payment po tayo na gagawin ■ Again, dinagdag ko po ulit yung n or yung number ng times kinocompound yung ating
for the next 3 years. payment. Although di natin gagamitin sa problem, but keep it in mind. (Applicable to all
- Since nalaman na natin na annuity sya, anong type naman ng annuity? “Payments that will be made to a po itong explanation)
bank at the end of each year”. This triggers for us to use ordinary annuity po since yun po ang standard ● Apply na po natin sa formula. Again apply the PEMDAS rule to have the proper arrangement ng mga items
natin for ordinary annuity. na isi-simplify.
○ FVad = 10,000 x [((((1 + 10%)^(3+1)) - 1) / 10%) - 1]
● Ito po ang formula natin. ○ FVad = 10,000 x [((((1.1)^(4)) - 1) / 10%) - 1]
○ Future Value of oa = Principal x [((1 + rate/n)^time(n) - 1) / (rate/n)] ○ FVad = 10,000 x [((1.4641 - 1) / 10%) - 1]
■ Dinagdag ko na po yung n or yung number ng times kinocompound yung ating payment. ○ FVad = 10,000 x [((0.4641) / 10%) - 1]
Although di natin gagamitin sa problem, but keep it in mind. ○ FVad = 10,000 x [4.641 - 1]
● Apply na po natin sa formula. Again apply the PEMDAS rule to have the proper arrangement ng mga items ○ FVad = 10,000 x [3.641]
na isi-simplify. ○ FVad = 36,410
○ FVoa = 10,000 x [((1 + 10%)^3 - 1) / 10%]
○ FVoa = 10,000 x [((1.1)^3 - 1) / 0.1] ______________________________________________________________________________
○ FVoa = 10,000 x [(1.331 - 1) / 0.1]
○ FVoa = 10,000 x [0.331 / 0.1]
○ FVoa = 10,000 x 3.31 Present Value of Ordinary Annuity - Kapag po Present Value ang pinag-uusapan, it triggers yung thought na “Kung
○ FVoa = 33,100 may 10,000 pesos ako sa future, magkano ang potential amount nya today?”. Bale in this manner, babaliktarin natin
yung thought na inaapply sa Future Value for the very reason na we need to secure potential discount today instead
______________________________________________________________________________ of paying full amount sa future.
- Ang keyword natin dito could be discount value at the present and anything equal po para malaman natin
kung present value sya ng annuity.
 - Ang keyword naman after nating malaman kung sya ba ay ordinary annuity ba ay still, kung nakasulat yung ■ PVad = 10,000 x [((0.173554) / 0.1) + 1]
term na “at the end of each period” or anything equal. ■ PVad = 10,000 x [(1.73554) + 1]
■ PVad = 10,000 x [2.73554]
Eun Woo intends to save a small portion of his salary on a bank account every year for three years. The annual
■ PVad = 27,355.4
amount of P10,000 will be deposited with a bank that pays 10% of interest each year. How much is the discounted
value of the three year payments if the first payment will be made at the end of the first year? / Compute for the
Present Value of Annuity ______________________________________________________________________________

- Pano po natin nalaman na Present Value of Annuity sya? Through the term na discounted value since
Present Value of Perpetuity - Perpetuity naman po ay other form padin ng annuity, it's just that infinite po ang
iniindicate nito na magkano po ang discount na meron ka if the payment for the next three years will be
payment method natin since wala tayong specific time period na inaaccknowledge. Present Value lang po ang
made today.
gagamitin natin since wala nga pong time period to determine a a specific future value.
- Pano naman po nagging ordinary annuity? Kasi again stated po na at the end of the first year.
- Key term natin ay infinite or anything equal

● Ito po ang formula natin.

Illustration:
○ Present Value of oa = Principal x [((1 - (1 + (rate/n))^-time)) / (rate/n)]
● If you want to get the present value of infinite P100,000 payments every year at 5% interest rate.
■ Dito, kung mapapansin nyo nakanegative yung time period. Kapag po ninegative natin ang
exponent, that simply means na nagiging fraction form po sya (with the numerator of 1 ○ Again, naidentify natin na sya ay perpetuity since may term na infinite and may regular payment
and the denominator ng mismong time period). In that way, mababawasan po ang total of 100,000 na nabanggit sa problem.
amount na magrereflect as rate. ● Formula
○ Apply na po natin sa formula. Again apply the PEMDAS rule to have the proper arrangement ng ○ Present Value of Perpetuity = Perpetuity Payment / Interest Rate
mga items na isi-simplify. ○ Apply na natin yung given based sa formula
■ PVoa = 10,000 x [((1 - (1 + 10%)^-3)) / 10%] ■ PVp = 100,000 / 5%
■ PVoa = 10,000 x [((1 - (1.1)^-3)) / 0.1] ■ PVoa = ■ PVp = 2,000,000
10,000 x [(1 - 0.751315) / 0.1]
■ PVoa = 10,000 x [0.248685 / 0.1]
■ PVoa = 10,000 x [2.48685]
■ PVoa = 24,868.5

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FINANCIAL MARKETS KEY IDEA
Present Value of Annuity Due - Since naexplain na po yung thought of having Present Value, now let’s move towards
sa annuity due. Pano kapag annuity due? Same treatment and thought lang po ng ordinary annuity but the thing Interest
here is dahil annuity due, sa begining ng period po tayo magbabase.
Interest rates determine the cost of borrowing and the return on investment for lenders. They are influenced by
several factors, including inflation, credit risk, liquidity risk, term to maturity, and special provisions like
Illustration callability. The nominal interest rate comprises the real risk-free rate and premiums for expected inflation, default
Eun Woo intends to save a small portion of his salary on a bank account every year for three years. The annual risk, and other factors.
amount of P10,000 will be deposited with a bank that pays 10% of interest each year. How much is the discounted
value of the three year payments if the first payment will be made at the start of the first year? / Compute for the Coupon Rates
Present Value of Annuity Due.
● Ito po ang formula natin. The coupon rate is the fixed annual interest payment a bond issuer agrees to pay bondholders. It is expressed as
a percentage of the bond’s face value and remains unchanged regardless of fluctuations in market interest rates.
○ Present Value of ad = Principal x [(1 - (1 + (rate/n))^-((time*n)-1) / (rate/n)) + 1] ○ Apply po natin
The relationship between the coupon rate and bond prices determines whether a bond trades at a premium (coupon
ang formula rate > market rate), discount (coupon rate < market rate), or par (coupon rate = market rate).
■ PVad = 10,000 x [(1 - (1 + 10%)^-(3-1)) / 10%) + 1]
■ PVad = 10,000 x [(1 - (1.1)^-(2)) / 0.1) + 1] Financial Markets
■ PVad = 10,000 x [(1 - (0.826446)) / 0.1) + 1]
Financial markets facilitate the buying and selling of financial instruments such as stocks, bonds, and derivatives. • Central Banks: Institutions like the Federal Reserve that regulate monetary policy.
They are categorized into:
Mortgages
• Money Markets (short-term debt securities)
• Capital Markets (long-term debt and equity securities) The mortgage market consists of:
• Primary Markets (where new securities are issued)
• Secondary Markets (where existing securities are traded). • Primary Mortgage Market: Where loans are originated.
• Secondary Mortgage Market: Where mortgage-backed securities (MBS) are traded. Types of mortgages
Time Value of Money include fixed-rate, adjustable-rate, and balloon mortgages.

The time value of money (TVM) concept states that money today is worth more than the same amount in the Bond Issuers
future due to its potential earning capacity. Key TVM calculations include:
Bond issuers are entities that raise capital by selling bonds. They include:
• Present Value (PV): Discounting future cash flows back to their current worth.
• Future Value (FV): Compounding present cash flows to their future value. • Governments: Treasury bonds, municipal bonds.
• Annuities: Equal cash flows over time, which can be ordinary annuities (end of period) or annuities due • Corporations: Corporate bonds.
(beginning of period). • Financial Institutions: Mortgage-backed securities. The bond’s risk level depends on the issuer's
creditworthiness and economic conditions.
Federal Reserve System

The Federal Reserve (the Fed) is the central banking system of the U.S., established in 1913. It has four primary
functions:

1. Conducting monetary policy (interest rates, money supply).

2. Supervising and regulating banks.
3. Maintaining financial system stability.
4. Providing financial services to banks and the government. Its monetary policy tools include open market
operations, the discount rate, and reserve requirements.

Mortgage

A mortgage is a secured loan used to purchase real estate, with the property serving as collateral. It includes key
components:

• Principal: The original loan amount.

• Interest Rate: The cost of borrowing.
• Term: Loan duration (e.g., 15 or 30 years).
• Amortization: The process of paying off debt in fixed payments over time.

Principal

The principal refers to the original amount borrowed in a loan or the face value of a bond. Loan payments typically
consist of both principal repayment and interest. Reducing the principal balance lowers future interest payments.

Financial Institutions

Financial institutions play a key role in the economy by intermediating between savers and borrowers. They
include:

• Depository Institutions: Banks, credit unions, savings institutions.

• Non-Depository Institutions: Insurance companies, pension funds, investment firms.