Module 4

Mathematics as a Tool

Mathematics of Finance

Mathematics in the Modern World

 Mathematics as a Tool
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Overview

To make sound financial decisions, it is essential for both business persons and consumers
to understand financial mathematics. Employees nowadays take out loan to buy real estate
like house and lot, personal properties such as cars, household appliances and many others to
make life comfortable to live. Some may plan for retirement and be involved in investing in
various types of investments. This may include Individual Retirement Accounts (IRAs), stocks,
bonds, and annuities and to be oriented to these investments, interest formulas for borrowing
and investing money are introduced in this chapter.

Learning Outcomes

After completing the study of this module, you should be able to:
Explain simple interest and discount;
Differentiate simple interest from compound interest;
Understand the benefit of consumer loans and credit cards; and
Know the advantages/disadvantages of buying stocks, bonds, mutual funds; and home
ownership.

Initial Activity (Accessing Prior Knowledge)

Trina’s Dilemma:
Her car suddenly broke down and the mechanic informed her that the repairs
will cost PhP20 000. She currently does not have that amount, but she desperately
needs a car. One option is to borrow the money from a friend, a relative which she is
hesitant to do or avail a loan from a lending institution.

1. Why is it important for Trina to understand the cost of borrowing money from any
lending institutions?

2. What are the advantages and disadvantages of obtaining a loan from any
lending institutions?

3. What is the impact of borrowing money on her personal finances?

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 Mathematics as a Tool
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Did you know?

Origin of Banks……
In ancient Babylonia, as early as 2000 B.C., temples were considered
safe depositors for assets. It was believed that these sacred places
enjoyed the special protection of the gods and were not likely to be
robbed. It is no coincidence that many of the bank buildings built during
the early twentieth century resembled ancient temples. In medieval
times, money was kept in vaults protected by the armies of the ruling
nobility. The word bank is derived from the Italian word “banca” meaning
“board”. It refers to the counting boards used by the merchants.
Dishonest money changers in the marketplace had their boards smashed
to prevent them from continuing in business. The word bankrupt is literally
The People in Medieval Period “a broken (ruptured) board”. (Source: A Survey of Mathematics with Application Section 11.2 p.611, Allen R. Angel et.
Source:https://www.saburchill.com/history/chapters/proje
ct5/middleages/001.html al., 9th Edition, Cenveo Publisher)

A. Simple Interest and Discount

Interest is the fee paid to use someone else’s money. Interest on loans of a year or less is
frequently calculated as simple interest, which is paid only on the amount borrowed or invested
and not on past interest. Simple interest is the product of the principal, rate, and time. The
amount borrowed or deposited is called the principal. The rate of interest is given as a percent
per year, expressed as a decimal. The time the money is earning interest in calculated in years.

Formula for Simple Interest:

I = Prt F = P + I or F = P(1 + rt)

Where:
I = simple interest
P = principal
r = rate of interest
t = term or time for which the money will be used (years, months, or days)
F = accumulated or final amount

i. If the time is expressed in years:

I = Prt

ii. If the time is expressed in months:

no. of months
I = Pr( )
12

iii. If the time is expressed in days:

no. of days
a. Ordinary Interest (I o): Io = Pr( )
360
no. of days
b. Exact Interest (I e): Ie = Pr( )
365

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Example 1: A bank pays simple interest at the rate of 5% per year for 5 years for a time deposit
of PhP50,000 and above. If a client deposits PhP250 000, what is the interest
earned for that period?

Solution:

I = Prt
I = (PhP250,000) (0.05) (5)
I = PhP62,500

Example 2: A loan of PhP20,000 is made at 9 months at a simple interest of 10% per annum.
a. What is the interest charged?
b. What is the accumulated value at the end of 9 months?

Solution:

no. of months
a. I = Pr( )
12
3
I = (PhP20,000) (0.10) (4)
I = PhP1,500

b. F = P + I
F = PhP20,000 + PhP1,500
F = PhP21,500

Example 3: How much interest will be charged on a loan of PhP185,000 for 180 days at an
interest rate of 4%? (Compute for the exact interest.)

Solution:

no. of days
Ie = Pr( )
365
180
Ie = (PhP185,000) (.04) ( )
365
Ie = PhP3,649.32

Example 4: If principal earns interest of PhP19,600 in 3 years and 6 months at a simple interest
rate of 6 ½ %. Find the principal invested.

Solution:

no. of months
I = Pr( )
12
1
I = (PhP19,600) (.065) (3 )
2
I = PhP4,459

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Example 5: A maturity value of PhP800,000 was accumulated from a principal invested to a

10-year trust fund that pays 4% annual simple interest.
a. What was the principal invested on the 10-year trust fund?
b. How much interest did the investment earn?

Solution:

F
a. P = (derived from F = P(1 + rt))
1+rt
800,000
P =
1+(0.04)(10)
P = PhP571,429

b. I = F – P
I = PhP800,000 – PhP571,429
I = PhP228,571

Try this!

1. Find the simple interest of Php 8,500 at 8.5 percent for 123 days.
2. Ethel Gaspar borrowed Php 75,000 from her neighbor to start a small business. She
repaid her neighbor after 7 months, with interest of 7.5 percent. Find the total amount
she repaid.

Discounted Loans
The loan is said to be discounted if the bank deducts the interest from the time the
borrower receives the loan. The interest charged in advance or deducted from the amount of
the loan is termed as bank discount and the amount the borrower receives is called the
proceeds. Maturity Value refers to the amount (F) to be repaid at the end of the term of the
loan which is actually equal to the principal (P) borrowed.

Formula for the Interest of a Discounted Loan:

Interest (bank discount) = (Amount borrowed) (discount rate) (time)

Id = (F)(rd )(t)

Where:

Id = interest charged in advance or bank discount

rd = discount rate
F = amount lent or borrowed
Pd = amount the borrower has to receive after deducting the bank
discount

Proceeds = Amount borrowed – Bank discount (interest charged in

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advance)

Pd = F - Id or Pd = F [1- (rd)(t)]
 Mathematics as a Tool
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Example 1: Ana applied for PhP15,000 loan using a 10% discount rate for a period of 1 year.
Determine
a. the interest she must pay to the bank upon receiving the loan.
b. the proceeds of her loan.

Solution:

a. Id = (F)(rd)(t)
Id = (PhP15,000) (0.10) (1)
Id = PhP1,500

b. Pd = F - Id
Pd = PhP15,000 – PhP1,500
Pd = PhP13,500

Example 2: Supposed you wish to borrow PhP10,000 for 3 months. If the lender offers a
discounted loan at 9%, how much must you repay at the end of 3 months?
Solution:

Pd
A = [1- (derived from Pd = F [1- (rd )(t)])
(rd )(t)]

PhP10,000
A= 1
[1- (0.09) (4)]
A = PhP10,230.18

Try this!

3
1. Accumulate PhP580,000 for 4 years and 9 months at 6 % simple discount.
8
2. If the proceeds of a loan of PhP245,000 will be paid with PhP284,000 at the
end of 1 year and 3 months, what is the simple discount rate?

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The Banker’s Rule

When a loan is in terms of days, interest can be computed using either exact interest or
ordinary interest using actual time or approximate time. Actual time refers to the actual number
of days found in each month whereas approximate time assumes that each year has 360 days
or each month has 30 days. The ordinary method of computing interest is called the Banker’s
rule which considers a year to have 360 days.

To determine the exact number of days in a period, you can refer to the Table of Days in
Each Month below.

Source: https://www.astro.umn.edu/courses/1001/moon/dayofyeartable.pdf

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 Mathematics as a Tool
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Formulas for Computing Exact and Ordinary Interest Using Actual and
Approximate Time:

number of days
i. Ie − Actual Time = (P)(r) ( )
365

number of days
ii. Ie − Approximate Time = (P)(r) ( )
365

number of days
iii. I𝑜 − Actual Time = (P)(r) ( )
360

number of days
iv. I𝑜 − Approximate Time = (P)(r) ( )
360

where Ie is exact interest

Io ordinary interest

Example 1: Find the actual and approximate time from February 21, 2018 to October 24, 2018.
Solution:

A. Actual time

i. Listing Method

February (remaining days: 28-21) 7

March 31
April 30
May 31
June 30
July 31
August 31
September 30
October _24_
TOTAL 245 days

ii. Using the Days in Each Month Method

October 24 297
February 21 - 52_
TOTAL 245 days

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B. Approximate Time

i. Listing Method (on the assumption that each month has 30 days)

February (remaining days: 30-21) 9

March 30
April 30
May 30
June 30
July 30
August 30
September 30
October _24_
TOTAL 243 days

ii. On the assumption that each year has 360 days or each month has 30 days.

Year Month Day

2018 October 24 2018 10 24
2018 February 21 2018 02_ _21_
0 8 3 → 8(30) + 3 = 243 days

Example 2: Determine the interest that will be paid on PhP30,000 loan on a simple interest rate
of 7% from March 20, 2019 to September 15, 2019 using the following:

i. Ie − Actual Time

ii. Ie − Approximate Time

iii. Io − Actual Time

iv. Io − Approximate Time

Solution:

Step 1. Determine first the actual and approximate time.

Actual Time
September 15 258
March 20 - 79_
179 days

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 Mathematics as a Tool
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Approximate Time
Year Month Day
2019 September 15 2019 09 15
2019 March 20 2019 03_ _20_
0 5 25 → 5(30) + 25 = 175 days

(Note: Since it is impossible to subtract 20 from 15, borrow 1 from 9 and convert it to 30
days, thus you have now (15+30) -20 = 25 on the Day column and obtained a difference of 5
in a Month column)

Step 2. Compute for the exact and ordinary interest using actual an approximate
time with principal (P) of PhP30 000; r = 7% or 0.07

number of days
i. Ie − Actual Time = (P)(r) ( )
365

179
= (30 000) (0.07) ( )
365
= PhP1 029.86

number of days
ii. Ie − Approximate Time = (P)(r) ( )
365

175
= (30 000) (0.07) ( )
365
= PhP1 006.85

number of days
iii. Io − Actual Time = (P) (r) ( )
360

179
= (30 000) (0.07) ( )
360
= PhP1 044.17

number of days
iv. Io − Approximate Time = (P) (r) ( )
360

175
= (30 000) (0.07) ( )
360
= PhP1 020.33

Take note that formula iii has the highest accumulated interest and this is what the bank
adapts in their loan transactions.

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Try this!

Determine the interest that will be paid on PhP18 000 loan on a simple
interest rate of 7% from Feb 20, 2018 to July 15, 2019 using the following:

i. Ie − Actual Time
ii. Ie − Approximate Time
iii. Io − Actual Time
iv. Io − Approximate Time

Learning Check
Activity # 1

Solve for the following:

1. If ₱50,000 is invested at 8% simple interest for 5 years, what is the final amount?
2. If Pika borrows ₱120,000 for 10 months at 12%, how much interest would she have to
pay?
3. At what rate of interest should ₱60,000 be invested to earn ₱2,500 after 5 months?
4. How long will it take ₱305,000 to earn ₱32,500 at 4%?
5. Find the present value of Php 7000 at 8.2 percent for 11 months. (Assume 360 days in
a year.)
5
6. Discount PhP67,200 for 2 years and 3 months at 3 %.
8
7. Find the proceeds for the loan Php 7250 at 8.5 percent for 11 months.
8. Find the interest rate to the nearest tenth on the proceeds for the simple discount
note of Php 6,200 at 10 percent for 10 months.
9. A borrower signed a note for a discounted loan application and agreed to pay
1
PhP10 000 at the end of 1 year. How much did he receive?
2
10. Determine at which rate the borrower pays the least interest: A discounted loan for
9 months at 9% or a loan using a simple interest rate of 10%.
11. Determine the due date of the loan using exact time if the loan is made on the
given date for the given number of days.
i. May 15; 60 days
ii. October 25; 100 days
12. Find the interest that will be paid on PhP500 000 loan on a simple interest rate of 8%
from July 22, 2017 to March 15, 2019 using the following:
i. Ie − Actual Time
ii. Ie − Approximate Time
iii. Io − Actual Time
iv. Io − Approximate Time

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B. Compound Interest

Did you know?

A penny saved……

Benjamin Franklin left 1000 pounds sterling (£) in his will to the City of
Boston, where he was born. The money was to be lent to young apprentices
1
who would pay of the principal each year plus 5% compounded yearly.
10
The money earned was to be used to benefit the inhabitants of Boston. By
Benjamin Franklin
1894, the fund’s value had increased to 90000 £. Part of this legacy became
Source: http://clipart-
library.com/franklin-cliparts.html
the Benjamin Franklin Institute of Technology, a 2-year technical college
founded in 1908.
(Source: A Survey of Mathematics with Application Section 11.3 p.622 by Allen R. Angel et. al., 9 th Edition, Cenveo Publisher)

Working with problems involving compound interest involved the use of the term
payment period enumerated as follows:

Annually once per year

Semiannually twice per year
Quarterly four times per year
Monthly twelve times per year
Daily three hundred sixty-five times per year* (*Banks use 360 times per year)
A bank computes the interest periodically (for example quarterly or daily), this interest is
added to the original principal. The interest is again computed for the next period using the
new principal which means that the principal grows as the interest is added to it. In effect the
bank computes interest on interest which is called the compound interest.

Compound interest is an interest computed on the principal and any accumulated

interest. The interest for each period is added to the principal before computing the interest for
the next period which indicates that the interest is said to have been compounded.

Formula for Compound Interest:

F = P (1 + i)n I=F–P

Where: F = final or accumulated amount

P = original principal
r
i = periodic payment (i = , r is the annual interest rate)
m
n = mt (t = no. of years, m = compounding times)
I = compound interest
compounding period m
Semiannually 2 periods/year
Quarterly 4 periods/year
Monthly 12 periods/year
Daily 365 periods/year

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Example: What is the accumulated value of PhP15 000 at the end of 3 years if it earns an
interest at the rate of 8% compounded semiannually? Calculate the interest earned.

Solution:

0.08
P = PhP15 000; t = 3; m = 2; r = 8% or 0.08; i = = 0.04; n=(3)(2) or 6
2

i. Accumulated value (F)

F = P (1 + i)n
F = PhP15,000 (1 + 0.04)6
= PhP18 979.79

ii. Interest (I) earned

I=F–P
= PhP18 979.79 - PhP15 000
= PhP3 979.79

In example above, the interest rate is stated as annual rate of 8% but the number of
0.08
conversion period per year is 2, hence the rate for 1 period is i = or 0.04 per period.
2

If we want to calculate the amount (F) and interest (I) on Php1 invested at 8%
compounded semiannually for 1 year, it will be
(2)(1)
F =1(1+0.04)
= 1.0816

Computing for the Interest: I = A – P

= 1.0816 – 1
= 0.0816

This shows that the interest for 1 year is 0.0816 and called the effective annual yield when
written in percent. Majority of financial institutions refer to the effective annual yield as the
annual percentage yield, that is If Php1 is invested at a simple interest rate of 8.16% and Php1 is
invested at 8% compounded semiannually (equivalent to an effective yield of 8.16%), then the
interest for both investments will be the same.

Try this!
Suppose Php1,000 is deposited for 5 years in an account paying 8.5 percent
per year compounded semiannually.
a. Find the compound amount; and
b. Find the amount of interest earned.

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You may be interested about what amount of money you must deposit in an account to
have a certain amount of money in the future; thus, this is concerned with finding the Principal
P to be invested now called the Present Value.
-n
The formula used for determining the present value is P = F (1 + i) .

Example 1: The desired accumulated amount is PhP100 000 after 5 years to be invested in an
account with 8% interest compounded annually. Determine the amount to be
invested now.

Solution:
r 0.08
F = PhP100,000; t = 5; m = 1; i = = = 0.08; n = mt = (5)(1)=5
m 1

-n
P = F (1 + i)
-5
P = 100,000 (1+0.08)
P = PhP68,058.32

Example 2: What amount must be invested now in order to have PhP12 000 after 3 years if
money is worth 10% compounded semiannually?

Solution:
r 0.10
A=PhP12,000; t = 3; m = 2; i= = = 0.05; n = mt =(3)(2) =6
m 2

-n
P = F (1 + i)
-6
P = 12 000 (1+0.05)
P = PhP8,954.58

Try this!

At the birth of a boy, what amount of money should his parents deposit in a
savings account paying 7/8% every months in order to provide the boy with
₱500,000 at the age of 15?

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Learning Check
Activity # 2

A. Find the total number of compounding/conversion periods and the interest rate per
period.

Term of Investment Annual Interest Conversion Total number Rate per

Rate period per year of conversion conversion
(%) period period
2 years 4 annually
10 years 3 semiannually
5 years 6 quarterly
12 years 8 semiannually
1
42 years 12 monthly

B. Use the simple interest formula to complete the missing values in the table.

Principal Term of Annual Conversion Compound Compound

Investment Interest Rate period per Amount Interest
(%) year
PhP8 000 2 years 4 annually
PhP10 000 6 years 3 semiannually
PhP18 000 5 years 6 quarterly
PhP25 000 11 years 8 semiannually
PhP30 000 1
42 years 12 monthly

C. Find the Present value of the following amount of money.

1. PhP300,000 at 10% compounded annually for 5 years

2. PhP85,000 at 6% compounded semiannually for 4 years
1
3. PhP25,000 at 5 % compounded quarterly for 2 years
2
4. PhP10,000 at 4% compounded monthly for 1 year

C. Credit Card Interest

When one buy by a credit card such as bank cards (VISA or MASTERCARD or a
department store charge) and travel and entertainment cards, he is, in effect, borrowing
money. He, as the borrower, must pay interest. Not all companies issuing credit cards impose
the same interest. Different companies (banks, stores) charge different rates, and they compute
the balance on which the interest is paid in different manners, with considerable variation from
one to another. Shopping by credit card makes as much sense as trying to get the best price
on any deal. All cards require you to make payments on monthly basis when their balance due,
getting the “best” card (the one with terms most advantageous to the card holder).

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If you have noticed, the credit card company’s terms are usually stated in small prints in
an out-of-the-way place on the bottom or on the back of your monthly statement. The rate of
interest is referred to the “periodic rate.” Computer do the calculations of purchases done
together with the interest. However, it is suggested that you should check that there are no errors
in recording the individual charges and cash advances by matching the amount shown in the
statement with the amount on the “customer’s” copy of each charge slip.

There are two factors you need to understand in paying finance charges: the annual
effective rate and the average daily balance. The annual effective rate of interest is based on
the quoted rate of interest (also given on each monthly statement) and is the actual interest
rate you pay per year for the use of the credit card. To understand the annual effective rate,
the credit card issuing company is earning interest from you as borrower. Interest can be
charged on new purchases and on old purchases. If you will wait until the end of the year to
pay for the bill, additional interest on the interest, purchases and balance will be imposed. In
effect, you would be paying interest on the interest. That is what happens with many, but not
all, credit cards.

Example 1: XYZ Bank’s interest charge on its MASTERCARD purchases is given as follows: monthly
periodic rate 3.5%. Find the annual effective rate.
Solution:
r m
Annual Effective Rate =100 (1+ ) -100
m

= 100(1+.035)12 -100
= 51.11%
Hence, the quoted annual percentage interest rate of 42% results in the paying interest
at the rate of 51.11% per annum.

In terms of average daily balance, remember that it is not calculated in the same way
by all banks or credit card companies. Some companies exclude finance charges if you pay
your balance on the required date, while others include them. Some do not add interest
charges on to new purchases if those purchases are paid for on time. There are credit cards
that require you to pay interest from the date the purchase is made (the date of the
transaction), while others begin computing interest from the posting date (the day the company
or bank received the bill from the establishment where the purchase was made).

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The following examples will illustrate two different methods for computing the average
daily balance.

Example 2: Consider the December/January monthly statement below.

Amount
Date of Purchase Posting Date Description of Transaction
(in peso)
12/07/18 12/14/18 New Global Store 475.00
12/17/18 12/27/18 MS Department Store 907.25
12/21/18 01/07/19 Golden Records 450.00
12/2718 01/07/19 Pizza House 875.00
01/09/19 01/09/19 Payment – Thank you 1,000.00

Additional information was collected from the current bill and from the previous month
statement.
Closing Date: 1/11/19 (from current bill)
Closing Date: 12/11/18 (from previous bill)
Previous Balance ((including interest due): PhP1,291.47 (from current bill)
Prior Month’s Interest Charge: PhP20.48 (from previous bill)
Monthly Periodic Rate: 3.5 % (from both bills)

a. What is annual effective rate?

b. Compute the average daily balance.

Solution:

r m
a. Annual Effective Rate = 100 (1+ ) - 100
m

=100(1+.035)12 - 100
= 51.11%
Hence, the quoted annual percentage interest rate of 42% results in the paying interest
at the rate of 51.11% per annum.

b. Three steps are involved in computing the average daily balance.

1. Compute the number of days in the billing cycle that runs from 12/11/18 to 01/11/19.
From 12/11/18 to 12/31/18 there are: 20 days
From 12/31/18 to 01/11/19 there are: 11 days
Total 31 days
2. Subtract the interest due from both the previous balance and the payment
(Method 1 excludes interest payments):
Net previous balance due = PhP1,291.47 – PhP20.48 = PhP1,270.99
Net payment made = PhP1,000.00 – PhP20.48 = PhP979.52

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3. Find the average daily balance:

i. Count the previous balance due:
Multiply Net previous balance by the total number of days.
That is, PhP1,270.99 (31 days) = PhP39,400.99
ii. Count the net payment made:
Multiply Net payment made by the number of days from the billing cycle.
(closing date – date payment made + 1 = 3 days)
That is, PhP979.52 (3 days) = PhP2,938.56
iii. Subtract the amount calculated in ii) from the amount calculated in i) then divide
by 31.
That is, (PhP39,400.99 – PhP2,938.56)/31 = PhP1,176.21 which is the average daily
balance.
To compute the current interest due charges, multiply the average daily balance by the
specified monthly periodic rate. That is,
Current interest due = 3.5% (PhP1,176.21)
= PhP41.17
To compute the total amount owe in the credit card company this month, add the
previous balance due (including previous interest due), the current interest due, and the total
of all new purchases. That is,
Total due for this month = PhP1,291.97 + PhP41.17 +PhP2,707.25 – PhP1,000
= PhP3,040.39
Some credit card companies compute the average daily balance tends to be favored
by stores and banks that encourage you to carry forward a balance by requiring only a token
minimal payment each month. As you might expect, this includes interest charges and new
purchases in the of the average daily balance. New purchases will be counted from the
transaction date unless that date is earlier than the beginning of the current billing cycle. If this
is the case, the new purchases will be considered to have occurred on the first day of the billing
cycle. This situation may arise if the establishment where the purchases were made did not
submit the bills to the credit card company quickly. The next method is more costly to the credit
card users.

Example 3: Consider the data of the previous example. Compute the average daily balance.
Solution:
1. Compute the number of days in the billing cycle that runs from 12/11/18 to
01/11/19
From 12/11/18 to 12/31/18 there are: 20 days
From 12/31/18 to 01/11/19 there are: 11 days
Total 31 days
2. Count the previous balance due:
Multiply Net previous balance by the total number of days.
That is, P 1,291.47 (31 days) = 40,035.57

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3. Count the appropriate number of days for each purchase and multiply the
amount of the new purchases by that number of days.

i. Since the closing date of the previous billing cycle was 12/10/18, the date of
this transaction is taken to be the first day of the current cycle, which is
12/11/18; thus, the purchase is counted 31 times.
475.00 x 31 = 14,725

ii. The purchase made at MS Department Store:

From 12/17/18 to 12/31/18 15 days
From 01/01/19 to 01/11/19 11 days
907.25 x 26 = 14,725

iii. The purchase made at Golden Records:

From 12/21/18 to 12/31/18 11 days
From 01/01/19 to 01/11/19 11 days
450.00 x 22 = 9,900
iv. The purchase made at Pizza House:
From 12/27/18 to 12/31/18 5 days
From 01/01/19 to 01/11/19 11 days
875.00 x 16 = 14,725
Number Purchase
Posting Date of Description of Amount
of days times no. of
Date Purchase Transaction (in peso) days
12/14 12/07 New Global Store 475.00 31 14,725.50
12/27 12/17 MS Department Store 907.25 26 23,588.50
01/07 12/21 Golden Records 450.00 22 9,900.00
01/07 12/27 Pizza House 875.00 16 14,000.00
01/09 01/09 Payment – Thank you 1,000.00

4. Count the full payment made:

Multiply full payment made by the number of days from the billing cycle.
(closing date – date payment made + 1 = 3 days)
That is, PhP1,000 (3 days) = 3,000.00
5. Compute the average daily balance. Subtract step 4 from the sum of steps 2
and 3, then divide by the number of days in the billing cycle (step 1). That is,
(40,035.57+14,725.50+23,588.50+ 9,900.00+14,000.00) – 3,000
= 3,201.60
31
The difference between the first and the second method is P161.21. The current interest
due charges is:
Current interest due = 3.5% (PhP3,201.60)
= PhP112.06
The total amount owe in the credit card company is the sum of the previous balance
due, the current interest due, the total of all new purchases.
Total due for this month = PhP1,291.47 + PhP112.06 + PhP2,707.25 – PhP1,000
= PhP 3,110.78

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 Mathematics as a Tool
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Learning Check
Activity # 3
Do the following:
A new credit card with a credit limit of P100,000 is opened with the following
information during the first billing cycle. The billing cycle starts on the 11th of the month
and ends on the 10th of the next month with due date 25 days following the end of the
billing cycle. The monthly periodic interest rate is 3.5%. The minimum payment is P500 or
5% of the new balance, whichever is larger. If the entire new balance from the previous
billing cycle is paid on before the due date, no interest will be charged for the purchases
made for the current billing cycle. Find the following:
a) Available credit and due date
b) Total purchases
c) Minimum payment
d) Average daily balance
e) Interest and New balance due
Date of Posting Amount
Description of Transaction
purchase Date (in peso)
03/10/18 03/12/18 Jollibee Puerto Princesa 520.00
03/14/18 03/14/18 National Bookstore Robinsons Place Palawan 487.00
\

03/18/18 03/19/18 Tongyang 1,950.00

03/23/18 03/26/18 Coffee Bean SM Palawan 1,064.00
04/10/18 04/10/18 Payment – Thank you 1,000.00

D. Stocks and Bonds

Though in today’s generation, there are lot of young individuals who are engaging in
investment, still majority are not religiously investing their money. We are still searching for the
perfect investment possessing the following factors such as completely secure (the worth of the
investment would not be less than what you have paid for); investments that can be turned
back into cash at any time; appreciates in values; and offers a high yield.
The security factor of an investment (whether or not you will get at least the original
investment back) is based on the anticipated financial condition of the economy and the
issuing corporation, agency or government body. The Philippine Deposit Insurance Corporation
(PDIC) is responsible for the security of some investments – saving accounts and certificates of
deposit for each depositor is entitled to payment of the total amount of his deposit but not
exceeding Php 500,000 which is the maximum amount of insurance coverage for a closed bank.
Some of these investments offer good yields as well, but they do not appreciate. Certificates of
deposit give highest yields. However, it may also carry penalty for early withdrawal.
Liquidity as a factor is the most intuitively obvious aspects of investments. It pertains to
how readily an investment can be turned back into cash. An individual can usually sell a stock
in one business day, although not necessarily for the price he originally paid for it, but, not for
the investments like arts and antiques.

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 Mathematics as a Tool
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Appreciation as a factor tends to be more speculative since it primarily reflects future

occurrences. However, the lure of getting more than your original investment back is one of
the major attractions of investing.

The yield on investment is essentially the rate of interest you can earn on the original
investment.
Investments always involve risks. In real estate investments offer possibilities of
appreciating but tend not to be liquid. You cannot immediately turn back into cash. Once you
need the cash, you might have to sell at a loss.
Aside from real estate, you can invest in stocks and bonds. Stock is a share of the value
of a company which can be bought, sold, or traded as an investment while bonds are official
documents in which a government or company promises to pay back an amount of money
that it has borrowed and to pay interest for the borrowed money.
Investing in stocks is high in liquidity but vary widely with respect to security and
appreciation. There are stocks that are highly secured and offer a good yield but tend to
appreciate very slowly; and the more speculative stocks may show very rapid appreciation – or
equally rapid and dramatic drops in value – but are likely to have zero yield.
Bonds produce higher yields than stocks. Bonds with higher quality ratings, signify
greatest security but have lower yields than bonds which are rated less highly. There is no bond
that is totally secure. If the corporation, state of city agency that issues the bond runs into
financial trouble and cannot pay anymore its debts, the bond may not be redeemed at all, or
it may be redeemed for less than its face value at maturity.
Bonds are issued with a maturity date (the date they are redeemable for the peso value
printed on the bond – the face or par value). Each accountable officer whose total
accountability is not less than Php 5,000 shall be bonded. The amount of bond shall depend on
the total accountability of the officer as fixed by the Head of the Agency (COA Circular No.
2006 – 005).
The annual effective yield is the rate of interest that you would realize if you put you
money on time deposit and savings accounts. The yield on stocks is the amount of money you
can earn in dividends expressed as a percentage of the price you paid per share of the stock.
A stockholder can also make money from a stock when there is an increase in price of a share.
The example below illustrates how an individual will be earning a dividend from stock.

Example 1: In March 2017, ABC Corporation stock was paying a yearly dividend of Php 200 per
share. If you owned 50 shares of ABC how much you would be earning each year?
Solution:
You would earn a dividend of
200 (50) = Php 10,000 each year
Note:
1. The total amount of dividends you receive is independent of what you paid for the stock.
It reflects only the total number of shares you own.

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 Mathematics as a Tool
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2. The yield on your investment is based on the price you paid for each share of stock. It is
independent of the number of shares you own.
Consider the next example.

Example 2: Suppose you bought ABC on January 15, 1988 at the closing price of PhP200 per
share. The dividend of PhP10 per share (per annum) is like earned interest. Find the
yield (interest rate).

Solution:
Annual Dividend per share
Percent (Dividend) Yield = x 100%
Current Price per share
10
Percent (Dividend) Yield = x100%=5.0 percent
200

Note: When the stock was bought for less money, the yield would be higher, while when it was
paid for more money, the yield would be smaller if the dividends remain the same.
Hence, the yield on stocks is a percentage on the dividend and price paid per share,
those people who buy the same stock at different prices earn different yield.

Example 3: Suppose the original price per share of your ABC shares is P1,000 and pay you P25
per share in annual dividends. What is the total stock return of investment if the
current price per share is P1,075?
Solution:
(Current Stock Price-Original Stock Price) +Dividends
Total Stock ROI =
Original Stock Price
(1,075-1000) +25
Total Stock ROI = =10 percent
1000

Example 4: Few weeks after Julie bought ABC Corporation stock at Php200 per share, it went
up to Php250 per share, would it affect Julie’s yield?
Solution:
It would not affect Julie’s yield. No matter what the current price of the stock is, the fact
that she invested Php200 per share, and earned Php 10 per year per share, then 5 percent was
still be the yield.

Example 5: Refer to the previous example, observe that a yield of 5 percent may not seem high.
If she sold the stock at Php250 per share, how much she had realized as her annual
return?
Solution:
There was an increased of Php 50 per share ( capital grain per share) with percent
increase of 25 percent. Hence, she had realized an annual return of 30 percent ( 30 percent =
25 percent appreciation + 5 percent dividend yield).

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 Mathematics as a Tool
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Notes: 1. Irrespective of appreciation (capital gain) or depreciation (capital loss), the yield does
not change during the time one owns the stock. But the annual return varies up or down
with capital gains or losses.
2. In comparing different investments, look at the annual return and annual effective
yield.
3. The stock was sold after one year, so the annual yield was relatively straightforward. In
real situation, however, it would not be as simple because you probably won’t sell the
stock in exactly one year, then the computation of annual return (internal rate of
return) becomes very complex and it is beyond the scope of the book.

The following examples are illustrations of yields on bonds.

Example 6: Supposed on January 15, 1988, ABC Agency issued bonds at 4.875% (retail treasury
bond rate) with a maturity date of 2020. If University XYZ bought a Php 3,000,000
bond for Mrs. Rodriguez and paid Php 3,000,000 for it (that is, paid its full-face value).
How much she will be earning per year in interest?
Solution:
Using the simple interest rate,
I = Prt
I = 3,000,000(.04875)(1)= PhP146,250
Notes: 1. In buying a bond, you rarely pay the face value.
2. Bonds are traded or sold for more or less than their face value. The selling price
depends on general market conditions, the soundness of the issuing agency and
competing interest rates.
3. The yield on bonds depends on the price you pay for each Php100 of face value,
even though the quoted interest rate remains unchanged.
4. There are two kinds of bonds: Government bonds (issued by the government to
finance its activities; and Corporate bonds (issued by the private corporations to
finance their long-term requirements).
In our country, Retail Treasury Bonds (RTBs) are medium to long-term investments to make
securities available to small investors. RTBs allow investors to invest and grow their money with
very low risk of losing. It’s considered a fixed income security, which means that one can earn a
fixed interest rate of 6.25% (subject to 20% final withholding tax except for tax-except institutions)
based on the principal market given on a quarterly basis. These can easily be bought or sold in
the secondary market through PDEX accredited brokers like Security Bank.
People buy bonds because of the following reasons:
1. Bonds tend to be a reasonable secure investment.
2. Bonds are redeemable at maturity for their full-face value (if the issuer is then financially
healthy enough to meet the debt).
3. Their yield is relatively high. Yields on bonds are computed as follows:

Quoted Interest rate

Current Yield= x100%
Price Paid per Php100 of face value

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 Mathematics as a Tool
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Example 7: What is the current yield if you paid the premium price of Php105 for ABC bond with
quoted interest of 6.25 percent?
Solution:
6.25
Current Yield= x100%= 5.95%
105

Take note that the yield is less than the quoted 6.25 percent interest.

Example 8: If you bought a bond at the discounted rate of Php93 (per Php100 of face value),
compute for the yield.
Solution:
6.25
Current Yield= x100%= 6.72%
93

Observe that it is seventy-seven hundredths of a percent more than the quoted interest
rate.
The selling price of bonds is, in large part, dependent upon the prevailing interest rates in
the market. The bond issued at a low rate, in terms of current standards, is likely to sell at a
considerable discount, thereby boosting the yield to a level that is more in line with the other
interest rates.

Try this!

1. On January 25, 2017, a JBA bond, maturing in 2036, sold for Php63.25 with a quoted
interest rate of 7 1/8 percent. Find the current yield.
2. Refer to (1). An earlier issue of JBA bond (maturing 2015) sold for P104.85. It has a
quoted interest rate of 13.25 percent. What is the current yield? How does it differ
from the quoted interest rate?

Notes: 1. Like the yield on stocks, the yield on bond is independent of what the bond sells for
before or after you buy it.
2. The yield only reflects the prince you paid and the rate of interest quoted.
3. If you sell the bond before maturity, you may experience a capital gain or loss which
would affect total return, just it did on stocks.
But like any investment, neither stocks or bonds come up to “par” on every factor that
need to be considered. Weigh the importance of the factors of yield, security, appreciation and
liquidity against one another. Always remember that there is no such thing as a perfect
investment.

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Learning Check
Activity # 4

Do the following.
1. A man owns 100 shares of ABC Corporation stock paying a yearly dividend of Php 200
per share. How much the man would be earning each year?

2. Suppose your friend bought 50 shares of stock at the closing price of P1,000 per share.
The dividend of Php 15 per share (per annum) is like earned interest. Find the yield
(interest rate).

3. Suppose the original price per share of your IRL shares is P1,500 and pay you P50 per
share in annual dividends. What is the total stock return of investment if the current
price per share is P1,700?

4. A stock at P500 per share goes up to Php250 per share, would it affect the yield?

5. If the yield of 5 percent is given per share per annum. If she sold the stock at Php1000
per share from the original of P800 per share, how much she had realized as her annual
return?

6. ABC Agency issued bonds at 4.875% (retail treasury bond rate) on January 15, 2005
worth P6M for Mrs. Lopez and she paid its full face value with a maturity date of 2020.
How much she will be earning per year in interest?

7. What is the current yield if you paid the premium price of Php 500 for ABC bond with
quoted interest of 5.75 percent?

8. If you bought a bond at the discounted rate of Php 190 (per Php200 of face value),
compute for the yield.

9. On January 10, 2018, a JBA bond, maturing in 2030, sold for Php85 with a quoted
interest rate of 8 percent. Find the current yield.

10. Refer to Number 8: An earlier issue of JBA bond (maturing 2016) sold for P110. It has a
quoted interest rate of 12 percent. What is the current yield? How does it differ from
the quoted interest rate?

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 Mathematics as a Tool
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E. Mutual Funds

A mutual fund is an investment that pools money from the investing public and use that
money to buy other securities, usually stocks and bonds. Investing in a share of a mutual fund is
different from investing in shares of stock. A share of a mutual fund represents investments in
many different stocks (or other securities) instead of just one holding. The common categories
of mutual funds are as follows: Equity or stock funds, fixed income or bond funds, balanced
fund, and money market funds.

The largest category is that of equity or stock funds. The funds are invested principally in
stocks.

A fixed income or bond mutual funds focus on investments that pay a set rate of return,
such as government bonds, corporate bonds, or other debt instruments. These funds are
often actively managed and seek to buy relatively undervalued bonds in order to sell them at
a profit. These mutual funds are likely to pay higher returns than certificates of deposit and
money market investments.

Balanced funds or asset allocation funds invest in both stocks and bonds to reduce the
risk of exposure to one asset class or another. An investor may expect to find the allocation of
these funds among asset classes relatively unchanging, though it will differ among funds. The
goal of the balanced fund is asset appreciation with lower risk. However, these funds carry the
same risk and can be as subject to fluctuation as other classifications of funds.

The money market consists of safe (risk-free) short-term debt instruments, mostly
government treasury bills. This is a safe place to park your money. You won't get substantial
returns, but you won't have to worry about losing your principal. A typical return is a little more
than the amount you would earn in a regular checking or savings account and a little less than
the average certificate of deposit (CD).

The price of a mutual fund’s share is referred to as the net asset value per share
(NAVPS). Mutual fund shares can typically be purchased or redeemed as needed at the fund's
current net asset value (NAV) which unlike a stock price it doesn't fluctuate during market hours,
but is settled at the end of each trading day. A fund's NAV is the ratio of total value of the
securities in the portfolio and the total amount of shares outstanding (all shareholders). It should
be noted also that most funds will charge a fee either upon investment or redeeming the shares
of mutual funds. The mutual fund will classify expenses into either annual operating fees or
shareholder fees. Annual fund operating fees are an annual percentage of the funds under
management, usually ranging from 1-3%.

Annual operating fees are collectively known as the expense ratio. A fund's expense ratio
is the summation of the advisory or management fee and its administrative costs. Shareholder
fees come in the form of sales charges, commissions and redemption fees, are paid directly by
investors when purchasing or selling the funds. Sales charges or commissions are known as "the
load" of a mutual fund. When a mutual fund has a front-end load, fees are assessed when shares
are purchased. For a back-end load, mutual fund fees are assessed when an investor sells his
shares. (https://www.investopedia.com/terms/m/mutualfund.asp)

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 Mathematics as a Tool
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Example 1: What is the net asset value of an investment company with P100M in assets, P30M
in current liabilities, and P2,000 shares outstanding?

Solution:
Assets PhP100M
Liabilities PhP30M
Equity PhP70M
PhP70M
Net asset value (per share) = =PhP35,000
PhP2,000

Example 2: A man invested P200,000 with the LACRO Equity Fund with 3.0052 NAVPS for this
equity.
a. What is the value of his money in terms of shares?
b. Find his gain over the original invested amount if after a year he decided to redeem
all his shared from the equity fund upon knowing that the NAVPS has increased to
3.4835.

Solution:
Investment
a. Asset Value =
NAVPS
PhP200,000
Asset Value = = PhP66,551.31
PhP3.0052

Value man’s money in terms of the number of shares in the mutual fund.
b. Find first the man’s returns = Asset Value x Increase in NAVPS
= PhP66,551.31(PhP3.4835 - PhP3.0052)
= PhP31,831.49
Returns 31,831.49
Gain = = =15.92 percent
Investment 200,000

An investor buys shares in a mutual fund for P20,000 per share. At the end of the year the
fund distributes a dividend of P2,500, and after the distribution the net asset value of a share is
P22,500. What would be the investor’s percentage return on the investment?

Solution:
The investor received P2,500 and experienced appreciation of $2,500 (P22,500 - P20,000)
5,000
for a total gain of P5,000. On an investment of P20,000, the return (for one year) is = 25%.
20,000

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 Mathematics as a Tool
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Example 3: If a mutual fund’s net asset value is P10,000 and the fund sells its shares for P11,000,
what is the load fee as a percentage of the net asset value?

Solution:
Load fee: PhP12,000 – PhP11,000 = PhP1,000
1,000
Load fee as a percent of net asset value: = 10%
10,000

Example 4: If an investor buys shares in a no-load mutual fund for P300 and the shares
appreciate to $333 in a year, what would be the percentage return on the
investment? If the fund charges an exit fee of 1 percent, what would be the return
on the investment?

Solution:
The investor earned PhP33 on an investment of PhP300 for a percentage gain of 11%.

33
That is, = 0.11
300

The exit fee reduces the terminal value by PhP3.33 (1% of PhP33) to PhP329.67 (PhP333 –
29.67
PhP3.33), so the net gain is PhP29.67, and the percentage return is = 9.89%. Notice that the
300
1 percent exit fee applies to the total value and not the gain so that the percentage increase
is reduced by more than 1 percent.

Example 5: A closed-end investment company is currently selling for PhP1000 and its net asset
value is PhP1000. Elkee decide to purchase 100 shares. During the year, the
company distributes PhP100 per share in dividends. At the end of the year, you sell
the shares for PhP1200. At the time of the sale, net asset value is PhP1300. What
percentage return do you earn on the investment if no commissions were charged?

Solution:
For closed-end funds, the net asset value does not affect the return, which depends on
the distributions received and the change in the price. The value of the shares rose from
PhP100,000 to PhP120,000, hence the capital gain is PhP20,000, and the company made a
distribution of PhP10,000. The percentage return is

PhP120,000 + 10,000
− 1 = 30%
100,000

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 Mathematics as a Tool
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Example 6: A closed-end investment company is currently selling for PhP1,000 and a man
purchases 100 shares. During the year, the company distributes PhP100 in dividends.
At end of the year, you sell the shares for PhP1,200. The commission on each
transaction (purchase and sale) is PhP50. What percentage return do you earn on
the investment?

Solution:
This problem adds the commissions on the purchase and sale. The percentage return is
PhP1,200(100) + 100(100)-50(100)
− 1 = 19.05%
1,000(100)+50(100)

The PhP50 commissions on both the purchase and the sale cut the return substantially.
(Using an online broker would reduce the commissions.)

Example 7: You buy 100 shares in a mutual fund at its net asset value of P1,000. The fund charges
a load fee of 6 percent. During the year, the mutual fund distributes P100 in
dividends. You redeem the shares for 1,200 per share, and the fund does not charge
an exit fee. What percentage return do you earn on the investment?

Solution:
In this problem, the investor acquires shares in a mutual fund that charges a load fee,
which is charged when the shares are bought. The percentage return is
120,000+10,000
− 1 = 22.64%
100,000+6,000

Unlike the commissions in the previous example, the load fee is paid only when the shares
are purchased.

F. Home Mortgages

Home mortgage is probably the largest loan an individual will ever have and next is car
loan. Any loan where you pay back part of the principal and interest in periodic installments
over time works much the same way. All mortgages operated at a fixed rate of interest. This
means that the interest rates do not fluctuate and, consequently, the amount of the payment
remained constant over the life of the loan.

The amount of the payment is based on the total amount of the loan, the length of the
loan (its term), the rate of interest and the frequency of the payments (usually in monthly basis).
The formula for computing the exact amount of the mortgage payment or payment on an auto
loan or nay other long-term, fixed – rate loan is
n
i∙(1+i)
Payment = Amount of loan ∙ n
(1+i) -1
where i is the periodic interest rate (quoted interest); and 𝑛 is the total number of payments to
be made.

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 Mathematics as a Tool
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Example 1: Suppose the house cost PhP1,800,000 and you made a PhP200,000 down payment
with 30 – year mortgage at 6.5 percent. How much is each monthly payment?

Solution:
.065
Amount of loan = PhP1,600,000 ; i = = 0.005417 ; n = 360
12
n
i∙(1+i)
Payment = Amount of loan ∙ n
(1+i) -1

(.005417) ∙ (1 + .005417)360
Payment = PhP1,600,000 ∙
(1 + .005417)360 − 1
= Php10,113.09

The monthly mortgage payment would be Php 10,113.09 for 30 years.

Example 2: Refer to the previous example. What will happen to the monthly payment on
Php1,600,000 for 20 – year mortgage at the same rate?

Solution:
.065
Amount of loan = Php1,600,000 ; 𝑖 = = 0.005417 ; 𝑛 = 240
12
𝑖∙(1+𝑖)𝑛
𝑃𝑎𝑦𝑚𝑒𝑛𝑡 = 𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑙𝑜𝑎𝑛 ∙
(1+𝑖)𝑛 −1

(.005417) ∙ (1 + .005417)240
𝑃𝑎𝑦𝑚𝑒𝑛𝑡 = 1,600,000 ∙
(1 + .005417)240 − 1
= 𝑃ℎ𝑝11,929.17

Thus, the effect of a shorter term (all other factors being unchanged) is to increase the
amount of each payment. The difference between two terms is only Php1,816.08 (almost
Php2,000). Putting into contract for shorter term is considered as “best buy” than the longer term
of loan. The decision will still be dependent on the capacity of the buyer to handle the monthly
payment.

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Example 3: You are going to buy a car which cost Php1,200,000 by paying 20 percent deposit
and the remaining amount to be paid at 12 percent and are to make equal
payments for three years. How much will your monthly car payments be?
Solution:
0.12
𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑙𝑜𝑎𝑛 = 𝑃ℎ𝑝 960,000 ; 𝑖 = = 0.01 ; 𝑛 = 36
12
𝑖∙(1+𝑖)𝑛
𝑃𝑎𝑦𝑚𝑒𝑛𝑡 = 𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑙𝑜𝑎𝑛 ∙
(1+𝑖)𝑛 −1

(.01)∙(1+.01)36
𝑃𝑎𝑦𝑚𝑒𝑛𝑡 = 960,000 ∙
(1+.01)36 −1

= 𝑃ℎ𝑝31,885.74

Note:
Keep as many decimal places as possible. Keeping only a limited number of decimal
positions results in slight inaccuracies in your answers compared with the answers the bank
would obtain.

Evaluation

Let us now determine how much you understand from this module!

I. Do the following simple interest problems.

1. Find the simple interest of the following.
a. Php 3,420 at 6.5 percent for 9 months
b. Php 21,000 at 8 percent for 11 months
2. Find the simple interest. Assume a 360 – day year and a 30-day month.
a. Php 11,200 at 10 percent; loan made on June 15 and due September 16.
b. Php 5,480 at 12 percent; loan made on January 18 and November 12.
3. Find the present value of the following future amount. Assume 360 days in a year.
a. Php 30,000 at 9.3 percent; loan made on July 8 and due December 16.
b. Php 15,050 at 6 percent for 128 days
4. Find the proceeds for each loan. Assume 360 days in a year.
a. Php 35,200 at 9 percent; loan made on June 15 and due September 16.
b. Php 15,350 at 11 percent; loan made on January 18 and November 12.
5. Find the interest rate to the nearest tenth on the proceeds for the following simple
discount notes.
a. Php 58,000 at 9 percent for 9 months
b. Php 43,000 at 9.5 percent for 4 months

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 Mathematics as a Tool
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6. To pay for bills, a student borrows P2,500 from student credit union at 3 percent simple
interest. He will repay the loan in 38 days, when he expects to receive his monthly
allowance. How much interest will he pay? (Assume 360-day year)
7. A Php40,000 certificate of deposit held for 60 days is worth Php41,300. To the nearest
tenth of a percent, what interest rate was earned?
8. Tuition of Php 6780 will be due when the first term begins in 4 months. What amount should
a student deposit today, at 6.5 percent, to have enough to pay the tuition?
9. Dr. Amy Coo needs a loan from her bank and agreed to pay Php100,000 in 11 months.
The bank subtracts a discount of 13 percent and gives the balance to Dr. Coo. Find the
amount of the discount and the proceeds.
10. A building contractor gives Php25,000 note to a plumber. The note is due in 10 months,
with interest rate of 6 percent. Four months after the note is signed, the plumber discounts
it at the bank. The bank charges a 10 percent discount rate. How much will the plumber
receive? Will it be enough to pay a bill for Php26,000?
II. Answer the following compound interest questions.
1. What is the difference between 𝑟 and 𝐼, and 𝑡 and 𝑛 in the compound interest formula?
2. What factors determine the amount of interest earned on the fixed principal?
3. In your own words, describe the maturity value of a loan.
4. If interest is compounded more than once per year, which rate is higher, the stated rate
or the effective rate?
5. If money can be invested 8% compounded quarterly, which is larger: Php 1000 now or
Php 1210 in 5 years? Use present value to decide.
6. Find the compound amount and the interest earned by the following deposits.
1. Php15000 at 12% compounded quarterly for 8 years
2. Php 8000 at 4% compounded semiannually for 6.4 years
7. Find the compound amount if Php 20000 is invested at 10 percent compounded
continuously for the following number of years.
a. 8 years c. 15 years
b. 9.4 years d. 20 years
8. Find the effective rate corresponding to the following nominal rates.
a. 4% compounded quarterly
b. 8% compounded semiannually
9. Given the following future amounts, find the present values.
a. Php 4253.90 at 6% compounded annually for 4 years
b. Php 5240 at 8% compounded quarterly for 6 years
10. A particular bank offered the following special on certificate of deposits rates. The rates
are annual percentage yield, or effective rates, which are higher than the corresponding
nominal rates. Assume quarterly compounding. Solve for r to approximate the
corresponding nominal rates to the nearest hundredth.
11. A man decides to invest a Php 100,000 bonus in a money market fund that guarantees
6% annual interest rate compounded monthly for 5 years. A onetime pay of Php 300 is
charged to set up the account. In addition, there is an annual administrative charge of
1.25% of the balance in the account at the end of each year.
a. How much is in the account at the end of the first year?
b. How much is in the account at the end of the five years?

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III. Answer/Solve the following application problems

1. Elkee is saving for a car. At the end of each month he puts P10,000 in a savings account
that pays 8 percent interest rate compounded quarterly. How much is in the account
after 5 years?
2. Joy deposits P20,000 at the end of each year for 10 years in an account paying 12%
interest compounded quarterly.
(a) Find the final amount she will have on account.
(b) Her sister Allen invested in bank B that pays 8% compounded semiannually. If Joy
deposits her money in this bank B instead of the one above, how much will she have
in her account?
(c) How much would Joy lose/gain over 10 years by investing her money in bank B?
3. At the end of each month a 50-year old professional puts P5,000 in a retirement account
that pays 12 percent interest compounded quarterly. When he reaches age 60, she
withdraws the whole amount and places it in a mutual fund that pays 18% interest
compounded monthly. From them on the deposits P1,250 in the mutual fund at the end
of each month. How much is in the account when he reaches age 65?
4. Denise made payments of P2,000 per month at the end of each month to purchase a
piece of property. At the end of 10 years, she completely owned the property, which
she sold for P500,000. What annual interest rate would she need to earn on an ordinary
annuity for a comparable rate of return?
5. Mr. Torre plans to retire in 20 years. He will make 120 equal monthly contributions to his
account. Ten years after his last contribution he will begin the first of 120 monthly
withdrawals from his account. He also expects to withdraw P25,000 per month. His
account also earns interest of 10.5%, compounded monthly throughout the life of this
problem. How large must Mr. Torre’s monthly contributions be in order to accomplish his
goals?
IV. Answer/Solve the following problems.
1. In your own understanding, what is the present value and future values of an annuity. For
a given annuity, which is larger? Why?
2. Suppose the man in Example 6.3.2, cannot get the highest interest rate to produce P3.5M
in 20 years. To meet that goal at an interest rate of 8 percent, he must increase his monthly
payment. What payment should he make each month?
3. Eljay plans to buy a house for P2,212,000. He will pay 20% down and finance the remaining
for 15 years at 8.9% interest, compounded monthly.
a) How large are the monthly payments?
b) What will be the loans balance right after he has made 90 payment?
c) How mch interest will he pays during the 7th year of the loan?
d) If he was to increase his monthly payments by P5000, how long would it take to pay
off the loan?
V. Solve the following application problems
1. Elkee is saving for a car. At the end of each month he puts P10,000 in a savings account
that pays 8 percent interest rate compounded quarterly. How much is in the account
after 5 years?
2. Joy deposits P20,000 at the end of each year for 10 years in an account paying 12%
interest compounded quarterly.
(d) Find the final amount she will have on account.

VII. Solve the following application problems

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A new credit card account with credit limit of P90,000 is opened with the following information
during the first billing cycle. The billing cycle starts on the 11 th of the month and ends on the
10th of the next month with due date 25 days following the end of the billing cycle. The monthly
periodic interest rate is 3.5%. The minimum payment is P500 or 5% of the new balance,
whichever is larger. If the entire new balance from the previous billing cycle is paid on of
before the due date, no interest will be charged for the purchases made for the current billing
cycle. Find the following:
f) Available credit and due date
g) Total purchases
h) Minimum payment
i) Average daily balance
j) Interest and New balance due
1.
Date of Posting Amount
Description of Transaction
purchase Date (in peso)
04/15/18 04/16/18 Department Store Megamall 3,450.25
04/1718 04/17/18 Palawan Cafe Robinsons Place Palawan 1,540.00
04/21/18 04/23/18 NCCC Department Store Palawan 3,425.80
04/27/18 04/27/18 Shakey’s Pizza SM Puerto Princesa 2,019.00
04/27/18 04/28/18 Globe Telecom, Inc. SM Puerto Princesa 1,741.00

2.
Date of Posting Amount
Description of Transaction
purchase Date (in peso)
Previous Statement Balance 1,176.05
05/11/18 05/11/18 Grocery Robinson’s Place Palawan 2,021.75
05/11/18 05/12/18 Palawan Cafe Robinsons Place Palawan 775.00
05/11/18 05/11/18 PLDT Puerto Princesa City 1,723.00
05/11/18 05/12/18 Mesa Restaurant SM Puerto Princesa 1,332.95
05/12/18 05/12/18 Globe Telecom, Inc. SM Puerto Princesa 1,741.00
05/18/18 05/18/18 Payment Received – Thank you (2,176.05)
05/27/18 05/27/18 National Bookstore SM Puerto Princesa 2,478.00
05/27/18 05/27/18 Gerry’s Grill SM Puerto Princesa 1,098.90

3.
Date of Posting Amount
Description of Transaction
purchase Date (in peso)
Previous Statement Balance 11,522.34
06/12/18 06/12/18 Handyman Robinson’s Place Palawan 3,500.00
06/1518 06/15/18 Palawan Cafe Robinsons Place Palawan 945.00
06/16/18 06/18/18 PLDT Puerto Princesa City 1,723.00
06/20/18 06/20/18 Shakey’s Pizza House NAIA Terminal 3 2,560.75
06/21/18 06/21/18 Globe Telecom, Inc. SM Puerto Princesa 3,739.00
06/22/18 06/22/18 Payment Received – Thank you (10,000.00)
06/25/18 06/25/18 National Bookstore Robinsons Place Palawan 1,425.00
06/29/18 06/29/18 NCCC Department Store Palawan 2,321.40

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 Mathematics as a Tool
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4.
Date of Posting Amount
Description of Transaction
purchase Date (in peso)
Previous Statement Balance 5,000.00
07/10/18 07/10/18 NCCC Grocery Store Palawan 2,982.35
07/12/18 07/15/18 Watsons Megamall 945.00
07/12/18 07/12/18 Jollibee UPLB 921.75
07/16/18 07/16/18 PLDT Puerto Princesa City 1,723.00
07/18/18 07/18/18 Globe Telecom, Inc. SM Puerto Princesa 1,132.00
07/20/18 07/20/18 National Bookstore SM Puerto Princesa 2,321.40
08/06/18 08/06/18 Payment Received – Thank you (10,000.00)
08/08/18 08/08/18 NCCC Department Store Palawan 1,425.00

5.
Date of Posting Amount
Description of Transaction
purchase Date (in peso)
Previous Statement Balance 4,680.00
08/10/18 08/10/18 CitiHardware Palawan 8,575.00
08/11/18 08/13/18 Wilcon Puerto Princesa 2,745.00
08/13/18 08/13/18 Shakey’s Pizza Rizal 2019.00
08/20/18 08/20/18 PLDT Puerto Princesa City 1,723.00
08/22/18 08/22/18 Globe Telecom, Inc. SM Puerto Princesa 5,147.00
08/31/18 08/31/18 SM Grocery Puerto Princesa 2,980.15
09/06/18 09/06/18 Payment Received – Thank you (20,000.00)
08/09/18 08/09/18 NCCC Department Store Palawan 3,799.00

References

1. Aufmann, R. er.al. (2018). Mathematical in the Modern World Excursions. Manila,

Philippines: Rex Book Store, Inc.
2. Bluman, A. G. (2003). Elementary Statistics: A Step by Step Approach. 5 th Ed. McGraw Hill,
Inc.
3. CENGAGE (2018). Mathematics in the Modern World.
4. DS Malik, MK Sen. Discrete Mathematical Structures.
5. Johnsonbaugh, R. Discrete Mathematics.
6. Guillermo, R.M. (2018). Mathematics in the Modern World. Quezon City: Nieme Publishing
House Co. Ltd.
7. Lactuan, I. R. et. al. (2018). Instructional Material in Mathematics in the Modern World.
Puerto Princesa City: Palawan State University.
8. Nocon, R. C. & E. G. Nocon (2018). Essential Mathematics for the Modern World. C & E
Publishing, Inc.
9. Nocon and Nocon (2018). Essential Mathematics for the Modern World.
10. Stewart, I. Nature’s Numbers. http://ian-stewart-numerele-naturii.pdf
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Prentice Hall Int’l. Inc.
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13. https://problem-solving_by_Loren%20C.%20Larson.pdf

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