GENERAL
MATHEMATICS
Chapter 4: Business Mathematics
Chapter 4: Business Mathematics
◦ Simple Interest
◦ Compound Interest
◦ Present Value
◦ Maturity Value
◦ Simple Annuities
◦ General Annuities
◦ Stocks
◦ Bonds
◦ Amortization
Lesson 1: Simple and Compound Interest
The sum of money paid for the use of money is called interest.
The interest earned on a deposit or charged against a loan depends on
three factors.
a) Rate of interest (r) – given by the bank or charged by the lender
b) Length of time (t) – period where the money is deposited or
borrowed
c) Principal (P) – sum of money invested/borrowed
Lesson 1: Simple and Compound Interest
Simple Interest on a deposit or loan is computed once for the full
term of the loan.
Compound Interest is when earning is added to the principal at
regular intervals and the sum becomes the new principal.
Lesson 1: Simple and Compound Interest
1. Suppose you won 10, 000 pesos and you plan to
invest it for 5 years. A cooperative group offers
2% simple interest rate per year. A bank offers
2% compounded annually. Which will you
choose and why?
Lesson 1: Simple and Compound Interest
2. Brando borrowed 15, 000 pesos from a bank
charging 7% simple interest with an agreement
that he would pay the principal and the interest at
the end of the term. If he paid 17, 100 pesos at
the end of the term, for how long did he use the
money?
Lesson 1: Simple and Compound Interest
3. Jonathan invested 75, 000 pesos in the stock
market which guaranteed an interest of 11, 250
pesos after one and a half years. At what rate
would his investment earn?
Lesson 1: Simple and Compound Interest
4. Julius paid an interest of 5, 000 on a three year
loan at 8% simple interest. (a) What was the
original loan? (b) How much did he pay at the
end of three years?
Lesson 1: Simple and Compound Interest
5. How much interest will 70, 000 pesos earn for
one and one-half years if invested at 8%
compounded semi-annually?
Lesson 1: Simple and Compound Interest
6. Lina deposited 1, 500 pesos in a bank with 12%
interest compounded quarterly. How much will she
have in her account at the end of one year?
Lesson 1: Simple and Compound Interest
7. Mr. Fernando wants to have 40, 000 in his account
by the end of 3 years. How much should he invest
today in the bank paying 8.5 % interest compounded
semi-annually?
Lesson 1: Simple and Compound Interest
8. Mari deposited 1, 000 pesos in a bank paying 15%
compounded daily. How much would she have at the
end of 2 years?
Lesson 1: Simple and Compound Interest
9. Dorina would like to have 5, 000 pesos one year
from today. How much should she deposit in a
savings bank paying 10% converted daily?
Lesson 2: ANNUITIES
RECALL -
◦ Present Value – value today of some amount of money
expected to be available one or more years in the future.
(money invested/deposited)
◦ Future Value – method of calculating how much the
present value of an asset or cash will be worth at a
specific time in the future.
Try to solve…
◦ Francis decided to invest his money for future use. He
deposits ₱1,500 at the end of every 6 months. He had an
agreement with the company that each of his deposits
will earn interest at 6% compounded semi-annually for 3
years. How much would he have in his account at the end
of 3 years?
Lesson 2: ANNUITIES
Definition of Terms:
◦ An annuity is a series of equal periodic payments or
deposits where the interest on each one is compounded.
Thus, the compound amount of each payment is
computed using the compound interest formula.
Lesson 2: ANNUITIES
Classifications of an Annuity:
I. By correspondence with interest periods
a. Simple Annuity is an annuity where the payment interval
coincides with the interest conversion period.
example:
Mr. Villamor enrolls his daughter Marianne in the College Educational
Plan (CEP). He pays ₱2,100 at the end of each three months. In turn, the
CEP deposits the payments in a bank which pays at 12% compounded
quarterly.
Lesson 2: ANNUITIES
Classifications of an Annuity:
I. By correspondence with interest periods
b. General Annuity is an annuity where the payment interval does
not coincide with the interest conversion period.
example:
Mr. Villamor enrolls his daughter Marianne in the College Educational
Plan (CEP). He pays ₱2,100 at the end of each three months. In turn, the
CEP deposits the payments in a bank which pays at 12% compounded
monthly.
Lesson 2: ANNUITIES
Classifications of an Annuity:
II. By date of payment
a. Ordinary Annuity is an annuity where payments are made at the
end of each payment interval.
example:
Monthly telephone bills, monthly electric bills, and house rentals
collectible at the end of each month.
Lesson 2: ANNUITIES
Classifications of an Annuity:
II. By date of payment
b. Annuity-due is an annuity where payments are made at the
beginning of each payment interval.
example:
Insurance payments, health care premiums, and school bus fees.
Lesson 2: ANNUITIES
◦
Present Value of Ordinary Annuity:
Present Value of Annuity-due:
Lesson 2: ANNUITIES
◦
Future Value of Ordinary Annuity:
Future Value of Annuity-due:
Lesson 2: ANNUITIES
Word Problems
1. Mr. Goson’s monthly insurance premium is
₱500.00, payable at the end of each month. His
policy matures 20 years later, after which, he can
withdraw all his payments plus the interest earned.
If money is worth 15% compounded monthly, how
much does he expect to withdraw on the maturity of
his policy?
Lesson 2: ANNUITIES
Word Problems
2. How much must be deposited now in a bank paying
9% compounded monthly if it is desired that a
monthly withdrawal of ₱3,000 can be made for 5
years?
Lesson 2: ANNUITIES
Word Problems
3. If money is worth 4% compounded semi-annually,
find the present value paying Php 500 semi-
annually for a term of 3.5 years.
Lesson 2: ANNUITIES
Word Problems
4. A man agrees to make equal payments at the
beginning of every 6 months for 10 years to
discharge a debt of Php 500 000, which is due as of
date, if money is worth 8% compounded semi-
annually, find the semi annual payment.
Lesson 2: ANNUITIES
Word Problems
5. Find the future value of the annuity-due with a
regular payment of Php 1 500 at 4% interest rate
compounded semi-annually for 2.5 years.
Lesson 3: AMORTIZATION
The amortization of a debt means the extinction
of the debt by any satisfactory set of payments. When
we say that a debt is amortized, it means that all
liabilities as to principal and interest are discharged
by a sequence of equal payments due at the end of
equal intervals of time.
Lesson 3: AMORTIZATION
Amortization is a form of annuity where the
original amount or debt or loan is the present value of
annuity.
(Use formula for Ordinary Annuity – present value)
Lesson 3: AMORTIZATION
Word Problems
1. Consider payments of Php 1 000 annually for 5
years to discharge a debt. If interest is 4%
compounded annually, what is the original
amount of the debt and it’s value at the end of the
term?
Lesson 3: AMORTIZATION
Word Problems
2. A debt for the purchase of household furniture will be
discharged – principal, and interest included – at 12%
payable monthly payments of Php 4 200 at the end of
each month for 2 years.
a. Find the original debt.
b. What principal remains unpaid after the fifth
monthly payment?
Lesson 3: AMORTIZATION
Amortization Schedule
(page 190 – Example 2)
LESSON 4: STOCKS AND BONDS
Stocks
LESSON 4: STOCKS AND BONDS
Bonds
LESSON 4: STOCKS AND BONDS
LESSON 4: STOCKS AND BONDS
LESSON 4: STOCKS AND BONDS
Definition of Terms (STOCKS)
LESSON 4: STOCKS AND BONDS
Definition of Terms (STOCKS)
LESSON 4: STOCKS AND BONDS
Definition of Terms (BONDS)
LESSON 4: STOCKS AND BONDS
Definition of Terms (BONDS)
