Chapter 1. Simple Interest and Simple Discount 1.1 Simple Interest

Chapter 1.
Simple Interest and Simple Discount

1.1 Simple Interest
− It is the interest on the amount invested or borrowed at a given rate and for a given time.
−It is usually associated with loan or investments which are short term in nature.
−It is computed entirely on the original principal by simply multiplying together the principal, rate and, time.
I=Prt
Where I – interest
P−principal (in pesos)
r− interest rate per period of time, expressed as percent or a fraction
t−time (in years) between the date the loan is made and the date it matures or becomes
repayable to the lender
Maturity value (F) – the total amount the borrower would need to pay back
a. F=P+I
b. F=P + Prt leading to F=P (1+rt)
Illustrative example: 1. Find the interest on a loan of ₱1,000 for one year if the interest rate is 12%.
Solution:
P=₱1,000 r=12% = .12 t=1 year
I=Prt
= (₱1,000) (.12) (1 year)
=₱120
If the term is 2 years, then the interest is:
P=₱1,000 r=12% = .12 t=2 years
I=Prt
= (₱1,000) (.12) (2)
= ₱240
Exercises 1.1
1. A student loan ₱1500 at 3% was repaid at the end of 3 years. How much interest did he pay?
Solution:
I = prt
I =1500(.03) (3)
I = ₱135.00
2. An interest of ₱720 was paid on a ₱3000 simple-interest loan at the end of 2 years. What was the
rate of interest charged?
Solution:
I=prt
720=3000(r) (2)
R=12%
3. ₱7000 is deposited to an account paying 6% simple interest. How much is in the account after 5
years?
Solution:
I=prt
I=7000(.06) (5)
I=2100
After 5 years i+p
2100+7000=₱9100.00
4. A company has issued a 5-year loan of ₱750000 to a new vice president to finance a home
improvement project. The terms of the loan are to be paid back in full at the end of 5 years, with
simple interest at 6%. Determine the interest which must be paid.
Solution:
I=prt
I=750000(5) (.06)
I=₱225000.00
5. A student has received a ₱150000 loan from a wealthy aunt in the United States in order to finance
his 4-year college course. The term is that the student is to repay his aunt in full at the end of 10
years with a simple interest of 2% per year. How much should he repay his aunt after 10 years?
Solution:
I=150000(10) (.02)
I=30000
After 10 years 30000+150000=₱180000.00
6. What principal will yield ₱201.60 interest in 3 years at 16%?
Solution:
I=prt
201.60=p (.16) (3)
P=₱420.00
7. What principal will accumulate to ₱135500 in 2 years at 15% simple interest?
Solution:
I=prt
135500=p (2)(.15)
P=₱104230.77
8. How many years are needed for ₱5700 to accumulate to ₱6555 at 19% simple interest?
Solution:
I=prt
5700=6555(.19) (t)
T=1 year and 6 months
9. How long will it take for the money to double itself at 10% simple interest?
=10 years
10. Mr. Santos plans to buy a TV set from Rollie Company, which is offered for ₱6500 cash or ₱6700 if
purchased at the end of 3 months. If money is worth 5% simple interest per month, how much
would he save by borrowing the money and paying cash?
Solution:
I=prt
I=6500(.05) (3/12)
=81.25- interest expert
6700-6500=200-81.25
₱118.75 savings
11. An interest of ₱516 was earned in 8 months on an investment at 12%. How much was invested?
Solution:
I=prt
516=p (.12)(8/12)
=₱6450.oo
12. How many months are needed to earn ₱52.50 if ₱1500 is invested at 14%?
Solution:
I=prt
52.50=1500(.14) t
=3 months
1
13. Find the maturity value on a ₱50000 loan at 144% for 7 months.
Solution:
I=prt
I=50000(.1425) (7/12)
I=4156.25
Maturity value =p + i
=50000+4156.25
=₱54156.25
14. Find the interest on a ₱6000 loan at 17% for 4 months.

Solution:
I=prt
I=6000(.17) (4/12)
I=₱340.00
15. Mary Santos bought a new car. To pay for the car, which was priced at ₱820000, she gave ₱400000
as a down payment and agreed to pay the balance in 5 months. Find the amount of interest paid if
interest rate is 10.25%.
Solution:
₱820,000-₱400,000=₱420000
I=prt
I=420,000(.1025) (5/12)
I=₱17937.50
1.2 Ordinary and Exact Interest

Ordinary Interest − It is computed when the term of the loan is given in days.
− It is 360 days in one year
𝐷
Io = Pr (360)
Exact Interest – 365 days in one year
𝐷
Ie = Pr (365)
Where D is the number of days of a given term.
Illustrative Example:
1. Find the ordinary and exact interest on ₱15,000 if it is invested at 12% for 60 days.
a. Ordinary Interest
P= ₱15,000 r=12% D=60 days
Solution:
𝐷
Io = Pr (360)
60
= (₱15,000) (.12) (360)
1
= (₱15,000) (.12) ( )
6
=₱300
b. Exact Interest
P=₱15,000 r=12% = .12 D=60 days
Solution:
𝐷
Ie = Pr (365)
60
= (₱15,000) (.12) (365)
=₱295.89
1.3 Approximate and Exact Time

1. On May 4, 2004 Julie borrowed ₱22, 000 at 10 % interest. Interest and principal were due on September
6, 2002. What was the total amount paid by her on that date?
P=₱22, 000 r=10%=.10 r=may 4 to September 6, 2002
Solution: To find an interest due on September 6, 2002, we will find first the time between May 4 and
September 6, 2002.
1. Approximate time
Year Month Day
2002 9 6
2002 5 4
4 2 − 4 months and 4 days
To find the number of days: (4 × 30 days) + 2 days = 120 + 2 days = 122 days.
Using approximate time, the total amount paid by Julie on September 6, 2002 can be obtained by the
following solution:
𝐷
F=P [1 + 𝑟 (360)]
122
= ₱22, 000 [1 + .10 (360)]
= ₱22, 000(1.033888889)
= ₱22,745.56
2. Actual time
Solution:
1. May (31-4) 27 2. September 6 249
June 30 May 4 124
July 31 125 days
August 31
September 6
125 days
To find now the total amount paid by Julie on September 6, 2002, Using actual time, we have
𝐷
F = P [1 + 𝑟 (360)]
125
= ₱22, 000 [1 + .10 (360)]
= ₱22, 000(1.034722222)
= ₱22,763.89
Exercise 1.2
Exercises on Approximate and actual time
Date of investment Date of Maturity Approximate No. Days Actual No. of Days
1. September 4, 2003 February 12, 2003 158 161
2. August 22, 2001 March 25, 2002 215 214
3. September 18, 2003 December 12, 2004 85 84
4. May 14, 2000 October 10, 2002 149 147
5. November 30, 2003 March 31, 2004 121 119
6. May 21, 2002 September 23, 2002 125 123
7. October 13, 2002 March 20, 2003 158 156
8. June 25, 2002 August 12, 2003 48 47
9. January 6, 2004 May 20, 2004 134 133
10. October 17, 2003 April 8, 2004 173 170
Exercise 1.2.1
Application Problems on Ordinary and Exact Interest,
Approximate and actual time
1. Find the Ordinary and exact interest if ₱6,500 is borrowed at 24% for 120 days.
Solution:
Io= 360 Ie = 365

120 120
= ₱6,500 (.24) (360) = ₱6,500 (.24) (365)
= ₱520 = ₱512.88
2. Allan Castro borrowed ₱3,785 from a friend and promised to repay him in 90 days plus 12% interest. How
much will he pay when the loan matures using exact interest?
Solution:
I = Prt MV = I + P
70
= ₱3,785 (.12) (365) = ₱11.99 +₱3785
= ₱111.99 = ₱3896.99
3. On what day will ₱8,000 earn ₱180 interest when invested on April 25, 2002 at 9% simple interest? Use
ordinary interest and actual time.
Solution:
I
t = Pr
180
=
8,000(.09)
= .25
4. On September San Juan went to ABC bank to borrow ₱230,000 at 9% interest. Jody repaid the loan on January
27, 2003. Assuming the loan is on exact time, ordinary interest, how much did Jody repay on the maturity date?
Solution:
I=prt MV = I + P
137
= ₱230,000 (.09) (360) = ₱230,000 +₱7,877.5
=₱7,877.5 = ₱237,877.5
5. In problem number 4, suppose Kaye Reyes met Jody San Juan at ABC bank and suggested she consider the
loan on exact time, exact I, recalculate the loan for Jody Under this consumption. What is your recommendation
to Jody?
Solution:
I=prt MV = I + P
137
= ₱230,000 (.09) (365) = ₱230,000 + ₱7,769.5
=₱7,769.59 = ₱237,769.59 ̶ ̶ in exact interest and exact time
6. Borris buying a van from the interest at his time deposit in a bank. His April monthly interest at 12% was
₱125,000. What was Borris’ principal balance at the beginning of April? Use 365 days.
Solution:
I
P = rt
125,000
= 30
12( )
365
= 12,626,262.6
1
7. Using approximate time, find the exact interest on ₱75,000 at 84 % from March 8, 2002 to May 25, 2003.
Solution:
I=prt
443
= ₱75,000 (.0825) (365)
= ₱7,509.76
8. Mark Lopez went to his bank to find out how long it will take for ₱10,000 to amount to ₱10,700 at 12% simple
interest. Express answer in days.
Solution:
I
I=prt t=
Pr
I 700
= 10,000 t = Pr = 10,000(.12)
= ₱700 = 213
9. What is the exact simple interest rate using exact time if ₱6,000 grew to ₱6,168 from February 24, 2001 to
May, 2001?
Solution:
I
r=
Pt
168
= 83
6,000( )
365
= 12.31%
1
10. On the first day of October 2002, Albert Flores had ₱21,455 in an account that earns 102% interest. How
much interest was added to his account at the end of December of the same year if he made no conditions or
withdrawals during this time? Use the banker’s rule.
Solution:
I=prt MV = I + P
89
= ₱21, 455(.1050) (360) =₱556.94 + ₱21, 455
=₱556.94 = ₱22,011.94
Exercise 1.3
Exact and Approximate Time between Two Dates
Date of investment Date of Maturity Exact No. of Days Approximate No. Days
1. July 15, 2001 March 10, 2002 238 235
2. February 2, 2003 August12, 2003 191 190
3. April 20, 2003 November 6, 2003 200 196
4. June 5, 2003 October 12, 2003 129 127
5. March 28, 2003 September 25, 2003 181 177
6. May 8, 2003 December 10, 2004 582 572
7. July 6, 2003 January 4, 2004 182 178
8. January 17, 2003 July 8, 2003 172 171
9. August 24, 2003 February 28, 2004 188 184
10. Sept. 30, 2003 April 15, 2004 198 195
Exercise 1.3.1
Problem Solving on Ordinary and Exact Interest; Exact and Approximate Time
3
1. Find the ordinary interest and the amount on ₱6.200 at 74%for 65 days.
Solution:
I =Prt
65
= ₱6,200 (.0775) ( )
360
= ₱86.76
2. What principal invested on July 6, 2003 will amount to ₱12,000 on December 12, 2003 if the rate is 9.5% and
exact simple interest for the exact time is used?
Solution:
I
P = rt
12,000
= 159
.0095( )
365
= ₱289,970.21
3. If ₱15,000 is borrowed on April 20, 2003 at 6% on what day will payment of ₱15,600 repay the debt and
interest?
Solution:
I
t = Pr
600
=
15,000(.06)
= .6667 or 240 days
4. What is the ordinary simple interest rate if ₱3,000 earns ₱90 from February 12, 2003 to august 8, 2003?
Solution:
I
r = Pt
90
= 177
3,000( )
360
= 0.0610
= 6.10%
5. Using approximate time, find the exact interest on ₱5,800 at 11% from May 15, 2002 to July 20, 2003?
Solution:
I =Prt
425
= ₱5,800(.11)( 365)
= ₱742.88
6. Find the ordinary simple interest on ₱4,200 at 8.25% using approximate time from March 3, 2003 to June 5,
2004.
Solution:
I =Prt
452
= ₱4,200 (.00825)( 360)
= ₱435.05
7. Find the exact interest and the amount on ₱2,500 at 9% for 40 days.
Solution:
I =Prt
452
= ₱4,200 (.00825) ( )
360
= ₱435.05
8. Using the banker’s rule, find the simple interest and the maturity value if ₱9,000 is invested at 12% from June
12, 2002 to May 6, 2003.
Solution:
I =Prt MV = ₱984 + ₱9,000
328
= ₱9,000 (.12) ( 360) =₱9,984
= ₱984
3
9. Using exact time, find the ordinary interest on ₱6,400 at 94 from January 25, 2002 to February 20, 2004.
Solution:
Io =Prt
391
= ₱6,400 (.0975) ( 360)
= ₱677.73
10. What is the exact simple interest rate using exact time if ₱1,500 earns ₱200 from July 10, 2002 to August 20,
2003.
Solution:
I
r=
Pt
200
= 406
1,500 ( )
365
= .1199 or 11.99%
1.4 Simple Discount
If (I) is calculated on the principal (P) at the start of the interest period, discount (D) is calculated on the
amount (F) at the end of the period.
Discount (D) is a deduction from the maturity amount (F) of an obligation allowed to paying it currently.
Formulas:
D = Fdt, Where D= discount To find P, use
F= amount P= F – D or P = F (1− dt)
d= discount rate
t= time or term of discount
Derived Formulas:
D D D
d = Ft , t = Fd and F = dt ,
Example:
1. Find the present value of ₱2, 000 which is due at the end of 90 days at 5% simple discount.
1
Given: F = ₱2,000 t=4 d = .05
Solution:
D = Fdt P=F−D
1
= ₱2,000 (.05) ( 4 ) = ₱2,000 − ₱25
= ₱25 = ₱1.975
Alternative solution:
D = F (1−dt)
1
=₱2,000 [1 − (. 05) (4)]
= ₱1,975
1
2. Accumulate ₱ 4,200 for 2 years and 3 months at 62 % simple discount.
1
Given: P = ₱4,200 t = 2 4 years d = .065
Solution:
P
F=
1−𝑑𝑡
₱4,200
= 1−(.65)(2 1 )
4
= ₱4, 919.47
Exercise 1.4
3
1. Find the present value of ₱5,000 due at the end of 6 months if the discount rate is 54 %.
P= FDT
6
=5, 000(12 )(.0575)
=₱ 143.75
P = ₱5,000 – 143.75
1
2. Discount ₱6,500 for 120 days at 4 % simple discount.
2
P = Fdt P=
6
=₱5,000 ( ) (. 0575)
12
= ₱143.75
1
3. Discount ₱4,250 for 1 year and 2 months at 72% simple discount.
1
4. Accumulate ₱3,200 for 2 years and 6 months at 5 % simple discount.
2
1
5. Accumulate ₱3,000 for 1 year and 9 months at 64 %
simple discount.
6. If ₱2,500 is due on September 20, 2003, find its value on June 22, 2003 if the discount rate is 6 %.
7. Find the discount rate if ₱7,000 is the present value of ₱7,500 which is due at the end of 6 months.
8. If ₱2,421 is the present value of ₱2,500 which is due in 6 months, find the discount rate.
1
9. Find the amount due on February 3, 2004 if the value on October 6, 2003 is ₱5,250 at 64% simple
discount.
10. How long will it take ₱5,850 to amount to ₱6,500 at simple discount rate of 5%?
11. When will ₱3,000 be the present value of ₱3,150 if the discount rate is 6%?
1.5 Promissory Notes

− It is a written promise by the drawer to pay a certain amount of money to the drawee at a specified time.
− It is also a negotiable instrument which can be sold to the bank or any lending agency at a specified
discount rate.
Discounting a note – cashing a note at a bank
Bank discount − the bank or the lending agency collects interest in advance
Features:
1. Date of the note – the date the note was written (Dn).
2. Maturity date –the date the note is due (Md)
3. Date of discounting – the date the note is to be discounted (Dd)
4. Face value – stated amount in the promissory note or present value (P).
5. Maturity value – the sum of the face value and the interest or the final amount (F).
6. Term of the note – the difference between the date of the note and its maturity date (tn).
7. Term of discount – the difference between the maturity date and the date of discounting. If this is
given in days, the banker’s rule is used (td).
8. Proceeds – remaining amount after the bank discount is deducted from the maturity value.
Formulas:
𝑑𝑎𝑦𝑠 𝑑𝑎𝑦𝑠
I = Pr( ) or I = Pr tn D = Fd ( ) 𝑜𝑟 D = Fd td
360 360
F=P+I 𝑑𝑎𝑦𝑠
Proceeds = F [1 − d ( )] or
360
Md = Dn + tn
Proceeds = F – D or f (1−d td)
Td = Md – Dd
Where:
r, rate of interest Dd, date of discount
d, rate of simple discount tn, term of the note
tn, term of the note in years Dn, date of the note or initial date
td, term of discount in years Md, maturity date or final date
I, amount of simple interest Pr, amount of proceeds, amount payable at
D, amount of simple discount the discount date
P, Principal or face value
F, final amount or maturity of the note
3
Mr. Mananquil has a five month note of ₱15,900 dated February 6, 2002 bearing interest at 8 %. If she
5
sells the note on April 10, 2002at a bank discount rate at 8%, determine the proceeds.
Given:
FV = ₱ 15, 900 3
r = 8 % = 8.6 % = .086
5
Dn = February 6, 2002 Dd = April 10, 2002
tn = 5 months d = 8% = .08
Required: Proceeds =?
Solution:
tn
F = P [1 + r (12)]
5
= ₱15,900 [1 + .086 (12)]
= ₱16,469.75
Md = Dn + tn
= February 6, 2002 + 5 months
= July 6, 2002
Td = Md – Dd
= July 6, 2002 – April 10, 2002
=187 – 100
= 87 days
𝑑𝑎𝑦𝑠
Proceeds = F [1 − d ( 360 )]
87
= ₱16, 469.75 [1 − .08 (360)]
= ₱16, 151.33
Exercise 1.5
Problem Solving Involving Promissory Note
1. A 150−day note for ₱12,500 dated June 3, 2002 with interest at 11% is discounted on September 3, 2002 at
1
82% simple discount. Find the
a. maturity date
Solution:
June 3, 2002 154
150
304 𝑑𝑎𝑦𝑠
b. maturity value
Solution:
F=P+I
= 180/360
c. term of the discount
Solution:
150
I = ₱12,500 × .11 ×
360
=₱172.92 + ₱12,500
d. discount
Solution:
td
D =F × d ×
360
58
=₱13072.92 × .0850 ×
360
=₱ 179.03
e. proceeds
Solution:
P=F–d
= ₱13,072 - ₱179.03
= ₱12,893.89
2. A note for ₱9,000 dated August 12, 2002 is due on October 20, 2002 with simple interest at 9%. If the note is
discounted on August 20, 2002 at 13%, how much should the proceeds be?
Chapter 2: Compound Interest

2.1 Finding the Compound Amount
̶ Compound Interest is the sum by which the original principal has been increased by the end of the
contract. The original principal plus the compound interest, is called the Compound Amount.
Annually m=1
Semi-annually m=2
Quarterly m=4
Monthly m=12
Example 1
Find the compound amount of ₱20,000 compounded semi-annually for 2 years at 12%.
12%
m=2 i= 2
=6%
t=2 years n=m x t = 2 x 2 = 4
Solution:
₱20,000.00 = original principal

+ 1,200.00 = interest for six months (20,000 x .06)
₱21,200.00 = new principal at the end of 6 months
+ 1,272.00 = interest for 1 year (21,200 x .06)
₱22,472.00 = new principal at the end of 1 year
+ 1,348.32 = interest for 1 ½ years (22,472 x .06)
₱23,820.32 = new principal at the end of 1 ½ years
+ 1,429.22 = interest at the end of 2 years (23,820.32 x .06)
₱25,429.54 = compound amount at the end of 2 years
𝑗
F = P (1 + 𝑚)mt and I = F –P
Or
F = P (1 + i)n
Where; P=original principal I=compound interest

𝑟
F=compound amount i=periodic rate (𝑖 = 𝑚)
n=number of conversion period for the whole term (n=mt)
m=number of conversion periods
t=time of term of investment which is expressed in years
j=nominal rate of interest per year.
2.2 Finding the Compound Amount−when n is Not an Integer
Example:
1
Accumulate ₱6,500 for 4 years and 5 months at 52% compounded semi-annually. (using scientific
calculator)
5 53 106
Let P = ₱6,500 n =mt = 2(2 )= 2( )= = 8.833…
12 12 12
𝑟 .055
t = 4 yrs and 5 mos I = 𝑚 = 2
= .0275
m=2
1
r = 52 % = 5.5% = .055
F = P (1 + i)1/n
=₱6,500 (1 = .0275)8.8333…
=₱6,500 (1.0275)8.8333…
=₱6,500 (1.27077572)
F = ₱8,260.04
2.3 Finding the Compound Amount at Changing Rates

During the investment term, the creditor may change the previous interest rate which is applied to his
investment especially when the debtor demands for an extension of payments or when he can pay earlier than
the specified maturity date. Hence, the accumulated value varies with the term as the change of interest rate is
applied.
The accumulated value of the principal is calculated by applying the first interest rate to the principal for
its corresponding term, then apply the next interest rate to the amount obtained from the first interest rate and
so on until the final amount reaches on the final date.
Example :
Find the amount at the end of 13 years of ₱5,500 which is invested at the rate of 12% compounded
quarterly in the first 4 years, 10% compounded semi-annually in the next 7 years, and 8% effective in the
remaining years.
Given: j=12% j =10% j=8%

m=4 m=2 m=1
i=.03 i=.05 i=.08
t=4yrs t=7yrs t=1yr
n=16 n=14 n=1
F1 = ₱5, 500(1.03)16 F2 = ₱8, 825.885(1.05)14 F3 = ₱17, 474.65(1.08)1

= ₱5, 500(1.604706439) = ₱8, 825.885(1.9799316) = ₱18, 872.62
F1 = ₱ 8, 825.885 F2 = ₱17, 474.65
2.4 Finding the Present Value
The Present Value is defined as the principal which you would have invest now at a given interest rate,
so that will amount to some predetermined future sum of money. The Compound Discount is the difference
between the future value and the present value. The formula for the present value or discounted value of an
amount is given by
P = F/(1 + i)n or P = F(1 + i)-n D = F-P
Example:
1
If money can be invested at 32% compounded quarterly, find the present value of ₱6,500 due at the end
of 2 years and 3 months.
.035
Let F =₱6,500 i= 4
= .00875
3 27
m=4 n = mt = 4(2 )= 4( ) = 9\
12 12
t = 2 years and 3 mos.

1
r=3 %
2
so, P = F(1 + i)-n

= ₱6,500 (1 + .00875)-9
= ₱6,500 (1.00875)-9
= ₱6,500 (0.92458761)
P = ₱6,009.82
2.5 Finding the Present Value for n Not an Integer

The given problems involve an interest rate which is not found on the table and the term which is not
an integer.
Example 1
Find the present value of ₱7,600 due at the end of 4 years and 4 months, if money is worth 6%
compounded quarterly.
.06
Let F = ₱7,600 I= 4
= .015
4 52 1
m=4 n = mt = 4(4 12) = 4(12) = 173
1
P = ₱7,600 (1 + .015)- 173
1
=₱7,600 (1.015)- 173
=₱7,600 ( 0.772580047)
P = ₱5,871.61
2.6 Equivalent Rates
Two interest rates are said to be equivalent if they give equal compound amounts at the end of the
same term. Generally, the nominal rate j, is equivalent to the nominal rate j, if and only the accumulated value
of any amount P at a nominal rate j, is equal to the accumulated value of the same amount P at nominal rate j,
for equal period of investment.
Illustration:
At j1 = 8.4116% and m = 4, if P = 1,000 and t = 2 yrs, then the accumulate value is
0.084116 4(2)
F = 1000 (1 + 4
)
= 1,000 ( 1.021029)8
=₱ 1, 181.15
Diagram:
At j2 = 8.5% and m = 2, if P =1,000 and t = 2 years then the accumulate value is
0.085 2(2)
F = 1,000 ( 1 + 4
)
= 1,000 (1.04205)4
= ₱1,181.15
Diagram:
The formula for j, is given as
J1 = m1
The formula for w is given by

𝑗 m
W = (1 + ) – 1
𝑚
2.7 Continuous Compounding
It is very important to realize that for any nominal rate j, as the conversion period m increases, the
value of its equivalent effective rate w also increases. However, as m frequently increases, such as daily, hourly,
or even infinitely, the accumulation factor approaches the value ej where e = 2.71828. this kind of nominal rate
is called an interest rate which is compounded continuously, denoted as jc.
To find the accumulated value of any amount P at an interest rate jc compounded continuously ( also
called force of interest ), use the formula F = Pejc(t)
and therefore, the formula for the present value of any amount F at a force of interest jc is
P = Fe-jc(t)
Another equivalent relation states that the nominal rate jc, compounded continuously is
equivalent to the effective rate w, if and only if the accumulated value of any amount P at the effective rate w is
equal to the accumulated value of the same amount P at the force of interest jc for any time t, that is shown in
the working equation.
Hence:
log(1+𝑤 ) Or log(1+𝑤)
Jc = Jc =
log 𝑒 log 2.71828
Example:
Find the accumulated value of ₱50,000 if it is invested for 5 years at 10% interest compounded
continuously.
Solution:
Let P = 50,000 t = 5 years jc = 10% = 0.1 and F=?
Then F = Pejc(t)
= 50,000e(0.1)(5)
= 50,000(2.71828)0.5
= 50,000(1.6487213)
= ₱82,436.06
2.8 Finding the Interest Rate

There are situation that the interest rate is unknown in the investment problem, whereas the present
value, final value, and term of investment are known. An awareness of how fast money will bear interest will
help anyone to value his own possession.
There are two ways derive a formula for the nominal rate, j, with the given convention period, m,
present value, P, final value, F, and term of investment , t.
By logarithmic Method
To find the periodic rate of interest, j, begin from the formula
F = P ( 1+ i)n
log F = log P + n log ( 1+ 1)
n log ( 1 + i ) = log F – log P
log 𝐹−log 𝑃
log ( 1 + i ) = 𝑛
log 𝐹−log 𝑃
1 + i = antilog ( 𝑛
)
Hence, the formula for i is given by

log 𝐹−log 𝑃
i = antilog ( 𝑛
)– 1
𝑗
and finally, from i = 𝑚, the unknown periodic rate is j = (m)(i)
by Exponential Method
Again, to find the periodic rate of interest j, begin from the formula
F = P (1 + i )n
𝐹
= ( 1 + i )n
𝑃
𝐹
1 + i = (𝑃)
The formula for j is given by

𝐹 1
J = m [(𝑃) 𝑛 - 1]
Example:
At what rate compounded quarterly will ₱7,000 become ₱18,500 at the end of 11 years?
Solution:
Let P = 7,000 F = 18,500 n = 4 (11) = 44 m=4 and j=?
Substituting the given values to the formula,
By Logarithmic Method
log 18,500−log 7,000
i = antilog ( 44
)– 1
4.26717173−3.84509804
= antilog ( 44
)− 1
= antilog ( 0.00959258) – 1
i = 0.02233348
Thus the unknown nominal rate is
J = 4 ( 0.02233348 )
= 0.08933392
= 8.93%
2.9 Finding the Time or Term of Investment

It is very important for an investor to know how long it will take his money to accumulate into his
desired amount. The term of investment or the length of time, t, for a given amount P to accumulate into an
amount, F, at a given interest rate (j, m), may be obtained through a Logarithmic Method.
To derive the formula for time, t, begin from the formula
F = P(1 + i)n
𝐹
log (𝑃) = n log (1 + i)
𝐹
𝑙𝑜𝑔( ) log 𝐹−log 𝑃
𝑃
Hence, n= or n=
log(1+𝑖) log(1+𝑖)
And for n = mt, the unknown time in years is therefore,

𝑛
t=𝑚
Example:
On January 25,2003 Mrs Sally Lorenzo had ₱400,000 on a trust fund which earns 14% converted
quarterly. She plans to put up a cake and pastry business as soon as the fund contains an amount of ₱500,000.
On what date will that amount be available?
Solution:
Let P = 400,000 F = 500,000 j = 0.14 m=4 and t=?
Then from the formula
𝑗
F = P (𝑚)4t
0.14 4t
500,000 = 400,000 (1 + 4
)
1.25 = (1.035)4t
log 1.25 = 4t log 1.035
log 1.25
4t = log 1.035
0.09691001
=
0.01494035
t = 1.6216 years or
t = 1 year, 7 months and 14 days
2.10 Valuation of Contracts and their Comparison

Example:
₱15,000 is due in 7 years. If money is worth 9.5% compounded semi-annually, find:
a. Its value on the present date
b. Its value if payment will be given 3 years before its due
c. Its value if payment will be given 2 years after its due date
Solution:
0.095
a. Let F = 15,000 i = = 0.0475 n = 2(7 years) = 14 and x= ?
2
ILLUSTRATION
Then
x = P = 15,000(1.0475)-14
= 15,000 (0.52220804)
x = ₱7,813.21
b. Let F= 15,000 i = 0.0475 n = 2(3 years) = 6 and x=?
ILLUSTRATION
Then
x = P = 15,000(1.0475)-6
= 15,000 (0.75696502)
x = ₱11,354.48
c. Let P = 15,000 I = 0.0475 n = 2(2) = 4 and x=?
ILLUSTRATION
Then
x = F = 15,000 (1.0475)4
= 15,000 (1.20397128)
x = ₱18,059.57
2.11 Comparison of Values

Example:
If money is worth 8%, (m = 2), which obligation is more valuable:
a. ₱8,500 due at the end of 3 years without interest; or
b. ₱7,000 due at the end of 2 years with accumulated interest from today at 9%, (m = 4).
ILLUSTRATION
Solution:
0.09
Let P= 7,000 i= = 0.0225 n = 4(2) = 8
4
Then
F = 7,000(1.0225)8
= 7,000 (1.19483114)
= ₱8,363.82. . . . This is the value of obligation (b) at its maturity date. If comparison
0.08
date is at t = 2 then discount obligation (a) for n = 2(1) at i = = 0.04. Therefore,
2
P = 8,500 (1.04)-2
= 8,500 (0.092455621)
= ₱7,858.73
2.12 Equation of Values

Sum of the values of old obligations = Sum of the values of new obligations
According to the selected Focal Date, FD.
Procedure:
Step 1. Represent the unknown with the letter x.
Step 2. Construct the Time Diagram
a. Locate the due amounts of the set obligations on the upper part of the diagram,
b. Locate the due amounts of the set of new obligations on the lower part of the diagram
Step 3. Select the most convenient Comparison or Focal Date, FD. Draw arcs from each due amount of the old
and new obligations, all arcs pointing towards the Focal Date.
Step 4. Prepare an equation of values by adjusting the exponent of each accumulation factor, (1 + i)n, according
to the chosen Focal Date.
Example:
A debtor owes ₱20,000 at the end of 2 years and ₱50,000 at the end of 8 years. If interest is at 7%
effective rate, what single payment at the end of 6 years would liquidate both debts?
Solution:
Let x be the single payment. Draw a time diagram and locate the two old obligations and the new single
payment.
Diagram:
The focal date may be chosen arbitrarily but for convenience, choose end of 6 years as focal
date. Thus ₱20,000 must be accumulated for 4 years at 7% effective rate and ₱50,000 must be
discounted for 2 years at 7% effective rate. The single payment x which lies at the focal date is neither
accumulated nor discounted.
The equation of values may now be expressed as
New payment = Sum of Old Payments (at focal date –end of 6 years)
x = 20,000 (1.07)4 + 50,000 (1.07)-2
=20,000 (1.310790601) + 50,000 (0.873438728)
=26,215.92 + 43,671.94
x = ₱69,887.86
Chapter 3: Simple Annuities and their Applications

3.1 Basic Concepts and Terminologies
Annuity− a sequence of payments, usually, equal, made at regular intervals.
Annuity certain – it is certain when the term of annuity is fixed
Contingent annuity or annuity uncertain – is one for which the first and last payments or both cannot be foretold
accurately
Payment – The time between successive payments whereas interval or conversion period
Periodic payment− the size of each payment
Term of annuity− the time from the start of the first payment to the last.
Simple annuity− when the payments interval coincides with the interest conversion period.
Ordinary annuity− is one for which the periodic payment are made at the end of each period
Annuity due – when the payments are made at the beginning of each period
Deferred annuity− one whose first payment is due at some later time
The following symbols will be used in dealing with ordinary annuity formulas.
R = periodic payment of the annuity
n = total number of payments
i = interest per conversion period
S = amount of annuity
A = present value of an annuity
3.2 Amount and Present Value of an Ordinary Annuity
The amount or final value, denoted by S, of an ordinary annuity is the sum of all accumulated value of
the sets of payments due at the end of the term, while the present value of an annuity, denoted by A, is the sum
of all discounted value of several payments due at the beginning of the term.
A and S are related by the equations
A = S (1+i)-n and S = A (1+i) n
Where, A is the present value of S due in the periods
S is the amount of A for n periods
Illustrative example
Consider an ordinary annuity of ₱10,000 per year payable for 3 years with money worth 10%. To find the
amount S of the annuity, add the accumulated payments of each period at the end of 3 years.
3.1 Basic concepts and Terminologies
An annuity is a sequence of payments, usually equal, made at regular intervals. Some examples
of annuities are quarterly payments of a lot’s amortizations, premiums on insurance, periodic
pensions, monthly payments on installment purchases, among others.
Annuities are divided into: annuity certain and contingent annuity or annuity uncertain. Annuity
certain; when the term of the annuity is fixed. A contingent annuity is one for which the first and
last payments or both cannot be foretold accurately.
The following symbols will be used in dealing with ordinary annuity formulas:
R - periodic payment of the annuity
n - total number of payments
i - interest per conversion period
S - amount of an annuity
A - present value of an annuity

The amount or final value, denoted by S, of an ordinary annuity is the sum of all the
accumulated value of the set of payments due at the end of the term, while the present value of an
annuity, denoted by A, is the sum of all the discounted value of several payments due at the
beginning of the term.
 A and S are related by the equations
A = S(1 + i)-n and
S = A(1 + i)n
where A is the present value of S due in n periods and
 Illustrative Example
Consider an ordinary annuity of ₱10,000 per year payable for 3 years with money worth
10%.
To find the amount S of the annuity, add the accumulated payments of each period to the
end of 3 years.
Term
₱10,000 ₱10,000 ₱10,000
P10,00 0
0 1 2 3
₱10,000 = P10,000
₱10,000(1 +.10)1 = 11,000
₱10,000(1 +.10)2 = 12,100
S = P33,000
To find the present value of an annuity, add the discountedTerm
payments.
₱10,000 ₱10,000 ₱10,000

P10,00 0
0 1 2 3
₱10,000(1 + .10)-1 = ₱9,090.91
₱10,000(1 +.10)-2 = 8,264.46
₱10,000(1 +.10)-3 = 7,513.15
A = ₱24,868.52
certain; when the term of the annuity is fixed. A contingent annuity is one for which the first and last
payments or both cannot be foretold accurately.

A = S(1 + i)-n and
S = A(1 + i)n
10%.
end of 3 years.
Term
₱10,000 ₱10,000 ₱10,000
P10,00 0
0 1 2 3
₱10,000 = P10,000
₱10,000(1 +.10)1 = 11,000
₱10,000(1 +.10)2 = 12,100
S = P33,000
payments.
₱10,000 ₱10,000 ₱10,000

P10,00 0
0 1 2 3
₱10,000(1 + .10)-1 = ₱9,090.91
₱10,000(1 +.10)-2 = 8,264.46
₱10,000(1 +.10)-3 = 7,513.15
A = ₱24,868.52
Hence, from the relation
A = S(1 + i)-n and S = A(1 + i)n
A = 33,100(1 + .10)-3 and S = 24,868.52(1 + .10)3
A = ₱24,868.52 S = ₱33,100
3.3 Ordinary Annuity Formulas

The periodic of R for n periods.
Term
R R R R R
0 1 2 3 n-1 n (periods)
R
R(1 + i)1
.
.
.
R(1 + I)n-3
R(1 + I)n-2
S = sum of the accumulated values of R at the end of the
R(1 +term
I)n-1
(1) S = R + R(1 + i) + . . . R(1 + i)n-3 + R(1 + i)n-2 + R(1 + i)n-1
multiplying (1) by (1+i)
(2) (1 + i)S = R(1 + i) + R(1 + i)2 . . . R(1 + i)n-3 + R(1 + i)n-1 + R(1 + i)n
subtracting (1) from (2) we get

(1 + i)S – S = R(1 + i)n –R
iS = R[(1 + i)n –1]
𝑅(1+𝑖)𝑛 −1
S=
1
(1+𝑖)𝑛 −1
or S =R 𝑖
if we let Sn¬ i = (1+𝑖)𝑛 −1

𝑖
the formula for S can be written as

Sn¬ i = Rsn¬ i
where S id the amount of an ordinary annuity

R is the periodic payment
𝑗
I = 𝑚 = interest rate per period
N = mt = number of payments
The symbol, Sn¬ I, is read as “S angle n at I”

(1+𝑖)𝑛 −1
Sn¬ i = 𝑖
To derive the present value of an ordinary annuity we use the relation
A = S(1 + i)-n
A = RSn¬ i(1 + i)-n
(1+𝑖)𝑛 −1
A = R[ 𝑖
](1 + i)-n
1−(1+𝑖)−𝑛
A = R[ 𝑖
]
1−(1+𝑖)−𝑛
if we let n¬ i = 𝑖
then the formula of A can be written as

A = Ran¬ i
where A is the present value of the annuity an¬ I, is read as ”a angle n at i”

1−(1+𝑖)−𝑛
an¬ i = 𝑖
Illustrative Example 1
Find the amount and present value of an annuity of ₱1,500 payable for 2 years if money
is worth 105 compounded semi-annually.
Given R = P1,500 𝑗 .10
i = 𝑚= 2 =.05
j = 10% - .10
n = mt = 2(2) = 4 periods
i = 2 years
Find S and A
m=2
To find S
S = Rsn¬ i
S = 1,500svn¬ .05
S = 1,500(4.310125)
S = P6,465.19
(1+.05)4 −1
or S = R[ 𝑖
]
(1+.05)4 −1
s= 1,500[
.05
]
s = 1,500(4.310125)
s = ₱6,465.45
to find A
or by using the relation
A = Ran¬ i
A = S(1 + i)-n
A = 1,5004¬ .05
A = 6,465.19(1 + .05)-4
A = 1,500(3.54595)
A = P5,318.93
A = P5,318.93
Mrs. Cruz purchased a house and lot. If she paid ₱400,000 as down payment and
promised to pay P5,000 every 3 months for the next 10 years at 15% compounded quarterly,
find the cash value of the house.
Given: DP = 400,000 j = 15% t = 10 yrs.

R = 5,000 m=4
Solution:
The down payment is not part of the annuity. The cash value of the house is ₱400,000
plus the present value of the ordinary annuity of 40 monthly payments of P5,000 each. The
cash value is
Cash Value = down payment + Ra n¬ I

= ₱400,000 + 5,000 40¬ .0375
= 400,000 + 5,000(20.5509999)
= 400,000 + 102,754.95
Cash Value = ₱502,754.94
3.4 Periodic Payment of an Ordinary Annuity

a.) Periodic payments of S
𝑆 𝑆
R= or R =
sn¬ i (1 + 𝑖)𝑛 −1
b.) Periodic payment of A

𝐴 𝐴
R= an¬ i
or R = 1− (1 + 𝑖)𝑛
𝑖
In order to have ₱300,000 at the end of 15 years, how much must be deposited in a fund every
3 months if money Is worth 8% compounded quarterly?
Solution:
Given: S = ₱300,000
t = 15 years
n = 60 periods
𝑗 8%
i = 𝑚 = 4 = .02
Find R:
𝑆
R=𝑠
n¬ i
300,000
R= 𝑠50¬ .02
300,000
R=
114,05154
R = ₱2,630.38
Mr. Tuy bought a refrigerator that cost ₱19,500. He paid ₱6,000 as down payment and the
balance will ne paid in 36 equal monthly payments. Find the monthly payment if money is 15%
compounded monthly.
Solution:
A = Cash Value – Down Payment
A = ₱19,500 – ₱6,000 = ₱13,500
n = 36
.15
i = 12 = .0125
Find R:
𝐴 13,500
R=a =a
n¬ i .36¬ .0125
13,500
R= 1−(1+ .0125)−36
.0125
13,500
R = 28.84726737
Exercise 3.1
1. Analyn bought a dining set. She paid ₱2,500 as down payment and promised to pay ₱800 at the
end of each month for one year. What is the cash equivalent of the set if the interest rate is
10% compounded monthly?
2. Find the amount present value of an annuity of ₱5,240 payable at the end of every 6 months
1
for 5 years and m6 months at 52 % converted semi-annually.
3. What is the present value of ₱1,230 due at the end of every three months for 3 years and 6
3
months, if money is worth 94% compounded quarterly?
4. An item can be bought for ₱25,300 as down payment and 12 semi-annual payments of ₱480
1
each. What is the cash equivalent of the item if money is worth 52 % compounded semi-
annually.
1
5. If Cherry will deposit P1,500 every end of each quarterly in 9 years at the rate of 62 %
compounded quarterly, how much will be the amount of her savings at the end of 5 years?
6. What is the cash value of a set of Science Encyclopedia that can be purchased for ₱12,500 as
down payment and ₱1,450 at the end of each month for 18 months at 15% compounded
monthly?
7. In a series of monthly payments of ₱1,580 for 10 years, what is the cash value of an annuity if
money is worth 12% compounded monthly?
8. A man deposits ₱12,500 at the end of every six months in a bank which credits interest at 9%
compounded semi-annually. How much will he have after 19 years?
9. Mr. Chua purchased a car. If he paid ₱400,000 as down payment and promised to pay ₱10,500
1
every month for 5 years at 72 % compounded monthly, what is the cash value of the car?
10. Find the present value if an annuity whose semi-annual payment is ₱2,500 payable for 5 years
3
at 84 % compounded semi-annually.
11. A man purchased a DVD player worth ₱8,500. He paid P2,000 cash and agreed to make 15
monthly payments. If interest is 18% (m=12), find the monthly payment.
12. Marga borrowed P250,00 and agreed to repay her obligation by making equal quarterly at the
end of every months for 4 years. What is the periodic payment, if money is worth 12.5%
compounded quarterly?
1
13. How much should be invested each year in a fund paying 102 % effective to accumulate to
P250,000 in 5 years?
14. Find the monthly payments for 30 periods to discharge an obligation of ₱300,000, if money is
3
worth 94 % compounded monthly.
1
15. How much should one deposit monthly in a fund that earns 124 % compounded monthly in
order to have ₱350,000 in 3 years and 6 months?
3.5 Finding the Interest Rate of an Ordinary Annuity

These formulas are:
𝑛𝑅
a) (n2 - 1)i2 – 6(n - 1)i + 12 (1 − )=0
𝑆
𝑛𝑅
b) and (n2 - 1)i2 + 6(n + 1)i + 12 (1 − 𝑆 ) = 0
Example 1
A refrigerator can be purchased for ₱9,000 cash down and P630 a month for 18 months. Find
the interest rate charged if it is compounded monthly.
Solution:
A = 9,00 – 900 – 8,100
R = 630
n = 18
m = 12
Formula:
Since A is known
𝑛𝑅
(n2 - 1)i2 + 6(n + 1)i + 12 (1 − )=0
𝐴
18(630)
(182 - 1)i2 + 6(n + 1)i + 12 (1 − 8,100 ) = 0
2
323 i + 114i – 4.8 = 0
To find i, we use the quadratic formula for ai2 + bi + c = 0, then

−𝑏±√𝑏2 −4𝑎𝑐
i= 2𝑎
(114)2 −4(323)(−4.8)
i= -114±√
2(323)
114±138.555404
i=
646
i = -.3909526 or .03801146
Here we get two values of i, we disregard the negative value of i. Therefore, the periodic
interest rate is
i = 3.80% and the nominal interest rate charged is
i=ixm
i = (.03801146)12%
i = 45.61%
Example 2:
Payments of ₱750 each are made every 6 months in 3 years. At what rate compounded semi-
annually will these payments amount to ₱5,100?
Solution:
S = ₱5,100
R = ₱750
n = mt = 2(3) = 6
Formula: Since S is known
𝑛𝑅
(n2 - 1)i2 – 6(n - 1)i + 12 (1 − 𝑆
)=0
6(750)
(62 - 1)i2 – 6(6 - 1)i + 12 (1 − 5,100 ) = 0
2
35i – 30i + 1.4117647 = 0
To find i, we use the quadratic formula. We have

30±√302 −4(35)(1.4117647)
i=
2(35)
here we set two values of i

i = .887170603 or.0494722647
Since i = .049972253 (2)

j = im = .049972253
Therefore, the interest rate charged is 9.99944 compounded semi-annually.
Exercise 3.2
1. in purchasing a washing machine worth P21,000, a buyer pays ₱3,500 cash and agrees to make
12 monthly payments. If the monthly payment is ₱1,580, find the interest rate m charge.
2. Deposit of ₱8,380 are made every end of six months. At what rate compounded semi-annually
will these deposits amount to P112,400 in 14 years?
3. A television set costs P10,440. It is purchased by a down payment of ₱4,440 and monthly
payments of P 382.84 for one year and 6 months. Find the rate of interest converted monthly.
Use either interpolation or the given derivation of i.
4. A man invests ₱9,375 every six months. If he has ₱200,000 in five years, at what nominal rate
compounded semi-annually did hi investment earn?
3.4 The Term of an Ordinary Annuity
The number of payments can be determined when the amount or present value, the periodic
payment and interest rate are given
Formula in finding the term, n is
𝐴𝑐
𝑙𝑜𝑔[1− ]
𝑅
n = −log(1+1)
Example 1
Victoria borrows ₱15,000 with interest at 15% compounded quarterly. She will discharge the
debt by paying P950 quarterly.
a) How many payments of ₱950 are required?
b) How much would the final payment be if it is made the day after the last P950 payment?
c) How much would the final payment be if it is made 3 months after the last P950 payment?
Solution:
Given: A = ₱15,000 R = 950 i = .0375
a) Substitute the given values into the formula
𝐴
𝑙𝑜𝑔[1− 𝑐]
𝑅
n=
log(1+𝑖)
15,000(.0375)
𝑙𝑜𝑔[1− ]
950
n= log(1+.0375)
𝑙𝑜𝑔.407894737
n=
log(1.0375)
.389451898
n=
.015988105
n = 24.35885291
This means that there will be 25 quarterly payments of ₱950 and a final irregular
payment.
b) To find the final payment, the 24th payment in this case.

Let x be the irregular payment to be paid on the 24th payment. Make a time diagram
using the present as the focal date.
Ordinary annuity of 24 months x
0 950 950 950 950 950

. . .
1 2 3 23 24
Focal date
x(1.0375)-24 + 950𝑎24¬ .0375 = 15,000
x(.413319095) + 14,862.58 = 15,000
x = P332.47
Therefore the final 24th payment is
= 24th payment + final irregular payment
= 950 + 332.47
= P1,282.47
c) To find the concluding payment (irregular payment on the 25th payment)

Let y be the final payment on the 25th period
950 950 950 950 950 950 y
...
0 1 2 3 22 23 24 25
ordinary annuity of 24 payments
Using the present as the focal date

y(1.0375)-25 + 950𝑎n¬ .0375 = 15,000
y(.39837985) + 14,862.58 = 15,000
x = ₱344.85
Exercise 3.3
1. Lulu borrows ₱240.000 with interest at 12% compounded monthly. She will pay the debt by
paying ₱5,300 monthly
a. Find the number of regular payments to be made.
b. How much will be the final payment if it is made one month after the last ₱5,300 payment?
2. The present value of an annuity is ₱270,000 whose semi-annual periodic payment of ₱15,600
will be needed?
3. Margarita borrowed ₱500,000 and agreed to repay it in equal quarterly installment of ₱18,500
with interest at 10.5% compounded quarterly. If the first payment is due in three months after
borrowing the money.
a. How many full payments must the debtor make”
b. How much would the final payment he if it is made on the day of the last ₱18,500 payment?
4. A car is worth ₱730,000. The buyer paid ₱350,000 down payment and promised to pay ₱7,660
3
every month, if he is charged 74 % compounded monthly,
a. How many full payments must be made?
b. How much will be the final payment?
5. A fund of ₱400,000 is to be created by making a quarterly deposit of ₱15,000. If the fund earns
12% compounded quarterly,
a. How much deposits of ₱15,000 are required?
b. How much would the final deposit be if it is made three months after the last ₱15,ooo
deposit?
3.4 Annuity Due

An annuity due is one for which the first payment occurs immediately. It is also defined as an
annuity in which payments are made at the beginning of each period.
The following symbols re used in dealing with annuity due formulas:

R = periodic payment of the annuity due
𝑆 = amount of an annuity due
A = present value of an annuity due
3.7.1 Present Value of an Annuity Due
The present value of an annuity due, which is denoted by A, is the sum of the present values of
the payments.
Term
...
0 1 2 3 n-1 n
R R R R ... R
The formula in finding the present value of an annuity due is:
A = (1st payment) + (present value of remaining payments)
A = A + 𝑅𝑎n−1¬ i
Example 1
Marlon purchased a car. He paid ₱150,000 down payment and ₱10,000 payable at the
beginning of each month for 5 years. If money is worth 12% compounded monthly, what is the
equivalent cash price of the car?
Given:
R = ₱10,000 j = 12%
12%
Down payment = ₱150,000 i = 12 – 1%
m = 12 A = ? Cash Equivalent - ?
t = 5 years
n = 60
A = R + 𝑅𝑎n−1¬ i
A = ₱10,500 + ₱10,50060−1¬ 1%
A = ₱10,500 + ₱10,500𝑎59¬ 1%
1−(1.01)−59
A = ₱10,500 + ₱10,500[ .01
]
A = ₱10,500 + ₱466,248.18
A = ₱476,748,18 (Total Installment Payment)
Cash Equivalent = Down Payment + Total Installment Payments
Cash Equivalent = ₱150,000 + ₱476,748.18
Cash Equivalent = ₱626,748.18
3.7.2 Amount of an Annuity Due

The amount of an annuity due, which is denoted by S, is the sum of the accumulated values of
the payments at the end of the term.
...
0 1 2 3 n-1 n
R R R R ... R
The formula in finding the amount of an annuity due is:
S = {Value of an annuity of (n +1) payments on the last payment date} – R
S = 𝑅𝑠n+1¬ i − 𝑅
Example 1
If ₱500 is deposited in a bank at the beginning of each 3 months for 10 years and money is
worth 8% compounded, how much is in the fund at the end of 10 years?
Given:
R = P500 j = 8%
8%
M=4 i = 4 = 2%
t = 10 years S=?
n = 40
S = 𝑅𝑠n+1¬ i − 𝑅
S = ₱500𝑠40+1¬ 2% − ₱500
(1.02)41 −1
S = ₱500[ .02 ]-₱500
S = ₱31,305.01 – ₱500
S = 30,805.01
Example 2
Emil invests ₱5,000 at the beginning of each six months. He makes his first deposit on
January 19, 2003. How much will be in his account on January 19, 2015, if money is worth 9%
compounded semi-annually?
R = ₱5,000
m=2
t = January 19, 2003 – January 19, 2015 = 12 yrs.
n = 24
j = 9%
9% 1
i = 2 = 42%
S=?
S= 𝑅𝑠n+1¬ i − 𝑅
S = ₱5,000𝑠24+1¬4 1% − ₱5,000
2
S = ₱5,000𝑠25¬4 1% − ₱5,000
2
(1.045)13 −1
S= ₱5,000 [ .045 ]-₱5,000
S = ₱22,826.05 – ₱5,000
S = ₱217,826.05
3.7.3 Periodic Payment R of an Annuity Due

The following formulas are sued in finding the periodic payment R of an annuity due:
𝐴 𝑆
𝑅= 𝑅=
1 + 𝑎n−1¬ i 𝑆n+1¬ i − 1
Where:
S = amount of an annuity due
Example 1
What equal deposits should be placed in a fund at the beginning of each year for 15 years in
order to have ₱1,500,000 in the fund at the end of 15 years, if money accumulates 12%?
Given:
S = ₱1,500,000 j = 12%
m=1 i = 12%
t = 15 R=?
n = 15
𝐴
R=
𝑆n+1¬ i−1
𝑃1,500,000
R= 𝑆15+1¬ 12%−1
𝑃1,500,000
R= 𝑆16¬ 12%−1
𝑃1,500,000
R=
41.75328042
R = ₱35,925.32
Exercise 3.4
For each problem draw a diagram illustrating the data and the solution
1. If money is worth 16% compounded quarterly, find the present value and the amount of
annuity due of ₱1,500 payable quarterly for 10 years.
2. An investment of ₱5,000 is made at the beginning of each month for 8 years and 7 months. If
interest is 12% compounded monthly, how much will the investment be worth at the end of the
term?
3. At retirement, Mr. Nolram Ocampo finds his share f a pension fund is ₱2,500,000. What
payment will this provide at the beginning of each month for 25 years, for him or his estate, if
the fund invested at 18% compounded quarterly?
4. Mr. Jason Raymundo agrees to pay ₱2,000 at the beginning of each 6 months for 5 years. If
1
money is worth 122% compounded semi-annually, find a) the present value of his debt, before
he makes a payment; b) Mr. Raymundo’s outstanding liability just before his 7 th payment; and
c) his outstanding liability just after the 7th payment.
5. A house and lot is bought for ₱1,000,000 down payment and ₱5,000 payable at the beginning
of each month for 5 years. What is the equivalent cash price of the house and lot, if interest
rate is 14% compounded monthly?
6. On January 19, 2003, Mr. Berlindo Santos opened a saving account for his wife with an initial
deposit of ₱10,000 in a bank paying 6% compounded quarterly. If Mr. Santos continues to make
quarterly deposits of the same amount until July 19, 2008, how much will be in the account at
the end of the term? (Hint: Count the time by months.)
7. A machine will be replaced 10 years from now at a cost of ₱750,000. How much should the
owner save at the beginning of each quarter in order to replace the old machine if his savings
3
earn interest at 84% compounded quarterly?
8. What equal deposits should be placed in a fund at the beginning of each year for 20 years in
1
order to have ₱2,500,000 in the fund at the end of 20 years, if the money accumulates 102%?
9. Mayette agrees to make equal payments at the beginning of each 3 months for 12 years, to pay
1
all interest and principal in purchasing a lot worth ₱1,200,000 cash. If money is worth 122%
compounded quarterly, find the quarterly payment.
10. A loan of ₱200,000 will be settled by 25 equal payments, the first of which is to be made
immediately. Find the quarterly payment, if money is worth 10% compounded quarterly.
3.8 Deferred Annuity

Is an annuity whose term does not begin until the expiration of a specified time
Ad
Sd
... ...
0 1 2 3 d d1 d2 d+n-2 d+n-1 d+n
deferment period n periods
(d) Payments are made
No payments
The formula in finding the present value 𝐴𝑑 of the deferred annuity is

𝐴𝑑 = {present value of annuity with term (d + n) periods} – {present value of annuity with term
d periods}
𝐴𝑑 = 𝑅𝑎n+d¬ i −𝑅𝑎d¬ i
Where:
𝐴𝑑 = present value of deferred annuity
𝑑 = value of deferment
𝑛 = total number of payments
𝑅 = periodic payment of the deferred annuity
𝑖 = interest per conversion period
Example 1
A sequence of quarterly payments of ₱3,500 each, with the first one due at the end of 3
years and the last of the end of 10 years. Find the present value of the deferred annuity, if
money is worth 16% compounded quarterly.
Given:
R= ₱3,500 j = 16% m=4
Solution:
16%
i = 4 = 4%
d = 3 x 4 = 12; 12 – 1 = 11
n = 7 x 4 = 28; 26 + 1 = 29
40
11 29
RRRRRRRRRRRR RRRRR
‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘
0 1 2 3 4 5 6 7 8 9 10
3 1
2 yrs 7 𝑦𝑟𝑠
4 4
10 𝑦𝑟𝑠
𝐴𝑑 = ₱3,500𝑎29+11¬ 4% −₱3,500𝑎11¬ 4%
𝐴𝑑 = ₱3,500𝑎40¬ 4% −₱3,500𝑎11¬ 4%
1−(1.04)−40 1−(1.04)−11
𝐴𝑑 = ₱3,500[ ]- ₱3,500[ ]
.04 .04
𝐴𝑑 = ₱69,274.71-₱30,661.67
𝐴𝑑 = ₱38,613.04
Example 2
Find the cash equivalent of an item that sells for ₱20,000 down payment and 20 semi-
annual payments of ₱5,500 each, the first is due at the end of 3 years, if money is worth 10%
compounded semi-annually.
Given:
R = ₱5,500 Down payment = ₱20,000 j = 10% m=2
Solution:
10%
i= = 5%
2
d = (3 x 2) – 1 = 6 – 1 = 5
n = 20
Ad
25
5 20
R R R R R R R R R R R R R R R R R R R R R R
‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘
0 1 2 3 4 5 6 7 8 9 10 11 12 13
1
2
𝐴𝑑 = ₱5,500𝑎20+5¬ 5% −₱5,500𝑎5¬ 5%
𝐴𝑑 = ₱5,500𝑎25¬ 5% −₱5,500𝑎5¬ 5%
1−(1.05)−25 1−(1.05)−5
𝐴𝑑 = ₱5,500[ .05
]- ₱5,500[ .05
]
𝐴𝑑 = ₱77,516.70 – ₱23,812.12
𝐴𝑑 = ₱73,704.58
3.8.1 Periodic Payment R of Deferred Annuity

The formula in finding the periodic payment R of a deferred annuity is:
𝐴𝑑
𝑅 =
𝑎d+n¬ i −𝑎d¬ i
Example 1
Alex borrows ₱100,000 with interest at the rate 12% compounded semi-annually. he agrees to
discharge his obligation by paying a sequence of 10 equal semi-annual payments, the first being
1
due at the end of 52 years. Find the semi-annual payment.
Given:
𝐴𝑑 = ₱100,00
J = 12%
m =2
n = 10
d = 10
12%
i = 2
= 6%
Solution:
𝐴𝑑
R=𝑎
d+n¬ i −𝑎d¬ i
𝑃100,000
R=
𝑎20+6%¬ i −𝑎10¬ 6%
𝑃100,00
R= 1−(1.06)−20 1−10
[ ]−[ ]
.06 .06
𝑃100,000
R=
11,46992122−7.360087051
𝑃100,000
R=
4.109834169
R = ₱24,331.88
Exercise 3.5
For each problem, draw a line diagram illustrating the data and the solution
Find the present values of the deferred annuity which is described, at the specific interest rate.
1. A farm costs ₱750,000 cash. Paolo will pay ₱150,000 cash and a sequence of 15 annual
payments, the first due at the end of 5 years. If money is worth 12%, find the annual payment.
2. A house and lot is offered for sale ₱1,500,000 cash, or ₱500,000 cash and a sequence of 20
semi-annual payments of 120,000 each, the first is due at the end of 3 years, if money is worth
14% compounded semi-annually, find the cash value of the house and lot.
3. Find the present value of a series of quantity payments of ₱2,500 each, the first payment is due
at the end of 4 years and 6 months, and the last at the end of 10 years and 3 months, if money
is worth 16% compounded quarterly.
4. Find the cash equivalent of a computer set that sells for ₱10,000 cash and a sequence of 10
semi-annual payments of ₱3,500 each, the first is due at the end of 3 years and 6 months, if
1
money is worth 102% compounded semi-annually.
5. Jason borrows ₱50,000 and agrees to pay his obligation by making 15 equal annual payments,
the first is due at the end of 3 years . Find the annual payment, if money is worth 12%.
6. Ryan obtains a loan of ₱250,000 with interest t 14% compounded quarterly. He will discharge
his debt by a sequence of equal quarterly payments, the first is due at the end of 5 years and
the last at the end of 10 years find the periodic payment.
7. Find the present value of the pension of a man, now 60 years old, and who will receive a
pension of ₱10,000 per month for 15 years, with the first payment to occur one month after his
65th birthday, if money is worth 18% compounded monthly.
8. An investment in a stock market will yield no operating profit until the end of 5 years, when
investor will receive P100,000 after that, he will receive ₱100,000 at the end of each quarter for
1
10 more years. Find the present value of this income if money is worth122% compounded
quarterly,
9. On November 20, 2002 a house and lot was bought for ₱500,000 down and 12 quarterly
payments of ₱50,000 each, the first is due on November 20, 2003. Find the cash value of the
house and lot, if money is worth 15% compounded quarterly.
10. Aling Nelie won ₱25,000,000 in Mega Lotto. She invest winnings at 16% compounded semi-
annually with the conditions that she receive 25 semi-annual withdrawals starting at the end of
2 years. Find the size of the withdrawals.
3.8.2 Value of an Annuity in an Arbitrary Date

Example 1
A sequence of 5 semi-annual payments of ₱2,500 each will start with a payment at the end of
1
22 years. If money is worth 12% compounded semi-annually, find the sum of the values of these
1
payment at the end of a)2 years, b)42years, c) 6 years, d)the actual present value of the payments.
Given;
R = ₱2, 500
j = 12%
m=2
12%
i = 2 = 6%
n=5
Time Diagram:
R R R R R
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14
1 yr. 2 yrs. 3 yrs. 4 yrs. 5 yrs. 6 yrs. 7 yrs.
Solution;
1
a) At the end of 2 years b) At the end of 4 years
2
A₂ = ₱ 2, 500𝑎5¬ 6% S = ₱2,500𝑎5¬ 6%
1−(1.06)⁻⁵ (1.06)−5 −1
A2 = ₱ 2, 500[ .06
] S = ₱2,500[ .06
]
A₂ = ₱ 10, 530.91 S = ₱14, 092.73
1
c) To find the value of the annuity at the end of 6 yrs, accumulate a) for 4 years, or the result of b) for 12
years.
Value at the end of 6 years is = ₱2,500(𝑎5¬ 6%)(1.06)8
= ₱16, 784.67
= ₱16,794.67
1
d) To find the actual present value, discount the result of a) for 2 years or the result of b) for 42 years.
Actual Present Value = ₱2,500(𝑎5¬ 6%)(1.06)-4
=₱8,341.47
or
Actual Present Value = ₱2,500(𝑎5¬ 6%)(1.06)3
=₱8,341.47
Exercise
For each problem in the exercise, draw a time diagram showing the payment dates, and the beginning
and the end of the term of any ordinary annuity involved.
1
1. A sequence of 16 quarterly payments of ₱5,000 each will start with a payment at the end of 5 years. If
2
money is worth 18% compounded quarterly, find the sum of the values of these payments at the end of
1
a) 4 years b) 8 years c) 10 years d) find the actual present value of the payments.
2
2. In starting a business venture, the owner is granted a loan of ₱750,000 at the beginning of ach 6 months
1
for 10 years. He agrees that money is worth 122% compounded semi-annually, and that he will discharge
all accumulated liability by a single payment at the end of 15 years. What amount must he pay to settle
his obligation?
3. If the fund accumulation at 15% compounded semi-annually, how much will be in the fund at the end of
30 years if ₱5,000 is deposited in it at the end of each 6 months for the first 25 years?
4. A fund of replacement of machinery in a plant must contain ₱300,000 at the end of 12 years. If the fund is
invested at 10.75% compounded quarterly, what equal deposits should be placed in the fund at the end
of each 3 months just for the first 7 years?
5. The first payment of 10,000 by Paul is due in 2 years. Payment continues every 3 months until the 15th
year. If money is worth 20% compounded quarterly, find the annuity value at the beginning of the first
year.
CHAPTER 4
Amortization and Sinking Fund
Amortization
Amortization is a means of repaying a debt by a series of equal time interval. the periodic
payments form an annuity in which the present value is the principal of an interest-bearing debt.
Hence we use the following annuity formulas;
1−(1+𝑖)⁻ⁿ
A = R[ 𝑖
]
𝐴𝑖
R = [1−(1+𝑖)⁻ⁿ]
Where: A = principal
R = periodic payment
i = interest per period
n = total number of payment periods
Examples:
1. An obligation of ₱21,000 with interest of 8% compounded semi-annually must be paid at end
of every 6 months for 4 years. a) Find the size of periodic payment. b) Find the remaining liability just
after making the 5th payment. c) Prepare the amortization table.
Solution:
A = 21, 000 m=2 i = 0.04
j = 8% t = 4 years n=8
𝐴𝑖
a) R =
1−(1+𝑖)⁻ⁿ
21,000(0.04)
=
1−(1.04)⁻⁸
= ₱3,119.08
b)
R R R R R R R R
yrs
0 1 2 3 4
The remaining liability 3,119.09
after the 5th payments is the 3,119.09
present value of the 3,119.09
remaining periodic
payments.
1 −(1+𝑖) −𝑛
A = R⌈ 𝑖
⌉
1 −(1.04) −3
A= 3,119.08⌈ 0.04 ⌉
= ₱8,655.73
c) Amortization schedule
Payment for
Period Balance Payment Interest Paid Principal
1. ₱21, 000.00 ₱3,119.08 ₱840.00 ₱2,279.08
2. 18, 720.92 3,119.08 748.84 2,370.24
3. 16, 350.68 3,119.08 654.03 2, 465.05
4. 13, 885.63 3, 119.08 555.43 2,563.65
5. 11, 321.98 3, 119.08 452.88 2, 666.20
6. 8, 655.78 3, 119.08 346.23 2, 772.85
7. 5, 882.93 3, 119.08 235.31 2, 883.76
8. 2, 999.16 3, 119.08 119.97 2, 999.11
Total ₱24, 952.64 ₱3, 953.10 ₱21, 000˟
˟The actual value is ₱20, 999.94. This is due to rounding error.
Exercise 4.1
1. A debt of ₱70, 000.00 with 8% converted quarterly must be paid at the end of every 3 months
for 3 years.
a) Find the size of each payment.
b) Find the remaining liability after the 4th payment.
c) Construct the amortization schedule.
2. Nikko borrows a certain sum with interest at 9% compounded semi-annually. The obligation will
be discharged by paying ₱7, 000 every end of 6 months for 4 years.
a) What is the present value of Nikko's debt?
b) How much of his 3rd payment is interest and how much goes to repayment of principal?
c) Prepare the amortization table.
3. A loan of ₱100, 000 with interest at 10% converted quarterly will be settled by paying ₱12,000 at
the end of every 3 months.
a) How many payments amounting ₱12, 000 will be made?
b) What final smaller payment is needed?
4. To settle a certain amount borrowed at 11% compounded semi-annually, Alina pays Andro ₱15,
000 every semi-annual period for 2 years.
a) Determine Alina's loan.
b) How much of her 3rd payment is interest and how much is payment of principal?
5. An item worth ₱33, 700 is purchased for a down payment of ₱5, 000. Interest is computed at 6%
converted monthly and the balance to be settled with payment of ₱1, 500 at the end of each
month.
a) Determine the number of ₱1, 500-payment needed.
b) Find the size of final payment.
6. A loan of ₱14, 000 bearing a 15% interest converted annually is to be amortized with equal
yearly payments for 10 years.
b) What should the outstanding liability be just after the 4th payment?
7. Aster borrows ₱360, 000. She plans to amortize her debt with equal quarterly payments for 2
years. Interest is allowed at 11% converted quarterly.
a) Find the quarterly cost of his debt.
b) By how much is the debt reduced by the 3rd payment?
8. The cash value of motorcycle is ₱32, 500. Andro brought the item by installment. He pays 7,000
down payment and promised to settle the balance with equal payments due at the end of every
month for 1 year. Interest is converted monthly at 12%
a) How large should each installment payment be?
b) After 1 year, how much of his balanced is reduced?
9. Prepare the amortization table for the extinction of a debt of ₱12,000 with interest at 8%
compounded bi-monthly in equal bi-monthly installment for 1 year.
10. Construct the amortization schedule of an obligation amounting ₱145,000 bearing 18% interest
compounded semi-annually for 5 years, to be paid in equal semi-annual payments.
4.2 Sinking Fund

Sinking fund refers to a fund created by making periodic deposits to anticipate the need of
paying a large amount of money at some future dates.
Geometric progression formulas for ordinary annuity;
𝑅[(1+𝑖)ⁿ−1]
S= 𝑖
𝑆(𝑖)
R = 1−(1+𝑖)⁻ⁿ
Illustrative Examples
1. A fund is created by making equal monthly deposits of ₱3,000 at 9% converted monthly.
a. Determine the sum after half year.
b. What is the amount in the fund after the 4th deposit?
c. Construct the sinking fund schedule for a 6-month period.
Given: R = ₱3,000 j = 9% or .09 m = 12
Solution:
[(1.0075)6 −1]
a) S=3,000 .0075
S=3,000(6.113631847)
S=₱18, 340.89
b) n = 4
[(1.0075)⁴−1]
S=3,000 .0075
S=₱12,135.68
c) Sinking fund schedule
No. of Periodic Interest in Increase in Amount in
payments Deposit Fund Fund Fund
1 ₱3,000 0 ₱3,000.00 ₱3,000.00
2 3,000 22.50 3,022.50 6,022.50
3 3,000 45.17 3,045.17 9,067.67
4 3,000 68.01 3,068.01 12,135.68
5 3,000 91.02 3,091.02 15,226.70
6 3,000 114.20 3,114.20 18,340.90
2. Three years from now, Mr. T needs ₱30,000 to liquidate a certain debt, at 6% converted semi-
annually.
a. How much must he deposit at the end of every 6 months to provide for the payment of the
debt?
b. Prepare a sinking fund table showing the growth of the fund for 3 years.
a. Given:
S = ₱30,000
j = 6% = .06
m=4
30,000(.05)
R = [(1.015)6
−1]
450
R =
.093443263
R = ₱4,815.75
b. Sinking fund table

Payments Deposit Interest Increase in Amount in
Fund Fund
1 ₱4,815.76 0 ₱4,815.76 ₱4,815.76
2 4,815.76 72.24 4,888.00 9,703.76
3 4,815.76 145.56 4,961.32 14,665.08
4 4,815.76 219.98 5,035.74 19,700.82
5 4,815.76 295.51 5,111.27 24,812.09
6 4,815.76 372.18 5,187.94 30,000.03
Exercise 4.2
1. A fund is being created by paying ₱2,500 at the end of each year a 10.25% compounded
annually for 4 years.
a. How much money is in the fund just after the 3rd deposit?
b. Construct a sinking fund schedule for 4 years.
2. Mr. Imperial will deposit ₱10,000 at the QUAK Bank at the end of each quarter for 2 years. If
the banks gives out 9% compounded quarterly, find the amount to his credit just after the last
deposit.
3. What monthly payment into a sinking fund at 8% compounded semi-annually will be needed to
raise ₱50,200 at the end of 2 years and 6 months?
4. A fund of ₱50,500 is to be raised by 6 semi-annul payments at 6% converted every 6 months.

a. Find the semi-annual payment
b. Construct a sinking fund table.
5. Prepare a sinking fund table that shows the growth of fund in 5 months if ₱1,300 is to be paid
at the rate of 12% converted monthly.
4.3 Sinking Fund Method of Retiring a Debt

A typical loan of moderate size to an individual or a corporation is discharge by the amortization
method.
Illustrative Example
1. The principal of a loan ₱40,000 will be at the end of 15 years by the accumulation of a sinking
fund by quarterly deposits, and interest will be payable on the debt quarterly at the rate of 9%.
a. Find the quarterly expense of the loan to debtor if his sinking fund is invested at 8%
b. Find the book value of the debt just after the 4 th deposit.
c. Find the quarterly expense of the debt if he discharge all the liability as to principal and
interest by paying his creditor equal sums at the end of each 3 months for 2 years.
Given:
S = ₱45,000
n=6
Solution:
𝑆(𝑖)
R = [(1+𝑖)𝑛 −1]
40,000(.02)
R = [(1.02)𝑛6 −1]
R = ₱6,341.03
The interest payable quarterly to the creditor is ₱40,000(.0225) = ₱900. Therefore, the
quarterly expense of the debt is ₱6,341.03 + ₱900 = ₱7
Chapter 5
Depreciation, Capitalization and Perpetuities
Objectives: At the end of the lesson students should be able to:
a. calculate the rate of depreciation, periodic payments using different methods
b. participate actively in class discussion
5.1 Types of depreciation
1. Normal Depreciation
a. Physical Depreciation− is due to the lessening of the ability of a property to produce a result
b. Functional Depreciation−is due to the lessening in the demand for the function, which the
property was designed to render.
2. Depreciation Due to Changes in Price Levels
3. Depletion−refers to the decrease in the value of a property due to the gradual extraction of its contents.
Formula: W=P−L ; B = P− E where: W=wearing value B = book value
P=price E = accrued value
L=salvage value
5.2 Three Most Common Types of Depreciation
1. Straight-line Method
Denote:
P= original cost
L= scrap value/resale/salvage value
N= number of year/s (estimated life)
D= annual depreciation
d= 1/n
E=accrued value (tD)
B= book value
Formulas:
𝑃–𝐿
D= 𝑛 or D= d (W)
E= tD; B=P-E or B=P- tD
In Straight line method, the total depreciation over the given life of a property is evenly distributed, and this
yearly depreciation is congruent to each other during the property’s estimated life or period in n years.
Thus, d= d1=d2=d3=……dn=D/n
The total depreciation D after a certain period of time or at the end of n years can be obtained by the given
formula:
Dn=n (d)
Where:
D= total depreciation of the property over a period of time`
n= number of years (estimated)
d= annual depreciation
A book value after a particular year
Formula:
B= P-n (d)
Where:
B= book value
P= original cost
D= annual depreciation
N= number of year
Example: A motorcycle cost is ₱80, 000.Its depreciation value is ₱5,000 annually.
Find:
a. total depreciation at the end of 8 years
b. the book value at the end of 12 years
Given:
P=₱80,000
D=₱5,000
Required: Dn=? B=?
Solution: a. Dn= n (d) b. B= P-n (d)
=8(₱5, 000) =₱80,000 – 12(₱5, 000)
=₱40, 000 =₱80, 000- ₱60,000
=₱20, 000
2. Sum of the Year’s Method
𝑛(𝑛+1)
Let K= 2
Where k=sum of the year’s digit or k=1+2+3+4…+(n-1)+n
With k taken as the denominator and the terms of K taken in the reverse order as numerator, then the following
fractions:
𝑛 𝑛−1 2 1
d1=𝑘, d2= 𝑘
,……,dn-1 =𝑘 , dn=𝑘
Where dn is the rate depreciation to be applied to the wearing value, to obtain the depreciation charge Dn=dnW
since the sum of the numerations;
𝐾
d1+d2+…dn= 𝐾 = 1, then, D1+D2+… Dn=(d1+d2+…dn)=W
Example: An equipment costing ₱4,500 will have a salvage value of ₱3,000 when retired at the end of 5 years.
Solve the total amount of depreciation every year.
Given: P=₱4,500; L=₱3,000; n=5
𝑛(𝑛+1)
Solution: Since n=5 then, k= 2
𝑛(𝑛+1) 30
K= =2
2
5(5+1) =15
= 2
5(6)
=
2
Alternative solution: Since n=5 then, k=1+2+3+4+5=15
Solve for the wearing value W.
W =P-L
=₱4,500 - ₱3,000 D=d2 (W) =.1333333
=₱1,500 =.2666666(₱1,500) D = d4 (W)
𝑛
d1= 𝑘 , where k=15 andn=5 =₱400 =.1333333(₱1,500)
𝑛−2 =₱200
5 d3= 15
=
15 𝑛−4
=
5−2 d5 = 15
=.333333 15 (5−4)
D =d1 (W) =.2 =
15
s =.333333 (₱1,500 D = d3 (W) =.0333333
=₱500 =.2 (₱1,500) D = d5 (W)
𝑛−1
d2 = =₱300 =.0333333(₱1,500)
15 𝑛−3
5−1 d4 = =₱100
= 15 15
5−3
=.2666666 =
15
3. Sinking Fund Method

1. W= r where R – replacement deposit
S n¬ i
depreciation charge for any year = increase in the depreciation fund at the end of the year.
the amount of fund after the (k-1)th is:
2. Rsk-1¬ i the depreciation charge at the end of the kth year.
3. Dk = Rsk¬ i Rsk-1¬ i
Example:
A machine which costs ₱20,000 will have a scrap value of ₱2,000 when worn out at the end of 5 years.
Under the sinking fund method at 5%, find the annual charges for depreciation. Prepare a schedule of
depreciation.
Given: P = ₱20,000 L = ₱2,000
Solution: a. W = P−L
=₱20,000 −₱2,000
=₱18,000
1
b. R = W × [(1−𝑖)ᶯ−1]
[ 𝑟
]
Where: R=replacement deposit
n = conversion period
r =rate
(By using geometric progression)
1
R = ₱18,000 ×
[
(1−.05)−1
]
= ₱3,257.55
.05
A. Depreciation schedule
At the end of Interest due in Replacement Depreciation Accrued Book Value B)

the year Fund (I) Deposit (R) Charge of Inc. (D) Depreciation (E)
0 ₱0 ₱0 ₱0 ₱0 ₱20,000.00
1 ₱0.00 ₱3,257.55 ₱3,257.55 ₱3,257.55 ₱16,742.45
2 ₱162.88 ₱3,257.55 ₱3,420.43 ₱6,677.98 ₱13,332.02
3 ₱333.90 ₱3,257.55 ₱3,591.45 ₱10,269.43 ₱9,730.57
4 ₱513.47 ₱3,257.55 ₱3,771.02 ₱14,040.45 ₱5,959.55
5 ₱702.02 ₱3,257.55 ₱3,959.57 ₱18,000.02 ₱1,999.98
B. Find the depreciation charge at the end of 4 years and five years without using the schedule.
Solution:
E=Rsk¬ i
=₱3,257.55s4¬ .05
Using Geometric Progression
(1+𝑖)−1 (1+𝑖)−1
a. E=R × [ ] b. E=R × [ 𝑟 ]
𝑟 (1+.05)−1
(1+.05)−1 =₱3,257.55 × [ .05 ]
=₱3,257.55 [ ]
.05
=₱14,040.45 (approximation) =₱18,000.02 (approximation)
5.3 Depreciation by a Constant Percentage of Declining Book value

Depreciation charge for any year = (book value/ the beg of the year) × d
1
d = ; (natural rate of depreciation)
𝑛
2
d = 𝑛 (Federal revenue act of 1954)
Example:
1. By the method using a fixed percentage of declining book value with rate equal or twice the natural rate,
find the depreciation charges and book value during the life of ₱4,000 with life of 3 years.
Solution:
1 1
The natural rate of depreciation is 𝑛 which is = 3
2 2
Hence d = 𝑛, d = 3 = .66666 or 67 %
D = .67 (₱4, 000) – the depreciation charge at the end of first year.
D = ₱2,680
The leaving book value:
₱4,000 − ₱2,680 = ₱1,320
5.3.1 Constant Percentage Method

− The resale value of an asset decreases most in the first few years.
− the difference between the book value and the actual value may be partially corrected by the constant
percentage method in which the depreciation charges are greatest in the early life of an asset and decreases in
each succeeding period.
Example:
2. If the rate depreciation of a machine costing ₱20, 000 is 10% a year, set up a schedule of depreciation
for 5 years.
Solution:
Year Beg of year Charge End of year
1 ₱20,000 ₱2,000 .00 ₱18,000.00
2 48,000 1,800.00 16,200.00
3 16,200 1,620.00 14,580.00
4 14,580 1,458.00 13,122.00
5 13,122 1,312.20 11,809.80
Exercise 5.1
1. An article costing ₱10,000 depreciates to ₱600 in 12 years. What is the annual depreciation?
Given: solution:
𝑤
P=₱10,000 a. W=P-L b. d= 𝑛
₱9,400
L=₱600 =₱10,000−₱600 = 12
n=12 years =₱9,400 =₱783.53
2. A sewing machine that costs ₱20,000 has an estimated life of 10 years and has a salvage value at ₱500.
Compute for annual depreciation charge and rate of depreciation.
Given: solution:
₱19,500
P=₱20,000 W=P−L d=
10
L=₱500 =₱20,000−₱500 =₱1,950
n=10 years =₱19,500
3. A bicycle depreciates from original costs of ₱8,000 to a salvage value of ₱400 in 6 years. What is the annual
depreciation? Construct a schedule of depreciation.
Given: solution:
₱7,600
P=₱8,000 a. W=P−L b. d= 6
L=₱400 =₱8,000−₱400 =₱1,266.67
n=6 years =₱7,600
Depreciation schedule
Year(n) Yearly depreciation (d n) Accrued depreciation (D n) Book Value (B)
0 ₱0 ₱0 ₱8,000
1 1,266.67 1,266.67 6,733.33
2 1,266.67 2,533.34 5,466.66
3 1,266.67 3,800.01 4,199.99
4 1,266.67 5,066.68 2,933.32
5 1,266.67 6,333.35 1,666.65
6 1,266.67 7,600.02 399.98
Exercise 5.1
1. An article costing ₱10,000 depreciates to ₱600 in 12 years. What is the annual depreciation?
2. A sewing machine that costs ₱20,000 has an estimated life of 10 years and has a salvage value of ₱500.
Compute for the annual depreciation charge and the rate of depreciation.
3. A bicycle depreciates from the original cost of ₱8,000 to a salvage value of ₱400 in 6 years. What is the annual
depreciation? Construct a schedule of depreciation.
5.4 Perpetuity
− considered a form of annuity, considering a Perpetuity of R payable at the end of each period and let I
be the first interest rate per conversation period. Let A be the present value of the perpetuity. Apparently if A is
invested at the rate I, the interest alone on this fund must provide R at the end of each interest period, so that
the capital of the fund may remain and permit the payments to continue unchanged forever.
Formula No 1:
R j
A = i , 1 = m (Present Value of Simple Ordinary Perpetuity)
Example 1
If money is worth 6% compounded quarterly, find the present value
a. Of a perpetuity of ₱100 payable quarterly
b. Of an annuity of ₱100 payable quarterly for 20 years
Solution:
Given:
J = 6% m=4 R = ₱100 t = 20 years
R ₱100
a. A = i = .015
=₱6,666.67
b. To solve the annuity use Ran¬ i
Where an¬ i = 1−(1+ I )-n
i
K = ₱100 a80¬ .015
1−(1+ I )
K = ₱100 1 − .015
5.5 Perpetuity at the End of Each K Interest Periods

− Consider a perpetuity of W payable at the end of each k interest periods, where k is an integer. Let A
the present value of this perpetuity. Before finding A, let us ask what payment R at the end of each period could
equitably replace W at the end of k periods. The amount of annuity of R per period for K period should equal W
hence Rs k¬ I = W or
Formula:
R
R = __W__ from A = i substitute (1) to the equation
s k¬ I
A = __W__ (present value of general perpetuity)
s k¬ I
Example:
1. Find the present value of perpetuity of ₱200 payable semi-annually if money is worth 4% compounded
quarterly.
Solution:
A = _R_. __1__
i s k¬i
A = _₱200_. __1__
0.01 s 2¬.01
A = (₱20,000) (.49751437)
A = ₱9,950.58
2. To maintain a car in good condition, ₱10,000 will be needed at the end of each year and annually thereafter.
What is the present value of all future maintenance at a rate of 10% compounded semi -annually?
Solution:
A = _R_. __1__
i s k¬i
12 months
K = 6 moonths = 2
.10
i = 2 = .05
A = _₱10,000_. __1__
.05 s 2¬.05
A = ₱200,000 (.487804878)
A = ₱97,560.98 (round to the nearest centavo)
Exercise 5.2
1. If money is worth 6 % compounded quarterly, find the present value
a. of a perpetuity of ₱50 payable quarterly
b. of an annuity of ₱50 payable semi –annually for 30 years.
2. How much payment at the end of each year forever can be provided by endowment of ₱1,000 invested at
7%?
3. If money is worth 6%, obtain the present value of a perpetuity of ₱10,000 payable annually, with the first
payment due at the end of 5 years.
5.6 Capitalization
− It is the process of finding the present value of all future earnings.
Capitalized value of an enterprise − is the present value of all earnings similarly to speak of capitalizing any
sequence of equal payments due in the future means to find present value.
Capitalized cost – It is the sum of the original cost and the present value of all replacement costs which are
assumed to continue forever.
Formulas:
2. Replacement cost R per period that could equitably replace the amount W at the end of K
periods:
R = _1__
s k¬ i
3. Capitalized value (assumed to continue forever) = pr. Value of the perpetual income.
A = _R_, when future earnings from ordinary perpetuity
i
A = _R_. __1__, when future earnings from general perpetuity
i s k¬i
4. Capitalized cost = Original cost + present value of infinitely many future replacements
R
C = P + i , when replacement cost per period from an ordinary perpetuity
5. Capital (C) as present value of the perpetuity of W payable at the end of K periods
C = P + _R_. __1__, when replacement costs per period from general perpetuity
i s k¬ i
Example:
1. It is estimated that the maintenance of a certain section of a LRT railroad will required ₱2,000 per
kilometer at the end of every 4 years. If money is worth 10%, find the capitalized cost of the
maintenance per kilometer.
Solution:
Replacement cost per period:
R =__W_ =_₱2,000_
s k¬ I s 4¬ 10%
₱2,000
=
4.641
= ₱430.9416074
Capitalized cost per kilometer:
R ₱430.9416074
C= I = 0.1
C = ₱ 4,309.42
C = __W__ =__₱2,000__
is k¬ i 0.1(4.641)
C = ₱4,309.42
Formula:
Annual investment cost:
M = Pi +__W_ , W = P − L
Sn¬ i
P = Original cost
W = Wearing value
L = Scrap value
Capitalized costs Based Annual Investment Cost of the Asset
Example:
2. Find annual investment cost (M) and also the capitalized cost (K) of the machine by first finding the
value of K and then using M = Ki. Money worth 4% machine will cost ₱15,000 = life 8 years
Final salvage value ₱3,000
Solution:
Method 1
W=P–L P = ₱15,000 L =₱3,000
W = ₱15,000 − ₱3,000
W = ₱12,000
K = P + =__W__
is k¬ i
K = ₱15,000 + ___₱12,000_____
(0.04)(s8¬ 0.04)
K = ₱15,000 + ₱32,558.34961
K = ₱47,558.35
M = Ki, Annual investment cost
M = (₱47,558.35) (0.04)
M = ₱1,902.33
Method 2
M = Pi + __W , W = P − L
sn¬i
M = (₱15,000)(0.04) + _₱12,000_
s8¬ 0.04
M = ₱6,000 + ₱1,302.33
M = ₱1,902.33 Annual investment cost
At M = Ki
M ₱1,902.33
K= =
I 0.04
K = ₱47,558
Exercise 5.3
1. It is estimated that a certain mine will yield a net profit of ₱200,000 at the end of each year practically
forever. Approximately, what is the capitalized value of this mine if money is worth 7%?
2. How much is the capitalized value of an asset of ₱2,500 payable at the end of each month, indefinitely, if
money is worth 6% (m = 12)
3. At 5 % find the capitalized cost of an asset whose cost is ₱50,000, life is 10 years, and final salvage value is
₱5,000.

certain; when the term of the annuity is fixed. A contingent annuity is one for which the first and last
payments or both cannot be foretold accurately.

A = S(1 + i)-n and
S = A(1 + i)n
10%.
end of 3 years.
Term
₱10,000 ₱10,000 ₱10,000
P10,00 0
0 1 2 3
₱10,000 = P10,000
₱10,000(1 +.10)1 = 11,000
₱10,000(1 +.10)2 = 12,100
S = P33,000
payments.
₱10,000 ₱10,000 ₱10,000

P10,00 0
0 1 2 3
₱10,000(1 + .10)-1 = ₱9,090.91
₱10,000(1 +.10)-2 = 8,264.46
₱10,000(1 +.10)-3 = 7,513.15
A = ₱24,868.52
Hence, from the relation
A = S(1 + i)-n and S = A(1 + i)n
A = 33,100(1 + .10)-3 and S = 24,868.52(1 + .10)3
A = ₱24,868.52 S = ₱33,100
3.3 Ordinary Annuity Formulas

The periodic of R for n periods.
Term
R R R R R
0 1 2 3 n-1 n (periods)
R
R(1 + i)1
.
.
.
R(1 + I)n-3
R(1 + I)n-2
S = sum of the accumulated values of R at the end of the
R(1 +term
I)n-1
(3) S = R + R(1 + i) + . . . R(1 + i)n-3 + R(1 + i)n-2 + R(1 + i)n-1
multiplying (1) by (1+i)
(4) (1 + i)S = R(1 + i) + R(1 + i)2 . . . R(1 + i)n-3 + R(1 + i)n-1 + R(1 + i)n
subtracting (1) from (2) we get
(1 + i)S – S = R(1 + i)n –R
iS = R[(1 + i)n –1]
𝑅(1+𝑖)𝑛 −1
S= 1
(1+𝑖)𝑛 −1
or S =R 𝑖
if we let Sn¬ i = (1+𝑖)𝑛 −1

𝑖
the formula for S can be written as

Sn¬ i = Rsn¬ i
where S id the amount of an ordinary annuity

R is the periodic payment
𝑗
I = 𝑚 = interest rate per period
N = mt = number of payments
The symbol, Sn¬ I, is read as “S angle n at I”

(1+𝑖)𝑛 −1
Sn¬ i =
𝑖
To derive the present value of an ordinary annuity we use the relation
A = S(1 + i)-n
A = RSn¬ i(1 + i)-n
(1+𝑖)𝑛 −1
A = R[ 𝑖
](1 + i)-n
1−(1+𝑖)−𝑛
A = R[
𝑖
]
1−(1+𝑖)−𝑛
if we let n¬ i =
𝑖
then the formula of A can be written as

A = Ran¬ i
where A is the present value of the annuity an¬ I, is read as ”a angle n at i”

1−(1+𝑖)−𝑛
an¬ i = 𝑖
Find the amount and present value of an annuity of ₱1,500 payable for 2 years if money
is worth 105 compounded semi-annually.
Given R = P1,500 𝑗 .10
i = 𝑚= 2 =.05
j = 10% - .10
n = mt = 2(2) = 4 periods
i = 2 years
Find S and A
m=2
To find S
S = Rsn¬ i
S = 1,500svn¬ .05
S = 1,500(4.310125)
S = P6,465.19
(1+.05)4 −1
or S = R[ 𝑖
]
(1+.05)4 −1
s= 1,500[ .05
]
s = 1,500(4.310125)
s = ₱6,465.45
to find A
or by using the relation
A = Ran¬ i
A = S(1 + i)-n
A = 1,5004¬ .05
A = 6,465.19(1 + .05)-4
A = 1,500(3.54595)
A = P5,318.93
A = P5,318.93
Mrs. Cruz purchased a house and lot. If she paid ₱400,000 as down payment and
promised to pay P5,000 every 3 months for the next 10 years at 15% compounded quarterly,
find the cash value of the house.
Given: DP = 400,000 j = 15% t = 10 yrs.

R = 5,000 m=4
Solution:
The down payment is not part of the annuity. The cash value of the house is ₱400,000
plus the present value of the ordinary annuity of 40 monthly payments of P5,000 each. The
cash value is
Cash Value = down payment + Ra n¬ I

= ₱400,000 + 5,000 40¬ .0375
= 400,000 + 5,000(20.5509999)
= 400,000 + 102,754.95
Cash Value = ₱502,754.94
3.4 Periodic Payment of an Ordinary Annuity

a.) Periodic payments of S
𝑆 𝑆
R= sn¬ i
or R = (1 + 𝑖)𝑛 −1
b.) Periodic payment of A

𝐴 𝐴
R= an¬ i
or R = 1− (1 + 𝑖)𝑛
𝑖
In order to have ₱300,000 at the end of 15 years, how much must be deposited in a fund every
3 months if money Is worth 8% compounded quarterly?
Solution:
Given: S = ₱300,000
t = 15 years
n = 60 periods
𝑗 8%
i = = = .02
𝑚 4
Find R:
𝑆
R=𝑠
n¬ i
300,000
R= 𝑠50¬ .02
300,000
R=
114,05154
R = ₱2,630.38
Mr. Tuy bought a refrigerator that cost ₱19,500. He paid ₱6,000 as down payment and the
balance will ne paid in 36 equal monthly payments. Find the monthly payment if money is 15%
compounded monthly.
Solution:
A = Cash Value – Down Payment
A = ₱19,500 – ₱6,000 = ₱13,500
n = 36
.15
i = 12 = .0125
Find R:
𝐴 13,500
R=a =a
n¬ i .36¬ .0125
13,500
R= 1−(1+ .0125)−36
.0125
13,500
R=
28.84726737
Exercise 3.1
16. Analyn bought a dining set. She paid ₱2,500 as down payment and promised to pay ₱800 at the
end of each month for one year. What is the cash equivalent of the set if the interest rate is
10% compounded monthly?
17. Find the amount present value of an annuity of ₱5,240 payable at the end of every 6 months
1
for 5 years and m6 months at 52 % converted semi-annually.
18. What is the present value of ₱1,230 due at the end of every three months for 3 years and 6
3
months, if money is worth 94% compounded quarterly?
19. An item can be bought for ₱25,300 as down payment and 12 semi-annual payments of ₱480
1
each. What is the cash equivalent of the item if money is worth 52 % compounded semi-
annually.
1
20. If Cherry will deposit P1,500 every end of each quarterly in 9 years at the rate of 62 %
compounded quarterly, how much will be the amount of her savings at the end of 5 years?
21. What is the cash value of a set of Science Encyclopedia that can be purchased for ₱12,500 as
down payment and ₱1,450 at the end of each month for 18 months at 15% compounded
monthly?
22. In a series of monthly payments of ₱1,580 for 10 years, what is the cash value of an annuity if
money is worth 12% compounded monthly?
23. A man deposits ₱12,500 at the end of every six months in a bank which credits interest at 9%
compounded semi-annually. How much will he have after 19 years?
24. Mr. Chua purchased a car. If he paid ₱400,000 as down payment and promised to pay ₱10,500
1
every month for 5 years at 72 % compounded monthly, what is the cash value of the car?
25. Find the present value if an annuity whose semi-annual payment is ₱2,500 payable for 5 years
3
at 8 % compounded semi-annually.
4
26. A man purchased a DVD player worth ₱8,500. He paid P2,000 cash and agreed to make 15
monthly payments. If interest is 18% (m=12), find the monthly payment.
27. Marga borrowed P250,00 and agreed to repay her obligation by making equal quarterly at the
end of every months for 4 years. What is the periodic payment, if money is worth 12.5%
compounded quarterly?
1
28. How much should be invested each year in a fund paying 102 % effective to accumulate to
P250,000 in 5 years?
29. Find the monthly payments for 30 periods to discharge an obligation of ₱300,000, if money is
3
worth 94 % compounded monthly.
1
30. How much should one deposit monthly in a fund that earns 124 % compounded monthly in
order to have ₱350,000 in 3 years and 6 months?
3.5 Finding the Interest Rate of an Ordinary Annuity

These formulas are:
𝑛𝑅
c) (n2 - 1)i2 – 6(n - 1)i + 12 (1 − 𝑆
)=0
𝑛𝑅
d) and (n2 - 1)i2 + 6(n + 1)i + 12 (1 − 𝑆 ) = 0
Example 1
A refrigerator can be purchased for ₱9,000 cash down and P630 a month for 18 months. Find
the interest rate charged if it is compounded monthly.
Solution:
A = 9,00 – 900 – 8,100
R = 630
n = 18
m = 12
Formula:
Since A is known
𝑛𝑅
(n2 - 1)i2 + 6(n + 1)i + 12 (1 − )=0
𝐴
18(630)
(182 - 1)i2 + 6(n + 1)i + 12 (1 − 8,100 ) = 0
2
323 i + 114i – 4.8 = 0
To find i, we use the quadratic formula for ai2 + bi + c = 0, then

−𝑏±√𝑏2 −4𝑎𝑐
i=
2𝑎
(114)2 −4(323)(−4.8)
i= -114±√
2(323)
114±138.555404
i= 646
i = -.3909526 or .03801146
Here we get two values of i, we disregard the negative value of i. Therefore, the periodic
interest rate is
i = 3.80% and the nominal interest rate charged is
i=ixm
i = (.03801146)12%
i = 45.61%
Example 2:
Payments of ₱750 each are made every 6 months in 3 years. At what rate compounded semi-
annually will these payments amount to ₱5,100?
Solution:
S = ₱5,100
R = ₱750
n = mt = 2(3) = 6
Formula: Since S is known
𝑛𝑅
(n2 - 1)i2 – 6(n - 1)i + 12 (1 − 𝑆
)=0
6(750)
(62 - 1)i2 – 6(6 - 1)i + 12 (1 − )= 0
5,100
2
35i – 30i + 1.4117647 = 0
To find i, we use the quadratic formula. We have

30±√302 −4(35)(1.4117647)
i= 2(35)
here we set two values of i

i = .887170603 or.0494722647
Since i = .049972253 (2)

j = im = .049972253
Therefore, the interest rate charged is 9.99944 compounded semi-annually.
Exercise 3.2
5. in purchasing a washing machine worth P21,000, a buyer pays ₱3,500 cash and agrees to make
12 monthly payments. If the monthly payment is ₱1,580, find the interest rate m charge.
6. Deposit of ₱8,380 are made every end of six months. At what rate compounded semi-annually
will these deposits amount to P112,400 in 14 years?
7. A television set costs P10,440. It is purchased by a down payment of ₱4,440 and monthly
payments of P 382.84 for one year and 6 months. Find the rate of interest converted monthly.
Use either interpolation or the given derivation of i.
8. A man invests ₱9,375 every six months. If he has ₱200,000 in five years, at what nominal rate
compounded semi-annually did hi investment earn?
3.4 The Term of an Ordinary Annuity
The number of payments can be determined when the amount or present value, the periodic
payment and interest rate are given
Formula in finding the term, n is
𝐴𝑐
𝑙𝑜𝑔[1− ]
𝑅
n = −log(1+1)
Example 1
Victoria borrows ₱15,000 with interest at 15% compounded quarterly. She will discharge the
debt by paying P950 quarterly.
d) How many payments of ₱950 are required?
e) How much would the final payment be if it is made the day after the last P950 payment?
f) How much would the final payment be if it is made 3 months after the last P950 payment?
Solution:
Given: A = ₱15,000 R = 950 i = .0375
d) Substitute the given values into the formula
𝐴
𝑙𝑜𝑔[1− 𝑐]
𝑅
n= log(1+𝑖)
15,000(.0375)
𝑙𝑜𝑔[1− ]
950
n= log(1+.0375)
𝑙𝑜𝑔.407894737
n= log(1.0375)
.389451898
n= .015988105
n = 24.35885291
This means that there will be 25 quarterly payments of ₱950 and a final irregular
payment.
e) To find the final payment, the 24th payment in this case.

Let x be the irregular payment to be paid on the 24th payment. Make a time diagram
using the present as the focal date.
Ordinary annuity of 24 months x
0 950 950 950 950 950

. . .
1 2 3 23 24
Focal date
x(1.0375)-24 + 950𝑎24¬ .0375 = 15,000
x(.413319095) + 14,862.58 = 15,000
x = P332.47
Therefore the final 24th payment is
= 24th payment + final irregular payment
= 950 + 332.47
= P1,282.47
f) To find the concluding payment (irregular payment on the 25th payment)

Let y be the final payment on the 25th period
950 950 950 950 950 950 y
...
0 1 2 3 22 23 24 25
ordinary annuity of 24 payments
Using the present as the focal date

y(1.0375)-25 + 950𝑎n¬ .0375 = 15,000
y(.39837985) + 14,862.58 = 15,000
x = ₱344.85
Exercise 3.3
6. Lulu borrows ₱240.000 with interest at 12% compounded monthly. She will pay the debt by
paying ₱5,300 monthly
c. Find the number of regular payments to be made.
d. How much will be the final payment if it is made one month after the last ₱5,300 payment?
7. The present value of an annuity is ₱270,000 whose semi-annual periodic payment of ₱15,600
will be needed?
8. Margarita borrowed ₱500,000 and agreed to repay it in equal quarterly installment of ₱18,500
with interest at 10.5% compounded quarterly. If the first payment is due in three months after
borrowing the money.
c. How many full payments must the debtor make”
d. How much would the final payment he if it is made on the day of the last ₱18,500 payment?
9. A car is worth ₱730,000. The buyer paid ₱350,000 down payment and promised to pay ₱7,660
3
every month, if he is charged 74 % compounded monthly,
c. How many full payments must be made?
d. How much will be the final payment?
10. A fund of ₱400,000 is to be created by making a quarterly deposit of ₱15,000. If the fund earns
12% compounded quarterly,
c. How much deposits of ₱15,000 are required?
d. How much would the final deposit be if it is made three months after the last ₱15,ooo
deposit?
3.4 Annuity Due

An annuity due is one for which the first payment occurs immediately. It is also defined as an
annuity in which payments are made at the beginning of each period.
The following symbols re used in dealing with annuity due formulas:

𝑆 = amount of an annuity due
3.7.1 Present Value of an Annuity Due
The present value of an annuity due, which is denoted by A, is the sum of the present values of
the payments.
Term
...
0 1 2 3 n-1 n
R R R R ... R
The formula in finding the present value of an annuity due is:
A = (1st payment) + (present value of remaining payments)
A = A + 𝑅𝑎n−1¬ i
Example 1
Marlon purchased a car. He paid ₱150,000 down payment and ₱10,000 payable at the
beginning of each month for 5 years. If money is worth 12% compounded monthly, what is the
equivalent cash price of the car?
Given:
R = ₱10,000 j = 12%
12%
Down payment = ₱150,000 i = 12 – 1%
m = 12 A = ? Cash Equivalent - ?
t = 5 years
n = 60
A = R + 𝑅𝑎n−1¬ i
A = ₱10,500 + ₱10,50060−1¬ 1%
A = ₱10,500 + ₱10,500𝑎59¬ 1%
1−(1.01)−59
A = ₱10,500 + ₱10,500[ .01
]
A = ₱10,500 + ₱466,248.18
A = ₱476,748,18 (Total Installment Payment)
Cash Equivalent = Down Payment + Total Installment Payments
Cash Equivalent = ₱150,000 + ₱476,748.18
Cash Equivalent = ₱626,748.18
3.7.2 Amount of an Annuity Due

The amount of an annuity due, which is denoted by S, is the sum of the accumulated values of
the payments at the end of the term.
...
0 1 2 3 n-1 n
R R R R ... R
The formula in finding the amount of an annuity due is:
S = {Value of an annuity of (n +1) payments on the last payment date} – R
S = 𝑅𝑠n+1¬ i − 𝑅
Example 1
If ₱500 is deposited in a bank at the beginning of each 3 months for 10 years and money is
worth 8% compounded, how much is in the fund at the end of 10 years?
Given:
R = P500 j = 8%
8%
M=4 i = 4 = 2%
t = 10 years S=?
n = 40
S = 𝑅𝑠n+1¬ i − 𝑅
S = ₱500𝑠40+1¬ 2% − ₱500
(1.02)41 −1
S = ₱500[ .02 ]-₱500
S = ₱31,305.01 – ₱500
S = 30,805.01
Example 2
Emil invests ₱5,000 at the beginning of each six months. He makes his first deposit on
January 19, 2003. How much will be in his account on January 19, 2015, if money is worth 9%
compounded semi-annually?
R = ₱5,000
m=2
t = January 19, 2003 – January 19, 2015 = 12 yrs.
n = 24
j = 9%
9% 1
i = 2 = 42%
S=?
S= 𝑅𝑠n+1¬ i − 𝑅
S = ₱5,000𝑠24+1¬4 1% − ₱5,000
2
S = ₱5,000𝑠25¬4 1% − ₱5,000
2
(1.045)13 −1
S= ₱5,000 [ .045 ]-₱5,000
S = ₱22,826.05 – ₱5,000
S = ₱217,826.05
3.7.3 Periodic Payment R of an Annuity Due
The following formulas are sued in finding the periodic payment R of an annuity due:
𝐴 𝑆
𝑅= 𝑅=
1 + 𝑎n−1¬ i 𝑆n+1¬ i − 1
Where:
S = amount of an annuity due
Example 1
What equal deposits should be placed in a fund at the beginning of each year for 15 years in
order to have ₱1,500,000 in the fund at the end of 15 years, if money accumulates 12%?
Given:
S = ₱1,500,000 j = 12%
m=1 i = 12%
t = 15 R=?
n = 15
𝐴
R=
𝑆n+1¬ i−1
𝑃1,500,000
R= 𝑆15+1¬ 12%−1
𝑃1,500,000
R= 𝑆16¬ 12%−1
𝑃1,500,000
R= 41.75328042
R = ₱35,925.32
Exercise 3.4
For each problem draw a diagram illustrating the data and the solution
11. If money is worth 16% compounded quarterly, find the present value and the amount of
annuity due of ₱1,500 payable quarterly for 10 years.
12. An investment of ₱5,000 is made at the beginning of each month for 8 years and 7 months. If
interest is 12% compounded monthly, how much will the investment be worth at the end of the
term?
13. At retirement, Mr. Nolram Ocampo finds his share f a pension fund is ₱2,500,000. What
payment will this provide at the beginning of each month for 25 years, for him or his estate, if
the fund invested at 18% compounded quarterly?
14. Mr. Jason Raymundo agrees to pay ₱2,000 at the beginning of each 6 months for 5 years. If
1
money is worth 122% compounded semi-annually, find a) the present value of his debt, before
he makes a payment; b) Mr. Raymundo’s outstanding liability just before his 7th payment; and
c) his outstanding liability just after the 7th payment.
15. A house and lot is bought for ₱1,000,000 down payment and ₱5,000 payable at the beginning
of each month for 5 years. What is the equivalent cash price of the house and lot, if interest
rate is 14% compounded monthly?
16. On January 19, 2003, Mr. Berlindo Santos opened a saving account for his wife with an initial
deposit of ₱10,000 in a bank paying 6% compounded quarterly. If Mr. Santos continues to make
quarterly deposits of the same amount until July 19, 2008, how much will be in the account at
the end of the term? (Hint: Count the time by months.)
17. A machine will be replaced 10 years from now at a cost of ₱750,000. How much should the
owner save at the beginning of each quarter in order to replace the old machine if his savings
3
earn interest at 84% compounded quarterly?
18. What equal deposits should be placed in a fund at the beginning of each year for 20 years in
1
order to have ₱2,500,000 in the fund at the end of 20 years, if the money accumulates 102%?
19. Mayette agrees to make equal payments at the beginning of each 3 months for 12 years, to pay
1
all interest and principal in purchasing a lot worth ₱1,200,000 cash. If money is worth 122%
compounded quarterly, find the quarterly payment.
20. A loan of ₱200,000 will be settled by 25 equal payments, the first of which is to be made
immediately. Find the quarterly payment, if money is worth 10% compounded quarterly.
3.8 Deferred Annuity

Is an annuity whose term does not begin until the expiration of a specified time
Ad
Sd
... ...
0 1 2 3 d d1 d2 d+n-2 d+n-1 d+n
deferment period n periods
(d) Payments are made
No payments
The formula in finding the present value 𝐴𝑑 of the deferred annuity is

𝐴𝑑 = {present value of annuity with term (d + n) periods} – {present value of annuity with term
d periods}
Where:
𝐴𝑑 = present value of deferred annuity
𝑑 = value of deferment
𝑛 = total number of payments
𝑅 = periodic payment of the deferred annuity
𝑖 = interest per conversion period
Example 1
A sequence of quarterly payments of ₱3,500 each, with the first one due at the end of 3
years and the last of the end of 10 years. Find the present value of the deferred annuity, if
money is worth 16% compounded quarterly.
Given:
R= ₱3,500 j = 16% m=4
Solution:
16%
i = 4 = 4%
d = 3 x 4 = 12; 12 – 1 = 11
n = 7 x 4 = 28; 26 + 1 = 29
40
11 29
RRRRRRRRRRRR RRRRR
‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘
0 1 2 3 4 5 6 7 8 9 10
3 1
4 4
10 𝑦𝑟𝑠
𝐴𝑑 = ₱3,500𝑎29+11¬ 4% −₱3,500𝑎11¬ 4%
𝐴𝑑 = ₱3,500𝑎40¬ 4% −₱3,500𝑎11¬ 4%
1−(1.04)−40 1−(1.04)−11
𝐴𝑑 = ₱3,500[ .04
]- ₱3,500[ .04
]
𝐴𝑑 = ₱69,274.71-₱30,661.67
𝐴𝑑 = ₱38,613.04
Example 2
Find the cash equivalent of an item that sells for ₱20,000 down payment and 20 semi-
annual payments of ₱5,500 each, the first is due at the end of 3 years, if money is worth 10%
compounded semi-annually.
Given:
R = ₱5,500 Down payment = ₱20,000 j = 10% m=2
Solution:
10%
i = 2 = 5%
d = (3 x 2) – 1 = 6 – 1 = 5
n = 20
Ad
25
5 20
R R R R R R R R R R R R R R R R R R R R R R
‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘
0 1 2 3 4 5 6 7 8 9 10 11 12 13
1
2
𝐴𝑑 = ₱5,500𝑎20+5¬ 5% −₱5,500𝑎5¬ 5%
𝐴𝑑 = ₱5,500𝑎25¬ 5% −₱5,500𝑎5¬ 5%
1−(1.05)−25 1−(1.05)−5
𝐴𝑑 = ₱5,500[ ]- ₱5,500[ ]
.05 .05
𝐴𝑑 = ₱77,516.70 – ₱23,812.12
𝐴𝑑 = ₱73,704.58
3.8.1 Periodic Payment R of Deferred Annuity

The formula in finding the periodic payment R of a deferred annuity is:
𝐴𝑑
𝑅 =
Example 1
Alex borrows ₱100,000 with interest at the rate 12% compounded semi-annually. he agrees to
discharge his obligation by paying a sequence of 10 equal semi-annual payments, the first being
1
due at the end of 52 years. Find the semi-annual payment.
Given:
𝐴𝑑 = ₱100,00
J = 12%
m =2
n = 10
d = 10
12%
i = 2 = 6%
Solution:
𝐴𝑑
R=
𝑃100,000
R= 𝑎20+6%¬ i −𝑎10¬ 6%
𝑃100,00
R= 1−(1.06)−20 1−10
[ ]−[ ]
.06 .06
𝑃100,000
R = 11,46992122−7.360087051
𝑃100,000
R = 4.109834169
R = ₱24,331.88
Exercise 3.5
For each problem, draw a line diagram illustrating the data and the solution
Find the present values of the deferred annuity which is described, at the specific interest rate.
11. A farm costs ₱750,000 cash. Paolo will pay ₱150,000 cash and a sequence of 15 annual
payments, the first due at the end of 5 years. If money is worth 12%, find the annual payment.
12. A house and lot is offered for sale ₱1,500,000 cash, or ₱500,000 cash and a sequence of 20
semi-annual payments of 120,000 each, the first is due at the end of 3 years, if money is worth
14% compounded semi-annually, find the cash value of the house and lot.
13. Find the present value of a series of quantity payments of ₱2,500 each, the first payment is due
at the end of 4 years and 6 months, and the last at the end of 10 years and 3 months, if money
is worth 16% compounded quarterly.
14. Find the cash equivalent of a computer set that sells for ₱10,000 cash and a sequence of 10
semi-annual payments of ₱3,500 each, the first is due at the end of 3 years and 6 months, if
1
money is worth 102% compounded semi-annually.
15. Jason borrows ₱50,000 and agrees to pay his obligation by making 15 equal annual payments,
the first is due at the end of 3 years . Find the annual payment, if money is worth 12%.
16. Ryan obtains a loan of ₱250,000 with interest t 14% compounded quarterly. He will discharge
his debt by a sequence of equal quarterly payments, the first is due at the end of 5 years and
the last at the end of 10 years find the periodic payment.
17. Find the present value of the pension of a man, now 60 years old, and who will receive a
pension of ₱10,000 per month for 15 years, with the first payment to occur one month after his
65th birthday, if money is worth 18% compounded monthly.
18. An investment in a stock market will yield no operating profit until the end of 5 years, when
investor will receive P100,000 after that, he will receive ₱100,000 at the end of each quarter for
1
10 more years. Find the present value of this income if money is worth122% compounded
quarterly,
19. On November 20, 2002 a house and lot was bought for ₱500,000 down and 12 quarterly
payments of ₱50,000 each, the first is due on November 20, 2003. Find the cash value of the
house and lot, if money is worth 15% compounded quarterly.
20. Aling Nelie won ₱25,000,000 in Mega Lotto. She invest winnings at 16% compounded semi-
annually with the conditions that she receive 25 semi-annual withdrawals starting at the end of
2 years. Find the size of the withdrawals.
3.8.2 Value of an Annuity in an Arbitrary Date

Example 1
A sequence of 5 semi-annual payments of ₱2,500 each will start with a payment at the end of
1
22 years. If money is worth 12% compounded semi-annually, find the sum of the values of these
1
payment at the end of a)2 years, b)42years, c) 6 years, d)the actual present value of the payments.
Given;
R = ₱2, 500
j = 12%
m=2
12%
i= = 6%
2
n=5
Time Diagram:
R R R R R
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14
1 yr. 2 yrs. 3 yrs. 4 yrs. 5 yrs. 6 yrs. 7 yrs.
Solution;
1
a) At the end of 2 years b) At the end of 4 2 years
A₂ = ₱ 2, 500𝑎5¬ 6% S = ₱2,500𝑎5¬ 6%
1−(1.06)⁻⁵ (1.06)−5 −1
A2 = ₱ 2, 500[ .06 ] S = ₱2,500[ .06 ]
A₂ = ₱ 10, 530.91 S = ₱14, 092.73
1
c) To find the value of the annuity at the end of 6 yrs, accumulate a) for 4 years, or the result of b) for 12
years.
= ₱16, 784.67
= ₱16,794.67
1
d) To find the actual present value, discount the result of a) for 2 years or the result of b) for 42 years.
Actual Present Value = ₱2,500(𝑎5¬ 6%)(1.06)-4
=₱8,341.47
or
Actual Present Value = ₱2,500(𝑎5¬ 6%)(1.06)3
=₱8,341.47
Exercise
For each problem in the exercise, draw a time diagram showing the payment dates, and the beginning
and the end of the term of any ordinary annuity involved.
1
1. A sequence of 16 quarterly payments of ₱5,000 each will start with a payment at the end of 52 years. If
money is worth 18% compounded quarterly, find the sum of the values of these payments at the end of
1
a) 4 years b) 82 years c) 10 years d) find the actual present value of the payments.
2. In starting a business venture, the owner is granted a loan of ₱750,000 at the beginning of ach 6 months
1
for 10 years. He agrees that money is worth 12 % compounded semi-annually, and that he will discharge
2
all accumulated liability by a single payment at the end of 15 years. What amount must he pay to settle
his obligation?
3. If the fund accumulation at 15% compounded semi-annually, how much will be in the fund at the end of
30 years if ₱5,000 is deposited in it at the end of each 6 months for the first 25 years?
4. A fund of replacement of machinery in a plant must contain ₱300,000 at the end of 12 years. If the fund is
invested at 10.75% compounded quarterly, what equal deposits should be placed in the fund at the end
of each 3 months just for the first 7 years?
5. The first payment of 10,000 by Paul is due in 2 years. Payment continues every 3 months until the 15th
year. If money is worth 20% compounded quarterly, find the annuity value at the beginning of the first
year.
CHAPTER 4
Amortization and Sinking Fund
Amortization
Amortization is a means of repaying a debt by a series of equal time interval. the periodic
payments form an annuity in which the present value is the principal of an interest-bearing debt.
Hence we use the following annuity formulas;
1−(1+𝑖)⁻ⁿ
A = R[ 𝑖
]
𝐴𝑖
R = [1−(1+𝑖)⁻ⁿ]
Where: A = principal
R = periodic payment
i = interest per period
n = total number of payment periods
Examples:
1. An obligation of ₱21,000 with interest of 8% compounded semi-annually must be paid at end
of every 6 months for 4 years. a) Find the size of periodic payment. b) Find the remaining liability just
after making the 5th payment. c) Prepare the amortization table.
Solution:
A = 21, 000 m=2 i = 0.04
j = 8% t = 4 years n=8
𝐴𝑖
a) R = 1−(1+𝑖)⁻ⁿ
21,000(0.04)
= 1−(1.04)⁻⁸
= ₱3,119.08
b)
R R R R R R R R
yrs
0 1 2 3 4
The remaining liability 3,119.09
after the 5th payments is the 3,119.09
present value of the 3,119.09
remaining periodic
payments.
1 −(1+𝑖) −𝑛
A = R⌈ 𝑖
⌉
1 −(1.04) −3
A= 3,119.08⌈
0.04
⌉
= ₱8,655.73
c) Amortization schedule
Payment for
Period Balance Payment Interest Paid Principal
1. ₱21, 000.00 ₱3,119.08 ₱840.00 ₱2,279.08
2. 18, 720.92 3,119.08 748.84 2,370.24
3. 16, 350.68 3,119.08 654.03 2, 465.05
4. 13, 885.63 3, 119.08 555.43 2,563.65
5. 11, 321.98 3, 119.08 452.88 2, 666.20
6. 8, 655.78 3, 119.08 346.23 2, 772.85
7. 5, 882.93 3, 119.08 235.31 2, 883.76
8. 2, 999.16 3, 119.08 119.97 2, 999.11
Total ₱24, 952.64 ₱3, 953.10 ₱21, 000˟
˟The actual value is ₱20, 999.94. This is due to rounding error.
Exercise 4.1
1. A debt of ₱70, 000.00 with 8% converted quarterly must be paid at the end of every 3 months
for 3 years.
b) Find the remaining liability after the 4th payment.
2. Nikko borrows a certain sum with interest at 9% compounded semi-annually. The obligation will
be discharged by paying ₱7, 000 every end of 6 months for 4 years.
a) What is the present value of Nikko's debt?
b) How much of his 3rd payment is interest and how much goes to repayment of principal?
c) Prepare the amortization table.
3. A loan of ₱100, 000 with interest at 10% converted quarterly will be settled by paying ₱12,000 at
the end of every 3 months.
a) How many payments amounting ₱12, 000 will be made?
b) What final smaller payment is needed?
4. To settle a certain amount borrowed at 11% compounded semi-annually, Alina pays Andro ₱15,
000 every semi-annual period for 2 years.
a) Determine Alina's loan.
b) How much of her 3rd payment is interest and how much is payment of principal?
5. An item worth ₱33, 700 is purchased for a down payment of ₱5, 000. Interest is computed at 6%
converted monthly and the balance to be settled with payment of ₱1, 500 at the end of each
month.
a) Determine the number of ₱1, 500-payment needed.
b) Find the size of final payment.
6. A loan of ₱14, 000 bearing a 15% interest converted annually is to be amortized with equal
yearly payments for 10 years.
b) What should the outstanding liability be just after the 4th payment?
7. Aster borrows ₱360, 000. She plans to amortize her debt with equal quarterly payments for 2
years. Interest is allowed at 11% converted quarterly.
a) Find the quarterly cost of his debt.
b) By how much is the debt reduced by the 3rd payment?
8. The cash value of motorcycle is ₱32, 500. Andro brought the item by installment. He pays 7,000
down payment and promised to settle the balance with equal payments due at the end of every
month for 1 year. Interest is converted monthly at 12%
a) How large should each installment payment be?
b) After 1 year, how much of his balanced is reduced?
9. Prepare the amortization table for the extinction of a debt of ₱12,000 with interest at 8%
compounded bi-monthly in equal bi-monthly installment for 1 year.
10. Construct the amortization schedule of an obligation amounting ₱145,000 bearing 18% interest
compounded semi-annually for 5 years, to be paid in equal semi-annual payments.
4.2 Sinking Fund

Sinking fund refers to a fund created by making periodic deposits to anticipate the need of
paying a large amount of money at some future dates.
Geometric progression formulas for ordinary annuity;
𝑅[(1+𝑖)ⁿ−1]
S=
𝑖
𝑆(𝑖)
R = 1−(1+𝑖)⁻ⁿ
Illustrative Examples
1. A fund is created by making equal monthly deposits of ₱3,000 at 9% converted monthly.
a. Determine the sum after half year.
b. What is the amount in the fund after the 4th deposit?
c. Construct the sinking fund schedule for a 6-month period.
Given: R = ₱3,000 j = 9% or .09 m = 12
Solution:
[(1.0075)6 −1]
a) S=3,000 .0075
S=3,000(6.113631847)
S=₱18, 340.89
b) n = 4
[(1.0075)⁴−1]
S=3,000 .0075
S=₱12,135.68
c) Sinking fund schedule

No. of Periodic Interest in Increase in Amount in
payments Deposit Fund Fund Fund
1 ₱3,000 0 ₱3,000.00 ₱3,000.00
2 3,000 22.50 3,022.50 6,022.50
3 3,000 45.17 3,045.17 9,067.67
4 3,000 68.01 3,068.01 12,135.68
5 3,000 91.02 3,091.02 15,226.70
6 3,000 114.20 3,114.20 18,340.90
2. Three years from now, Mr. T needs ₱30,000 to liquidate a certain debt, at 6% converted semi-
annually.
a. How much must he deposit at the end of every 6 months to provide for the payment of the
debt?
b. Prepare a sinking fund table showing the growth of the fund for 3 years.
c. Given:
S = ₱30,000
j = 6% = .06
m=4
30,000(.05)
R = [(1.015)6
−1]
450
R = .093443263
R = ₱4,815.75
d. Sinking fund table

Payments Deposit Interest Increase in Amount in
Fund Fund
1 ₱4,815.76 0 ₱4,815.76 ₱4,815.76
2 4,815.76 72.24 4,888.00 9,703.76
3 4,815.76 145.56 4,961.32 14,665.08
4 4,815.76 219.98 5,035.74 19,700.82
5 4,815.76 295.51 5,111.27 24,812.09
6 4,815.76 372.18 5,187.94 30,000.03
Exercise 4.2
6. A fund is being created by paying ₱2,500 at the end of each year a 10.25% compounded
annually for 4 years.
c. How much money is in the fund just after the 3rd deposit?
d. Construct a sinking fund schedule for 4 years.
7. Mr. Imperial will deposit ₱10,000 at the QUAK Bank at the end of each quarter for 2 years. If
the banks gives out 9% compounded quarterly, find the amount to his credit just after the last
deposit.
8. What monthly payment into a sinking fund at 8% compounded semi-annually will be needed to
raise ₱50,200 at the end of 2 years and 6 months?
9. A fund of ₱50,500 is to be raised by 6 semi-annul payments at 6% converted every 6 months.

c. Find the semi-annual payment
d. Construct a sinking fund table.
10. Prepare a sinking fund table that shows the growth of fund in 5 months if ₱1,300 is to be paid
at the rate of 12% converted monthly.
8.3 Sinking Fund Method of Retiring a Debt
A typical loan of moderate size to an individual or a corporation is discharge by the amortization
method.
Illustrative Example
2. The principal of a loan ₱40,000 will be at the end of 15 years by the accumulation of a sinking
fund by quarterly deposits, and interest will be payable on the debt quarterly at the rate of 9%.
d. Find the quarterly expense of the loan to debtor if his sinking fund is invested at 8%
e. Find the book value of the debt just after the 4th deposit.
f. Find the quarterly expense of the debt if he discharge all the liability as to principal and
interest by paying his creditor equal sums at the end of each 3 months for 2 years.
Given:
S = ₱45,000
n=6
Solution:
𝑆(𝑖)
R = [(1+𝑖)𝑛
−1]
40,000(.02)
R= [(1.02)𝑛6 −1]
R = ₱6,341.03
The interest payable quarterly to the creditor is ₱40,000(.0225) = ₱900. Therefore, the
quarterly expense of the debt is ₱6,341.03 + ₱900 = ₱7

Chapter 1. Simple Interest and Simple Discount 1.1 Simple Interest

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Chapter 1. Simple Interest and Simple Discount 1.1 Simple Interest

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Chapter 1.

Simple Interest and Simple Discount

14. Find the interest on a ₱6000 loan at 17% for 4 months.

1.2 Ordinary and Exact Interest

1.3 Approximate and Exact Time

Io= 360 Ie = 365

1.5 Promissory Notes

Chapter 2: Compound Interest

₱20,000.00 = original principal

Where; P=original principal I=compound interest

2.2 Finding the Compound Amount−when n is Not an Integer

2.3 Finding the Compound Amount at Changing Rates

Given: j=12% j =10% j=8%

F1 = ₱5, 500(1.03)16 F2 = ₱8, 825.885(1.05)14 F3 = ₱17, 474.65(1.08)1

2.4 Finding the Present Value

of 2 years and 3 months.

t = 2 years and 3 mos.

so, P = F(1 + i)-n

2.5 Finding the Present Value for n Not an Integer

At j2 = 8.5% and m = 2, if P =1,000 and t = 2 years then the accumulate value is

The formula for j, is given as

The formula for w is given by

2.8 Finding the Interest Rate

Hence, the formula for i is given by

The formula for j is given by

2.9 Finding the Time or Term of Investment

And for n = mt, the unknown time in years is therefore,

2.10 Valuation of Contracts and their Comparison

2.11 Comparison of Values

2.12 Equation of Values

Chapter 3: Simple Annuities and their Applications

R = periodic payment of the annuity

n = total number of payments

i = interest per conversion period

A = present value of an annuity

3.2 Amount and Present Value of an Ordinary Annuity

A and S are related by the equations

A = S (1+i)-n and S = A (1+i) n

Where, A is the present value of S due in the periods

S is the amount of A for n periods

3.2 Amount and Present Value of an Ordinary Annuity

₱10,000 ₱10,000 ₱10,000

3.2 Amount and Present Value of an Ordinary Annuity

₱10,000 ₱10,000 ₱10,000

3.3 Ordinary Annuity Formulas

subtracting (1) from (2) we get

if we let Sn¬ i = (1+𝑖)𝑛 −1

the formula for S can be written as

where S id the amount of an ordinary annuity

The symbol, Sn¬ I, is read as “S angle n at I”

then the formula of A can be written as

where A is the present value of the annuity an¬ I, is read as ”a angle n at i”

Given: DP = 400,000 j = 15% t = 10 yrs.

Cash Value = down payment + Ra n¬ I

3.4 Periodic Payment of an Ordinary Annuity

b.) Periodic payment of A

3.5 Finding the Interest Rate of an Ordinary Annuity

To find i, we use the quadratic formula for ai2 + bi + c = 0, then

To find i, we use the quadratic formula. We have

here we set two values of i

Since i = .049972253 (2)

b) To find the final payment, the 24th payment in this case.

Ordinary annuity of 24 months x