Unit Modern World Math

Module 8 Interest Rates

GE4-MMW Mathematics in the Modern World Units: 3 Page |1
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INFORMATION SHEET MD-8.3.1 Math May 27

“Interest”
Kinds of interest rates
There are 2 kinds of interest rates:
1. Exact interest (Ie)makes use of time where a year is equal to 365 days. Thus, 1e = Pr D
365
Where D is given the number of days.
2. Ordinary interest (10) considers only 360 numbers of days in a year. Thus, 10= Pr D
365
Where D is given the number of days.
Time Between Two Dates
Two ways to compute for the number of days between two dates, the actual time and
the approximate time.
1. Actual time considers all the days between the two given dates. Days are counted excluding
the 1st day.
2. Approximate time assumes that every month counts 30 days.
Interest Between Two Dates
There are four types of interest between two dates, the exact interest at actual number of days, the
exact interest at approximate number of days, the ordinary interest at actual number of days, the
ordinary interest at actual number of days, and the ordinary interest at approximate number of days.
1. Exact interest at actual number of days,1 e1
Actual Time
1 e1 =Pr
365
2. Exact interest at approximate number of days 1 e2

1 e2 = Pr ( Actual365Time )
3. Ordinary interest of actual number of days,1 e1

1 e1 =Pr ( ActualTime
360 )
4. Ordinary interest at approximate number of days,
1 e2 =Pr ( Actual360Time )
Example: Find the exact and ordinary interest of P50,000 at 2 ¾ % simple interest using both the actual
and approximate number of days from April 11, 2017 to February 19, 2018.

Given: P= P50,000
r = 2 ¾ % =0.0275
Required: a. Exact interest at actual number of days, 1 e1
b. Exact interest at approximate number of days, 1 e2
c. Ordinary interest at actual number of days, 1 e1
d. Ordinary interest at approximate number of days, 1 e2
Midter
m
Wee Meeting SUBJECT TEACHER: APPROVED BY:
 Unit Modern World Math
Module 8 Interest Rates
GE4-MMW Mathematics in the Modern World Units: 3 Page |2
.

k3 1s-3rd LUCRECIA A. ACOSTA MR. WILBERT A. MAÑUSCA

SUBJECT TEACHER School Administrator
Solution:
Number Of Days

Actual Approximate
Time Time

April 11-30 19 19
May 31 30
June 30 3
July 31 30
August 31 30
September 30 30
October 31 30
November 30 30
December 31 30
January 31 30
February 1-19 19 19
Total 314 308

ActualTime
a. 1 e1 =Pr ( 365 )
= P50,000 . 0.0275.314
365
1 e1= P1,182.88

b. 1 e2 = Pr ( Approximate
365
Time
)
= P50,000.0.1275.308
365
1 e2 =P1,160.27

c. 1 e1 = Pr ( Actual360Time )
1 e1 = P1,176.39

d. 1 e2 = Pr ( Approximate
360
Time
)
=P50,000 . 0.01275. 308
360

1 e2 =P1,176.39
 Unit Modern World Math
Module 8 Interest Rates
GE4-MMW Mathematics in the Modern World Units: 3 Page |3
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Midter SUBJECT TEACHER: APPROVED BY:

m Wee Meeting
k3 1st-3rd LUCRECIA A. ACOSTA MR. WILBERT A. MAÑUSCA
Subject Teacher School Administrator
Therefore, the exact interest at actual time of 314 days is P1,182.88 while at approximate time
of 308 days is P1,160.27. Also, the ordinary interest at actual time of 314 days is P1,199.31 while at
approximate time of 308 days is P1,176.39.
Compound multiplies the interest rate by the original principal plus the interest that is collected
during the time of investment. Hence, compound interest computes interest from the principal and
interest previously earned by the principal.
The compound interest, is the amount paid on the original principal P and on the accumulated
past interest, i.e.
nt
r
([ ] )
I =P 1+
n
−1

Where P is the principal, r is the rate of interest, n is the number of times compounding occurs
in a year and t is the length of time in years.
Interest is compounded either monthly (n = 12), quarterly (n=4), semi-annually (n=2), or
annually (n=1).
The compound amount, denoted by MV, is the sum of the original principal and the compound
interest, i.e.
MV=P + 1 = P¿ ¿.
Formulas for nominal rate and time are deducted from MV = P ¿ ¿
 Credit Cards and Consumer Loans 8.3.2
A credit card issued by a bank, charges users a financial charge for every transaction made. This
fee grows by a compound interest of a bank set interest rate each month.
Example:
Assume a man owe P50,000 on credit card. The minimum pay -1ment is calculated as
5% of his balance:
Payment=(minimum amount required)(balance)
= (0.05)P50,000
Payment = P2,500
But always remember that a credit card charges interest every month, and
usually one might spend more with his card after a payment was made. In many cases,
the same minimum applies: a percentage of the total loan balance is due.
Consumer loans are loans obtain to pay for an item that is fairly expensive and not affordable.
Similar with installment loans,, it is usually repaid at regular intervals within a period of time,
usually paid monthly. The amount to be installed or the periodic payment, I,
I= Pr ¿ ¿
Where P is the original price of goods considered as the principal, r is the rate of
interest, n is the number of times the goods will be paid in installment basis.
 Unit Modern World Math
Module 8 Interest Rates
GE4-MMW Mathematics in the Modern World Units: 3 Page |4
.

Midter SUBJECT TEACHER: APPROVED BY:

m Week Meeting
4 1st-3rd LUCRECIA A. ACOSTA MR. WILBERT A. MAÑUSCA
Subject Teacher School Administrator

Example:
A working mom planned to buy an automatic washing machine worth P35,000 in a
home credit appliances store which offers which offers 3% interest and payable in 18 months.
How much will be her monthly installment?
Given: P= P35,000
r= 3% = 0.03
n=18
Stocks, Bonds and Mutual Funds 8.3.3
A stock is a measure of ownership in a company. A stock is sold in in portions called
shares, each of which represents a fraction of the company.
A stock certificate is a piece of paper which represents a fractional ownership share of a
company.
A shareholder who owns the stock certificate earns proportionately to company’s profit.
A stock market is the network of buyers and sellers of stocks included in a stock
exchange and also the stocks which are traded in private. Bonds are also traded at stock
exchange.
A bond is a financial device through which a borrower is duty-bounded to pay the
principal and interest on a loan at specific date in the future to the lender or bondholder.
A mutual fund is an investment vehicle made up of a pool of funds collected from many
investors for the purpose of investing in securities such as stocks, bonds, money market
instrument and similar assets.
A mutual fund’s portfolio is structured and maintained to match the investment
objective stated in its prospectus.
An annuity is a sequence of equal payment made at equal intervals of time.
Payment interval is the time between successive payments of an annuity while the time
from the beginning of the 1st payment interval to the end of the last payment is called the term
of an annuity. The sum of all the payments made in one year is called annual rent.
A contingent annuity is one in which the term depends upon some event where
occurrence is unfixed.
An ordinary annuity certain is one in which the payment are made at the end of the
payment intervals. The amount or final value, S, of an ordinary
Annuity is the sum of all the accumulated value of the set payments due at the end of the term,
while the present value of an annuity, A, is the sum of all the discounted value of several
payments due at the beginning of the term.
S=A(1 +i¿n ; A = S (1+i¿ ¿−n
Where I is the interest per conversion period and n is the total number of payments.
Home Ownership
A mortgage is a legal agreement that gives a conditional right of ownership on an asset or
property by its owner to a lender as security for a loan.
 Unit Modern World Math
Module 8 Interest Rates
GE4-MMW Mathematics in the Modern World Units: 3 Page |5
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Midter SUBJECT TEACHER: APPROVED BY:

m Wee Meeting
k3 1st-3rd LUCRECIA A. ACOSTA MR. WILBERT A. MAÑUSCA
Subject Teacher School Administrator

Applying for a mortgage also means applying for a loan.

An amortization is a distribution of payment into installments over a period of time as set by
amortization table.
r
P
n
R=
1−¿ ¿¿
Example: a man purchased a house and lot in a subdivision worth P400,000 payable in 25 years with
12% interest per annum. How much would be his monthly amortization?
Given: P=400,00r
n=12% = 0.12
n= 12
t= 25
Required: monthly amortization (R)
r
P
Solution: n
R=
1−¿ ¿¿

0.12
P 400,000
12
R=
1−¿ ¿ ¿
R=P4,212.89
Therefore, the man’s monthly amortization for his house and lot is P4,212.89.

References :
Mathematics in the Modern World by: Renelyn R. Cordial; Elvira C. Catolos,
Mathematics of the Modern World by: Mary Joy J. Rodriguez, 2018 edition
https://youtu.be/sMKCZQESF84
 Unit Modern World Math
Module 8 Interest Rates
GE4-MMW Mathematics in the Modern World Units: 3 Page |6
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Midter SUBJECT TEACHER: APPROVED BY:

m Wee Meeting
k3 1st-3rd LUCRECIA A. ACOSTA MR. WILBERT A. MAÑUSCA
Subject Teacher School Administrator

Self Assessment-8.1.1
Interest
Solve the following problems using:
Simple interest:
1. What is the interest charged on a P1,500 loan @10% for 1 year?
Ordinary and Exact Interest:
2. Assume you have a P2,500 loan at 12% interest for 60 days.
a. What is the ordinary interest you would pay?
b. What is the exact interest you would pay?
3. Radio station KOMA borrowed P148,500 on May 12 with interest due on August 27. If the
interest is 10%, find the interest on the loan using (a) exact interest and (b) ordinary interest.
 Unit Modern World Math
Module 8 Interest Rates
GE4-MMW Mathematics in the Modern World Units: 3 Page |7
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Midter SUBJECT TEACHER: APPROVED BY:

m Week Meeting
3 1st-3rd LUCRECIA A. ACOSTA MR. WILBERT A. MAÑUSCA
Subject Teacher School Administrator

Self-Assessment Solution
1. I = P x R X T
= P1,500 x .10 x 1
=P150
2. Formula: P x R x days/360
= P2,500 X .12 x 60/360
Ordinary Interest =P50
Formula: P x R x days/365
=P2,500 x .12 x 60/365
Exact Interest =P49.315
3. The exact interest is found from
I=PRT with P= P=148,500
R=.10
T= 107/365
I= P148,500 x .1 x 107/365
I = P4,353.29 (rounded)
The ordinary interest is P4,413.75-P4,353.29=P60.46 more than the exact interest.
P52,610 at 8 ½ for 82 days.

I=PRT
=52,610 (8 ½%)(82/365)
=52,610 (0.0850) (82/365)
=P1,004.63
 Unit Modern World Math
Module 8 Interest Rates
GE4-MMW Mathematics in the Modern World Units: 3 Page |8
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Written Task
1. A principal of P2,000 is placed in a savings account at 3% per annum compounded annually.
How much is in the account after 1 year, 2 years and 3 years?
2. What would P1,000 become in a savings account at 3% per year for 3 years when the interest is
not compounded (simple interest)? What would the same amount become after 3 years with
the same rate but compounded annually?
3. If P3,000 is placed in an account at 5% and is compounded quarterly for 5 years.
How much is the account at the end of 5 years?
4. What principal you have to deposit in a 4.5% savings account compounded monthly in order to
have a total of P10,000 after 8 years?
 Unit Modern World Math
Module 8 Interest Rates
GE4-MMW Mathematics in the Modern World Units: 3 Page |9
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Midterm SUBJECT TEACHER: APPROVED BY:

Week Meeting
3 1s-3rd LUCRECIA A. ACOSTA MR. WILBERT A. MAÑUSCA
Subject Teacher School Administrator

Performance Task
1. Mr. Garcia borrowed P1,000,000 for the expansion of his business. The effective rate of
interest is 7%. The loan is to be repaid in full after one year. How much is to be paid after
one year?
2. (Chattel mortgage). A person borrowed P1,200,000 for the purchase of a car. If his monthly
payment is P31,000 on a 5-year mortgage, find the total amount of interest.
3. If a house is sold for P3,000 and the bank requires 20% down payment, find the amount of
the mortgage.
4. Ms. Rosal bought a car. After paying the down payment, the amount of the loan is P400,000
with an interest rate of 9% compounded monthly. The term of the loan is 3 years. How
much is the monthly payment?
5. Mr. and Mrs. Banal purchased a house and lot worth P4,000,000. They paid a down
payment of P800,000. They plan to amortize the loan of P3,200,000 by paying monthly for
20 years. The interest rate is 12% convertible monthly. How much is the monthly payment?
 Unit Modern World Math
Module 8 Interest Rates
GE4-MMW Mathematics in the Modern World Units: 3 P a g e | 10
.

Midter SUBJECT TEACHER: APPROVED BY:

m Week Meeting
3 1st-3rd LUCRECIA A. ACOSTA MR. WILBERT A. MAÑUSCA
Subject Teacher School Administrator
 Unit Modern World Math
Module 8 Interest Rates
GE4-MMW Mathematics in the Modern World Units: 3 P a g e | 11
.