Republic of the Philippines

City of Olongapo
GORDON COLLEGE
COLLEGE OF EDUCATION, ARTS AND SCIENCES
Olongapo City Sports Complex, Donor St., East Tapinac, Olongapo City 2200
Telefax No.: (047) 602-7175 loc 322
www.gordoncollege.edu.ph

Program: BSED major in Mathematics

Course Code: _____________
Course Title: INVESTMENT OF MATHEMATICS

Course Description:

This will cover the basics of a course in mathematics of investment. It will lead the way as tool in
solving principal, rate, time and interest. Mathematics of Investment has been established so that different
topics such as annuities, perpetuities, amortization, bonds, stocks, credit card, and depreciation are covered.
A combination of traditional materials in mathematics of investments and new ideas that are adapted
to our changing economic needs and economic pressure. Topics progress beginning with simple interest
and simple discount, and leading through the topics on compound interest, annuities, amortization, and
sinking funds, and bond and bond valuation, depreciation, and stocks.

Course Learning Outcomes:

At the end of the course, the students are expected to:

• Illustrate and solve problems involving simple and compound interest, and varying interest
• Determine the classifications of annuities.
• Solve problems involving annuities.
• Prepare loan amortization and sinking schedule
• Discuss the concept and different types of depreciation as well as creating depreciation schedule
• Differentiate stocks from bonds
• Learn how to solve problems involving bonds

MODULE 5: AMORTIZATION

I. Introduction:

According to William L. Hart, amortization is the extinction of loans or debts. This is because you
slowly shrink the debt using periodic payments until it no longer exists and all your liabilities are paid
or discharged. An amortization schedule is used to determine how much to pay after every interval in
order to pay off the loan. An example of how we use amortization in the real world is paying a mortgage
loan or simply mortgage. It is when we loan from financial institutions to buy a house and pay that
“mortgage” through periodic payments.

II. Learning Objectives

At the end of module 4, the students are expected to:

 Republic of the Philippines
City of Olongapo
GORDON COLLEGE
COLLEGE OF EDUCATION, ARTS AND SCIENCES
Olongapo City Sports Complex, Donor St., East Tapinac, Olongapo City 2200
Telefax No.: (047) 602-7175 loc 322
www.gordoncollege.edu.ph

• Understand the concept of amortization

• Know the difference bet prospective and retrospective methods
• Solve problems regarding amortization of loans or debts
• Be able to understand the real world applications of amortization

III. TOPICS AND KEY CONCEPTS

5.1 Amortization
•
Introduction
•
Amortization Schedule
5.2 Methods of Finding the Outstanding Principal
• Prospective Method
• Retrospective Method

“Then there’s amortization, the deadliest of all; amortization of heart and soul.”
- Vladimir Mayakovski

IV. DISCUSSION

Amortization is paying both the principal and the interest by equal payments at equal intervals
until the principal and the interest gradually reduces. We use an amortization table to easily illustrate
how this works. There are two ways of amortizing a loan: with regular payments, and with final
irregular payments.

EXAMPLE

In order to start her business, Danica loaned 50,000 from the bank with an interest of 5% compounded
quarterly to be amortized every 3 months for 3 years. What is the quarterly payment?

Given:
Pord = 50,000 j = 5% t = 3 years m=4
Solution:
We will use the following formula:
𝒋
𝑷 (𝒎)
𝑹= −𝒎𝒕
𝒋
𝟏 − (𝟏 + (𝒎))

MODULE 4. NOT FOR SALE. EXCLUSIVE FOR GORDON COLLEGE ONLY.

2
 Republic of the Philippines
City of Olongapo
GORDON COLLEGE
COLLEGE OF EDUCATION, ARTS AND SCIENCES
Olongapo City Sports Complex, Donor St., East Tapinac, Olongapo City 2200
Telefax No.: (047) 602-7175 loc 322
www.gordoncollege.edu.ph

Where R is the amount of periodic payment.

𝑗 0.05
𝑃 (𝑚) 50,000 ( 4 ) 625
𝑹= −𝑚𝑡 = −4(3)
= = 𝟒, 𝟓𝟏𝟐. 𝟗𝟏𝟓𝟔
𝑗 0.05 0.1384914
1 − (1 + (𝑚)) 1 − (1 + ( 4 ))

Now, let’s look at the amortization schedule:

Period Unpaid Balance Interest Periodic Payment Principal Repaid
1 50,000.00 625.00 4,512.92 3,887.92
2 46,112.08 576.40 4,512.92 3,936.51
3 42,175.57 527.19 4,512.92 3,985.72
4 38,189.85 477.37 4,512.92 4,035.54
5 34,154.31 426.93 4,512.92 4,085.99
6 30,068.32 375.85 4,512.92 4,137.06
7 25,931.26 324.14 4,512.92 4,188.77
8 21,742.48 271.78 4,512.92 4,241.13
9 17,501.35 218.77 4,512.92 4,294.15
10 13,207.20 165.09 4,512.92 4,347.83
11 8,859.37 110.74 4,512.92 4,402.17
12 4,457.20 55.72 4,512.92 4,457.20
TOTAL 4,154.99 54,154.99 50,000.00

From this table, we can note the following:

- To obtain the unpaid balance for the period, we subtract the principal repaid of the previous period
from the unpaid balance of the previous period.

Period Unpaid Balance Principal Repaid

1 50,000.00 3,887.92
2 46,112.08

MODULE 4. NOT FOR SALE. EXCLUSIVE FOR GORDON COLLEGE ONLY.

3
 Republic of the Philippines
City of Olongapo
GORDON COLLEGE
COLLEGE OF EDUCATION, ARTS AND SCIENCES
Olongapo City Sports Complex, Donor St., East Tapinac, Olongapo City 2200
Telefax No.: (047) 602-7175 loc 322
www.gordoncollege.edu.ph

𝒋
- The interest rate is obtained by multiplying unpaid balance and (𝒎).

Period Unpaid Balance Interest

1 50,000.00 625.00
2 46,112.08 576.40

- The principal repaid is equal to the periodic payment less the interest.
Period Interest Periodic Payment Principal Repaid
1 625.00 4,512.92 3,887.92
2 576.40 4,512.92 3,936.51

Finding the Outstanding Principal

Outstanding Principal or Outstanding Balance is the amount of debt that has not yet been paid. There
are two ways of finding the Outstanding Principal:
1. Prospective Method
2. Retrospective Method

Prospective Method
This method is used when all the periodic payments are equal and regularly paid. We use the
following formulae:
a. Outstanding Balance
𝑗 𝑘−𝑛
1 − (1 + 𝑚)
𝑶𝑩 = 𝑅 [ ]
𝑗
𝑚

MODULE 4. NOT FOR SALE. EXCLUSIVE FOR GORDON COLLEGE ONLY.

4
 Republic of the Philippines
City of Olongapo
GORDON COLLEGE
COLLEGE OF EDUCATION, ARTS AND SCIENCES
Olongapo City Sports Complex, Donor St., East Tapinac, Olongapo City 2200
Telefax No.: (047) 602-7175 loc 322
www.gordoncollege.edu.ph

b. Interest Paid
𝑗 𝑘−𝑛
𝑰(𝒏−𝒌) = 𝑅 [1 − (1 + ) ]
𝑚
c. Principal repaid
𝑷𝒓𝒆𝒑𝒂𝒊𝒅 = 𝑅 − 𝑰(𝒏−𝒌)
Where:

k = number of past payments

k – n = number of payments to be made

Retrospective Method
It is used when the final payment is not the same as the regular periodic payments. We use the following
formula to solve for the outstanding balance using retroactive method:
𝑗 𝑘−𝑛
𝑗 𝑘 (1 + 𝑚)
𝑶𝑩 = 𝑃 (1 + ) − 𝑅[ ]
𝑚 𝑗
𝑚

SUMMARY OF FORMULAE

Periodic Payment

𝑗
𝑃 (𝑚)
𝑹= −𝑚𝑡
𝑗
1 − (1 + (𝑚))

Prospective Method of Finding the Outstanding Balance

𝑗 𝑘−𝑛
1 − (1 + 𝑚)
𝑶𝑩 = 𝑅 [ ]
𝑗
𝑚

MODULE 4. NOT FOR SALE. EXCLUSIVE FOR GORDON COLLEGE ONLY.

5
 Republic of the Philippines
City of Olongapo
GORDON COLLEGE
COLLEGE OF EDUCATION, ARTS AND SCIENCES
Olongapo City Sports Complex, Donor St., East Tapinac, Olongapo City 2200
Telefax No.: (047) 602-7175 loc 322
www.gordoncollege.edu.ph

Retrospective Method of Finding the Outstanding Balance

𝑗 𝑘−𝑛
(1 + 𝑚)
𝑘
𝑗
𝑶𝑩 = 𝑃 (1 + ) − 𝑅 [ ]
𝑚 𝑗
𝑚

TEACHING AND LEARNING MATERIALS/ RESOURCES

Learning Modules
PowerPoint
Video Clips

REFERENCES

Ballada, W., & Ballada, S. (2009). Investment Mathematics Made Easy (3rd ed.). Win Ballada and Susan
Ballada.

Hart, W. L. (1980). Mathematics of investment (5th ed.). Lexington, Massachussetts: D.C. Heath and
Company.

Paguio, D. P., Gadia, E. D., Soriano, D. D., Taganap, E. C., & Aniciete, E. B. (2014). Compound Interest.
In E. D. Ibañez (Ed.), Mathematics of Investment. Malabon City, NCR: Jimczyville Publications.

Sirug, W. S. (2018). Mathematics in the Modern World. Manila City, NCR: Mindshapers Co., Inc.

MODULE 4. NOT FOR SALE. EXCLUSIVE FOR GORDON COLLEGE ONLY.

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