1

GENERAL MATHEMATICS - Number of years for which the money is

SIMPLE and COMPOUND INTEREST borrowed or invested

6. INTEREST (I)
LEARNING COMPETENCIES - Payment for the use of borrowed money or
the amount earned on invested money
The learner…
 Illustrates simple and compound interests 7. FINAL AMOUNT / MATURITY VALUE (F)
- The sum composed of the principal and the
 Distinguishes between simple and
interest accumulated over a certain period
compound interests
 Computes interest, maturity value, future
value, and present value in simple interest FORMAT FOR PROBLEM SOLVING
and compound interest environment
 Solves problems involving simple and Given:
compound interests
Asked:

Formula:

SIMPLE INTEREST Solution:

- is the interest paid or computed on the original Answer:

principal only of a loan or on the amount of an
account
SIMPLE INTEREST

TERMINOLOGIES: Formulas

1. DEBTOR / MAKER / PAYER / PAYOR I =Prt

(nangungutang)
- Individual/institution that borrows money
for any purpose I =F−P
- One who pays

2. LENDER / PAYEE (nagpapautang)

- Individual/institution which loans the I
P=
money rt
- One to whom the money is to be paid
P=F−I
3. PRINCIPAL (P)
- Capital or sum of money borrowed or
invested F
P=
1+rt
4. RATE OF INTEREST (r)
- A fractional part of the principal that is paid
on the loan or investment
F=P+ I
5. TIME / TERM (t)
 2

Answers: (a) P20,833.33 (b) P25,833.33

F=P(1+rt)

Example 2. Bea invested P80,000 in the stock

market which guaranteed an interest of P20,000
I after one year and 7 months. At what rate would
r= (100)
Pt her investment earn?

Solution 2.
F Given: P = P80,000 I = P20,000 t = 1yr & 7m
–1
P Asked: r
r= (100)
t I
Formula:
r=
Pt
20,000
r= ( 100 )
I 7
t=
Pr
Solution: 80,000 1( )
12

Answer: r=15.79

t=
F
P [ ]
–1

r
Example 3. Cyn Dy borrowed P5,000 from a bank
charging 12% simple interest with an agreement
Where: that she would pay the principal & the interest at
F = amount (in currency / peso) the end of the term. If she paid P6,200 at the end of
P = principal (in currency / peso) the term, for how long did she use the money?
I = interest (in currency / peso)
r = rate (in %) Solution 3.
t = time (in years) Given: P = 5,000 F = 6,200 r = 12% = 0.12
Asked: t
I
Formula:
t=
Pr
Example 1. Ara paid an interest of P5,000 on a
Solution: I =F−P=6,200−5000=P 1,200
three-year loan at 8% simple interest.
a. What was the original loan? 1,200
b. How much did she pay at the end of three t=
5,000 ( .12 )
years?
Answer: t=2 yrs
Solution 1.
Given: I = P5,000 r = 8% = 0.08 t = 3yrs
Asked: (a) P, (b) F
I COMPOUND INTEREST (I)
Formula:
( a ) P= (b) F=P+ I
rt - The interest resulting from the periodic addition
of simple interest to the principal
5,000
P= =P 20,833.33
Solution: (a) .08(3) COMPOUND AMOUNT (F)
F=P+ I =20,833.33+5,000 - The resulting amount when interest is
(b)
periodically added to the principal and this new
 3

sum is used as the new principal for a certain Given: P = 1,000 t = 8 ½ yrs j = 7% m = 2
number of periods Asked: I = ?
Formula: F=P ( 1+i )n
CONVERSION PERIOD
m – is the number of conversion periods for one Solution:
year n = t(m) = 8 ½ (2) = 17 i = j/m = 7% / 2 = 3.5%
17
annually m=1 F=P1,000 ( 1+.035 )
semiannually m=2
quarterly m=4 F=P1,794.68
monthly m = 12
I =F−P=P 1,794.68−P 1,000

Answer:
Formulas I =P794.68
n
F=P(1+i)

I =F−P Example 2. Accumulate P5,000 for 25yrs at 6%

compounded monthly.

n=tm Solution 2.
Given: P = 5,000 t = 25yrs j = 6% m = 12
Asked: F = ?
j F=P ( 1+i )n
i= Formula:
m
Solution:
n = t(m) = 25(12) = 300 I = j/m = 6% / 12 = ½ %
F F=P5,000 ( 1+.005 )
300
P= n
=F ( 1+ i )−n
(1+i)
Answer:
F=P22,324.85
Where:
F = final or compound amount Example 3. Find the present value of P5,000 due in 4
P = original principal years if money is worth 4% compounded quarterly.
i = periodic rate (I = j/m) Solution 3.
j = interest rate per year or nominal rate Given: F = P5,000 t = 4yrs j = 4% m = 4
n = total number of conversion periods for the Asked: P = ?
−n
whole term Formula: P=F ( 1+i )
I = compound interest
t = term (in years) Solution:
n = t(m) = 4(4) = 16 I = j/m = 4% / 4 = 1 %
−16
Example 1. Find the compound interest on P1,000 at P=P 5,000 ( 1+ 0.01 )
the end of 8 ½ years at 7% compounded semi-
Answer:
annually.
P=P 4,264.11
Solution 1.
 4

P=Fe− jt
Example 4. Find the present value of P20,000 due at
the end of 30 years at 6% compounded monthly.
Solution 4. e = 2.71828182846
Given: F = P20,000 t = 30yrs j = 6% m = 12
Asked: P = ? Example 6. Dina deposited P1,000 in a bank paying
P=F ( 1+i )
−n 15% compounded daily. How much would she save
Formula:
at the end of 2 yrs?
Solution: Solution 6.
n = t(m) = 30(12) = 360 I = j/m = 6% / 12 = ½ % Given: P = P1,000 r = 15% t = 2 years
P=P 20,000 ( 1+ 0.005 )
−360
m = 365
Asked: F = ?
Answer: F=Pe
jt
Formula:
P=P 3,320.84
Solution:
F=1,000 e(0.15)(2)

Example 5. Discount P1,000 for 3 years and 8 OR

2 (365)
months at 6% compounded annually.
Solution 5.
n
F=P[1+i] =1,000 1+
0.15
365 [ ] =P 1,349.78
8
Given: F = P1,000 t=
3 Answer:
12 yrs j = 6% m = 1
F=P1,349.86

Asked: P = ?
−n
Formula: P=F ( 1+i ) Example 7. Emy would like to have P5,000 one
year from today. How much should she deposit in a
Solution: savings bank paying 10% converted daily?
8 2 11 Solution 7.
n = t(m) =
3 (1) =
3 =
12 3 3 Given: F = P5,000 r = 10% t = 1 year
i = j/m = 6% / 1 = 6 % m = 365
−11 Asked: P = ?
3
P=P 1,000 ( 1+ 0.06 ) P=Fe
− jt
Formula:
Answer: Solution:
P=P 807.63 P=5,000 e−[ 0.10 (1 )]

OR
CONTINUOUS COMPOUNDING −1 (365)
0.10
 “interests in araw-araw” scheme P=F [1+i]−n =5,000[1+ ] =P 4,524.25
365
 [Number of conversions,
m = 365 or 366 (if leap year)] Answer:
jt
F=Pe P=P 4,524.19

GENERAL MATHEMATICS

SIMPLE and GENERAL ANNUITIES
LEARNING COMPETENCIES
The learner…
 Illustrates simple and general annuities
 Distinguishes between simple and general
annuities
 Finds the future value and present value of
both simple annuities and general annuities
 Calculates the fair market value of a cash
flow stream that includes an annuity
 Calculates the present value and period of
deferral of a deferred annuity
ANNUITY
- Is a series of equal periodic payments/
deposits where the interest on each one is
compounded
SIMPLE ANNUITY
- Is an annuity where the payment interval
coincides with the interest conversion
period
- Examples: installment basis of paying a car,
lot, house, appliances, tuition fee etc
GENERAL ANNUITY
- Is an annuity where the payment interval
does not coincide with the interest
conversion period
- Examples: monthly installment payment of
a car/lot/house with an interest rate that is
converted annually; paying a debt semi-
annually when the interest rate is
compounded monthly
DEFERRED ANNUITY
- Is an annuity where payments are made at
the end of each payment interval, with the
first payment made on a later date
- Is an annuity that does not begin until a
given time interval has passed
5
- Examples: (1) a credit card company
offering its clients to purchase today but to
start paying monthly with their choice of
term after 3 months; (2) a real estate agent
is urging a condominium unit buyer to
purchase now and start paying after 3 years
when the condominium is ready for
occupancy; (3) a worker who has gained
extra income now and wants to save his
money so that he can withdraw his money
monthly starting on the day of his
retirement from work
ANNUITY CERTAIN
- Is an annuity with definite beginning and
ending dates
PERPETUITY ANNUITY
- Is an annuity with a definite beginning date
but no ending date
CONTINGENT ANNUITY
- Is an annuity with no fixed terms
- Examples: life insurance, pension payments
ORDINARY ANNUITY
- Is an annuity where payments are made at
the end of each payment interval
ANNUITY DUE
- Is an annuity where payments are made at
the beginning of each payment interval
FINDING THE PRESENT VALUE, FUTURE VALUE,
and PERIODIC PAYMENT OF SIMPLE ANNUITIES
Formulas
P=F (1+i)−n
F=P(1+i)n
P=R [ 1−(1+ i)−n
i ]
 6

j = 10.5%

F=R [ ( 1+i )n−1

i ] Asked: cash price

Formula: CP = DP + P
P
R= Solution:
[ ]
−n
1−(1+ i)
[ ]
−n
1−(1+ i)
i P=R
i

[ ]
R= 0.105 −12(5 )

[ (1+i)n−1
i ] P=16,200
(
1− 1+
12 )
0.105
12

where:
R = periodic payment (in currency)
F = future value/ amount /maturity value of an
P=16,200 [
1−( 1+0.00875 )−60
0.00875 ]
annuity (in currency)
P = present value of an annuity (in currency)
i = interest rate per period (in %)
n = number of conversion period during the
P=16,200 [ 1−0.592907762
0.00875 ]
term

CASH PRICE (or Cash Value)

P=16,200 [ 0.407092237
0.00875 ]
- is equal to the down payment plus the
present value of the installment payments. P=16,200 [ 46.52482716 ]

P=P 753,702.20

Example 1. CP = DP + P
Suppose Mr. Ernie paid P200,000 as down CP = 200,000 + 753,702.20
payment for a car. The remaining amount is to
be settled by paying P16,200 at the end of each Answer:
month for 5 years. If interest is 10.5% CP=P 953,702.20
compounded monthly, what is the cash price of
his car? Example 2.
In order to save for her high school graduation,
Solution 1. Fay decided to save P200 at the end of each
Given: DP = P200,000 month. If the bank pays 0.25% converted
R = P16,200 monthly, how much will her money be at the
m = 12 end of 6 years?
t=5
 7

Solution 2. 100,000
R=
Given: R = P16,200 0.08 −1(3)
m = 12
1− 1+ ( 1 )
t=6 0.08
j = 0.25% 1

Asked: S
−3
Formula: F=R [ ( 1+i )n−1
i ] 100,000
1−( 1+0.08 )¿
R= ¿
Solution: 0.08

[ ]
0.0025 12(6)
F=200
( 1+
12 ) −1
Answer:
0.0025 R=P 38,803.35
12

Example 4.

[ ] How much should be invested in a fund each

72
( 1+0.00020833 ) −1
F=200 year paying 2% compounded annually to
0.00020833
accumulate P90,000 in 5 years?

Answer: Solution 4.
S=P 14,507.02 Given: F = P90,000
m=1
t=5
Example 3. j = 2%
Gibe borrowed P100,000. He agrees to pay the
principal plus interest by paying an equal Asked: R
amount of money each year for 3 years. What F
should be his annual payment if interest is 8% R= n
Formula: (1+i) −1
converted annually?
i
Solution 3. Solution:
Given: P = P100,000 90,000
R=
m=1 0.02
1(5)

t=3 ( 1+
1 ) −1
j = 8% 0.02
1
Asked: R

P 90,000
R= R=
Formula: 1−(1+i )
−n
(1+ 0.02 )5−1
i 0.02

Solution:
Answer:
 8

1
R=P 17,294.26 3
i=( 1+0.015 ) −1
FINDING THE PRESENT VALUE, FUTURE VALUE,
and PERIODIC PAYMENT OF GENERAL
ANNUITIES
i=1.004975206−1

Example 5. i=0.004975206 periodic rate

Harry started to deposit P1,000 monthly in a
fund that pays 6% compounded quarterly. How
much will be in the fund after 15 years?

Solution 5. j=0.004975206 (12 )

Given: R = P1,000
m=4
j=0.0597 ( 100 )=5.97 nominal rate
t = 15
j = 6%

Asked: F

Formula: F=R [ ( 1+i )n−1

i ] F=1000 [ ( 1+0.004975206 )12 (15) −1
0.004975206 ]
Solution:
The interest rate of 6% compounded quarterly
must be converted to its equivalent rate that is
F=1000 [ ( 1.004975206 )180 −1
0.004975206 ]
compounded monthly

F1 = F2 F=1000 [
( 1.004975206 )180 −1
0.004975206 ]
n n
P(1+i) =P (1+ i)

4(t )
F=1000 [ 2.443219656−1
0.004975206 ]
0.06
P (1+i )
12(t )
(
=P 1+
4 )
12 4
F=1000
[ 1.443219656
0.004975206 ]
( 1+i ) =( 1+0.015 )
F=1000 [ 290.0823918 ]
12 4
12 12
( 1+i ) =( 1+0.015 )
Answer:
1
S=P 290,082.39
3
1+i=( 1+0.015 )
Example 6.
 9

Ian borrowed an amount of money from Jen.

He agrees to pay the principal plus the interest
by paying P38,973.76 each year for 3 years.
How much money did he borrow if interest is
[ ]
−1(3)
1−(1+ 0.08243216)
8% converted quarterly? P=38,973.76
0.08243216

Solution 6.
Given: R = P38,973.76
m=4
P=38,973.76 [ 1−0.788493175
0.08243216 ]
t=3
j = 8%

Asked: P
P=38,973.76 [ 0.211506824
0.08243216 ]
[ ]
−n
1−(1+ i)
Formula: P=R
i P=38,973.76 [ 2.565828973 ]

Solution: Answer:
Convert 8% compounded quarterly to its P=P 100,000 .00
equivalent interest rate for each payment
interval.
F1 = F2
n n
P(1+i) =P (1+ i)

4(t )
0.08
P (1+i )
1(t )
(
=P 1+
4 ) CASH FLOW
- is a term that refers to payments received
(cash inflows) or payments or deposits
( 1+i )1 =( 1+ 0.02 )4 made (cash outflows).

- Cash inflows can be represented by positive

4
i=( 1.02 ) −1 numbers and cash outflows can be
represented by negative numbers
4
i=( 1.02 ) −1
FAIR MARKET VALUE (or FMV or ECONOMIC
i=1.08243216−1 VALUE) of a cash flow (payment stream) on a
particular date
- Refers to a single amount that is equivalent
i=0.08243216 periodic rate to the value of the payment stream at that
date. This particular date is called the focal
j=0.08243216 (100) date

j=8.24 nominal rate

Example 7.
 10

Jan received two offers on a lot that he wants to P(1+i)n =P (1+ i)n
sell. Ken has offered P50,000 and P1 million
lump sum payment 5 years from now. Lem has
offered P50,000 plus P40,000 every quarter for 1(t )
0.05
5 years. Compare the fair market values of the
two offers if money can earn 5% compounded
P (1+i )
4 (t)
=P 1+ (1 )
annually. Which offer has a higher market
value? ( 1+i )4=( 1+0.05 )1

Solution 7.
4 1
Given: DPKen = P50,000 ( 1+i ) 4 =( 1+0.05 ) 4
SKen = P1 million
tKen = 5 years
1

DPLem = P50,000 i=( 1.05 ) 4 −1

RLem = P40,000
tLem = 5 years i=1.012272234−1
mLem = 4

j = 5% i=0.012272234 periodic rate

m=1
j=0.012272234 (4) = 0.049088937
Asked: higher market value
j=4.91 nominal rate
Formula: P=F ( 1+i )−n

The present value of an annuity is given by

Solution:
[ ]
−4 (5)
1−(1+0.012272234)
Ken”s Offer: P=40,000
−n
0.012272234
PKen=F (1+i )

PKen=1,000,000 1+
0.05
(1
−5

)
P=40,000
[ 1−0.783526173
0.012272234 ]
PKen =P 783,526.17
P=40,000 [ 0.216473826
0.012272234 ]
Fair Market Value (FMV)
= P50,000 + 783,526.17 P=40,000 [ 17.63931709 ]
FMV = P833,526.17
P=P 705,572.68

Lem’s Offer:
Compute the present value of a general annuity Fair Market Value (FMV)
with quarterly payments but with an annual = P50,000 + 705,572.68
compounding at 5%. FMV = P755,572.68
F1 = F2
 11

Hence, Ken’s offer has a higher market value. P A =P 204,174.96

The difference between the market values of
the two offers at the start of the term is
P833,526.17 – P755,953.49 = P77,953.49
Fair Market Value (FMV) for Company A
Answer: = P119,074.84 + P204,174.96
Ken’s offer is better with FMV = P833,526.17 FMV = P323,249.80
Example 8.
Company A offers P150,000 at the end of 3
years plus P300,00 at the end of 5 years.
Company B offers P25,000 at the end of each
For Company B:
quarter for the next 5 years. If money is worth
Compute for the present value of a general
8% converted annually, which offer has a better
annuity with quarterly payments but with
market value?
annual compounding at 8%
Solution 8.
Solve first for the equivalent rate, compounded
Given:
quarterly, of 8% compounded annually.
Company A:
P150,000 at the end of 3 years
F1 = F2
P300,000 at the end of 5 years n n
P(1+i) =P (1+ i)
Company B:
P25,000 at the end of each quarter for the next
1(t )
0.08
5 years P (1+i )
4 (t)
(
=P 1+
1 )
Asked: better market value

−n ( 1+i )4=( 1+0.08 )1

Formula: P=F ( 1+i )

4 1
Solution: ( 1+i ) 4 =( 1+0.08 ) 4
For Company A:
Present Value of P150,000: 1
P A =F ( 1+ i )−n i=( 1.08 ) 4 −1
−3
0.08
(
P A =150,000 1+
1 ) i=1.0194265469−1

P A =P 119,074.84
i=0.0194265469 periodic rate

Present Value of P300,000:

j=0.0194265469 (4) = 0.07770618764
P A =F ( 1+ i )−n
−5
j=7.77 nominal rate
0.08
(
P A =300,000 1+
1 )
 12

starting 3 months after his 60 th birthday. What

P=25,000 [
1−(1+ 0.0194265469)−4 (5)
0.0194265469 ] one-time payment should he make on his 40th
birthday to pay off this pension plan, if the
interest rate is 8% compounded quarterly?
P=25,000
[ 1−0.680583197
0.0194265469 ] Solution 9.

Given:
P=25,000 [ 0.319416802
0.0194265469 ] R = P10,000
j = 8%
t=5
P=25,000 [ 16.44228408 ] m=4

Asked: P (present value of an annuity)

P=P 411,057.10

Fair Market Value (FMV) for Company B

FMV = P411,057.10 Formula:
Hence, Company B has a better offer.
P=R [
1−(1+ i)−(k +n)
i
−R ] [
1−(1+ i)−k
i ]
Answer:
Company B with FMV = P411,057.10
Solution:
PRESENT VALUE AND PERIOD OF DEFERRAL OF
The annuity is deferred for 20 years and will go
A DEFERRED ANNUITY
on for 5 years.
DEFERRED ANNUITY
The 1st payment is due 3 months after his 60th
- Is an annuity that does not begin until a
birthday; or at the end of the 81 st conversion
given time interval has passed
period. Thus there are 80 artificial payments
PERIOD OF DEFERRAL
k = m(t) = 4 (20) = 80 artificial payments
- Time between the purchase of an annuity
n = m(t) = 4 (5) = 20 actual payments
and the start of the payments for the
deferred annuity

[ ] [
0.08 −(80+20) 0.08
1−( 1+ ) 1−(1+
4 4
P=10,000 −10,000
1−(1+i)−(k+ n) 1−(1+i)−k 0.08 0.08
P=R −R 4 4
i i

where:

[ ] [
−100 −80
k = number of artificial payments 1−(1+ 0.02) 1−(1+0.02)
P=10,000 −10,000
n = number of actual payments 0.02 0.02

Example 9.
On his 40th birthday, Manny decided to buy a
pension plan for himself. This plan will allow
P=10,000 [ 1−0.138032967
0.02
−10,000 ]
1−0.20510972
0.02 [
him to claim P10,000 quarterly for 5 years
 13

[ ] [
P=10,000 [ 43.09835165 ] −10,000 [ 39.7445136 ] 0.10 −(2 +24) 0.10 −2
1−(1+ ) 1−(1+ )
12 12
P=4,000 −4,000
P=430,983.5165−397,445.136 0.10 0.10
12 12
Hence, the present value of these quarterly
pensions is P33,538.38

Answer: P=4,000 [ 1−(1+0.008333333)−26

0.008333333 ]
−4,000 [
1−(1+ 0.0
0.008
P = P33,538.38
P=4,000 [ 1−0.805921557
0.008333333 ]
−4,000 [
1−0.983539376
0.008333333 ]
Example 10.
A credit card company offers a deferred
payment option for the purchase of any
P=4,000
[ 0.194078442
0.008333333]−4,000
[
0.016460623
0.008333333 ]
appliance. Nel plans to buy a smart television
set with monthly payments of P4,000 for 2 P=4,000 [ 23.28941405 ]−4,000 [ 1.975274914 ]
years. The payments will start at the end of 3
months. How much is the cash price of the TV
P=93,157.6562−7,901.099656=85,256.55654
set if the interest rate is 10% compounded
monthly?

Solution 10. P=P 85,256.56

Given:
R = P4,000 Since there is no down payment, the present
t = 2 years value of the annuity is equal to the cash price of
j = 10% the TV set
m = 12
Answer:
Asked: CP
CP = P85,256.56
Formula:
GENERAL MATHEMATICS
[ ] [ ]
−(k +n) −k
1−(1+ i) 1−(1+ i) STOCKS and BONDS
P=R −R
i i

Solution:
The annuity is deferred for 2 months, and
payments will go on for 2 years.
k = 2 artificial payments
n = m(t) = 12 (2) = 24 actual payments
LEARNING COMPETENCIES
The learner…
 Illustrates stocks and bonds
 Distinguishes between stocks and bonds
 Describes the different markets for stocks
and bonds
 Analyzes the different market indices for
stocks and bonds
 Interprets the theory of efficient markets

STOCKS
- are shares in the ownership of a company
- Owners of stocks may be considered as part
owners of the company
- Types of stocks: (1) common stock, and (2)
preferred stock. Both will receive
dividends/share of earnings of the
company. Dividends are paid first to
preferred shareholders.
- Stocks can be bought or sold at its current
price called the market value.
- When a person buys some shares, the
person receives a certificate with the
corporation’s name, owner’s name, number
of shares and par value (equivalent value of
the stock) per share.
BONDS
- are interest bearing security which
promises to pay amount of money on a
certain maturity date as stated in the bond
certificate
- Bondholders are lenders to the institution
which may be a government or private
company
- Some bond issuers are the national
government, government agencies,
government owned and controlled
corporations, non-bank corporations, banks
and multilateral agencies
- Bondholders do not vote in the institution’s
annual meeting but the first to claim in the
institution’s earnings
- On the maturity date, the bondholders will
receive the face amount of the bond and
may also receive coupons
(payments/interests), usually done semi-
14
annually, depending on the coupon rate
stated in the bond certificate
DEFINITION of TERMS in RELATION to STOCKS
STOCKS – share in the ownership of a company
DIVIDEND – share in the company’s profit
DIVIDEND PER SHARE – ratio of the dividends
to the number of shares
STOCK MARKET – a place where stocks can be
bought or sold. The stock market in the
Philippines is governed by the Philippine
Stock Exchange (PSE)
MARKET VALUE – the current price of a stock at
which it can be sold
STOCK YIELD RATIO – ratio of the annual
dividend per share and the market value per
share; also called current stock yield
PAR VALUE – the per share amount as stated on
the company certificate; unlike market
value, it is determined by the company and
remains stable over time
Example 1.
A certain financial institution declared a
P30,000,000 dividend for the common stocks. If
there are a total of 700,000 shares of common
stock, how much is the dividend per share?
Solution 1.
Given: Total dividend = P30,000,000
Total shares = 700,000
Asked: Dividend per share
Formula:
total dividend
Dividend per share=
total shares
Solution:
30,000,000
Dividend per share=
700,000
Answer:
Dividend per share=P 42.86
Example 2.
A certain corporation declared a 3% dividend
on a stock with a par value of P500. Mrs. Olga
owns 200 shares of stock with a par value of
P500. How much is the dividend she received?
 15

8
Stock Yield Ratio for Corporation A= =0.1538
Solution 2. 52
Given: Dividend Percentage = 3%
12
Par value = P500 Stock Yield Ratio for Corporation B= =0.1263
95
Number of shares = 200
Asked: Dividend Answer:
Formula: Stock Yield Ratio for Company A=15.38
Dividend=Dividend Percentage∗Par Value∗Number of Shares
Stock Yield Ratio for Company B=12.63
Solution:
Dividend=0.03( P 500)(200) NOTE: Corporation A has a higher stock yield ratio
than Corporation B.
Each peso would earn you more if you invest in
Answer: Corporation A.
Dividend=P 3,000 If all other things are equal, then it is wiser to invest
in Corporation A.
Note: DEFINITION of TERMS in RELATION to BONDS
Dividend per share=P 500 ( 0.03 )=P 15
BOND – interest-bearing security which
Total Dividend=¿ promises to pay (1) a stated amount on the
P 15 maturity date; and (2) regular interest
∗( 200 shares )=P 3,000 payments called coupons
share

COUPON – periodic interest payment that the

Example 3. bondholder receives during the time
Corporation A, with a current market value of between purchase date and maturity date;
P52, gave a dividend of P8 per share for its usually received semi-annually
common stock. Corporation B, with a current
market value of P95, gave a dividend of P12 per COUPON RATE – the rate per coupon payment
share. Use the stock yield ratio to measure how period; denoted by r
much dividends shareholders are getting in
relation to the amount invested. PRICE of a BOND – the price of the bond at
purchase time; denoted by P
Solution 3.
Given: PAR VALUE – the amount payable on the
Corporation A: maturity date; denoted by F
Dividend per share = P8 If P = F, the bond is purchased at par
Market Value = P52
Corporation B: If P < F, the bond is purchased at a discount
Dividend per share = P12
Market Value = P95
If P > F, the bond is purchased at premium
Asked: Stock Yield Ratio
Formula: TERM (or TENOR) of a BOND – fixed period of
Dividend per Share time (in years) at which the bond is
Stock Yield Ratio= redeemable as stated in the bond
Market Value
certificate; number of years from the time
Solution: of purchase to maturity date
 16

FAIR PRICE of a BOND – present value of all

cash inflows to the bondholder

Example 5.
Suppose that a bond has a face value of
P100,000 and its maturity date is 10 years from
now. The coupon rate is 5% payable semi-
annually. Find the fair price of this bond,
assuming that the annual market rate if 4%.
Example 4.
Determine the amount of the semi-annual Solution 5.
coupon for a bond with a face value of Given: Face Value F = P100,000
P300,000 that pays 10%, payable semi-annually Coupon rate r = 5%
for its coupons. Term of maturity t = 10 years
m=2
Solution 4. Market Rate = 4%
Given: Face Value F = P300,000 n = m(t) = 2(10) = 20
Coupon rate r = 10%
m=2 Asked: Fair Price of the Bond
Asked: Amount of the Semi-annual Coupon
Formula:
Formula: Fair Price of the Bond=Present Value of the Face Value
Face Value∗Coupon Rate
Amount of Semi−annual Coupon=
m
Solution:
Amount of Semi−annual Coupon
Solution:
Face Value∗Coupon Rate
300,000∗0.10 ¿
Amount of Semi−annual Coupon= m
2
100,000∗0.05
¿
Answer: 2
Amount of Semi−annual Coupon=P15,000
Amount of semi−annualCoupon=P 2,500

Note: The bondholder receives 20 payments of

The coupon rate is used only for computing the ¿
coupon amount, usually paid semi-annually.
P2,500 each ,∧P 100,000 at t=10. )
It is not the rate at which money grows.

Instead current market conditions are reflected

by the market rate, and is used to compute the Present Value of the Face Value of P100,000 :
present value of future payments.
 17

F 100,000 Answer:
P= = =P 67,556.42
( 1+market rate ) ( 1+ 0.04 )1 (10)
n
Fair Price of the Bond=P 108,512.47

Note:
A price of P108,512.14 is equivalent to all
future payments, assuming an annual market
Present Value of the Face Value of P100,000 :
rate of 4%
Convert 4% to equivalent semi-annual rate.

(1+i)n=(1+i)n

1 2
0.04 j
( 1+
1 ) ( )
= 1+
2
MARKET INDICES for STOCKS and BONDS

STOCK MARKET INDEX

Get the square root of both sides - is a measure of a portion of the stock
market
j
√ 1.04=1+
2
- One example is the PSE Composite Index or
PSEi
j
1.0198039027=1+ - It is composed of 30 companies carefully
2 selected to represent the general
movement of market prices
j - The up or down movement in percent
1.0198039027−1=
2 charge over time can indicate how the index
is performing
j
i= =0.01980390
2 - Other indices are sector indices, each
representing a particular sector (e.g.
P= Amount of Semi−annual Coupon financial institutions, industrial
corporations, holding firms, service
corporations, mining/oil, property
[ ]
−n
1−(1+i )
¿
i
- The stock index can be a standard by which
investors can compare the performance of
their stocks.
[ ]
−2 (10)
1−(1+ 0.01980390)
P=2,500 - A financial institution may want to compare
0.01980390
its performance with those of others
- This can be done by comparing with the
P=P 40,956.05 “financials” index

BOND MARKET INDEX

- The main platform for bonds or fixed
Fair Price of the Bond=67,556.42+40,956.05
income securities in the Philippines is the

Philippine Dealing and Exchange
Corporation (PDEx)
- Our bond market does not typically
compute a bond market index
- The market rates produced from the bond
market are interest rates which may be
used as benchmarks for other financial
instruments
THEORTY OF EFFICIENT MARKETS
- It says that stock prices already reflect all
the available information about the stock
- This means that stock prices are accurate –
they already give a correct measure of the
value of a stock precisely because the prices
are already based on all information and
expectation about the stock
- It was developed by Eugene Fama in the
1970s. He is an American economist and
Nobel laureate in Economics
18
GENERAL MATHEMATICS
BUSINESS and CONSUMER LOANS
LEARNING COMPETENCIES
The learner…
 Illustrates business and consumer loans
 Distinguishes between business and
consumer loans
 Solves problems involving business and
consumer loans (amortization, mortgage)
BASIC CONCEPTS OF LOANS
BUSINESS LOANS – money lent specifically for
a business purpose. It may be used to start a
business or to have a business expansion
CONSUMER LOANS – money lent to an
individual for personal or family purpose
COLLATERAL – assets used to secure the loan.
It may be a real-estate or other investments
TERMS OF THE LOAN – time to pay the entire
loan
BUSINESS and CONSUMER LOANS
(AMORTIZATION and MORTGAGE)
AMORTIZATION METHOD – a way of paying a
loan (principal and interest) on installment
basis, usually of equal amounts at regular
intervals
MORTGAGE – a loan, secured by a collateral,
that the borrower is obliged to pay at specified
terms
 19

CHATTEL MORTGAGE – a mortgage on a Mortgage Amount=3,000,000−0.20 ( 3,000,000 )

movable property (like livestock, vehicles)
Mortgage Amount=3,000,000−600,000
FIXED-RATE MORTGAGE – a mortgage wherein Answer:
the interest remains constant throughout the I =P2,400,000
term of the loan
Note: In this case, the house itself is used as a
OUTSTANDING BALANCE – any remaining debt mortgaged property.
at a specific time
CHATTEL MORTGAGE
Example 1. Example 3.
Mr. Pat borrowed P1,000,000 for the expansion Mr. Quinto borrowed P1,200,000 for the
of his business. The effective rate of interest is purchase of a car. If his monthly payment is
7%. The loan is to be repaid in full after 1 year. P31,000 on a 5-year mortgage, find the total
How much is to be paid after 1 year? amount of interest.

Solution 1. Solution 3.
Given: Present Value P = P1,000,000 Given: Present Value P = P1,200,000
Effective rate j = 7% Monthly Payment R = P31,000
t = 1 year t = 5 year
m=1 m = 12
Asked: Maturity Value F Asked: Total Interest I
Formula: Formula:
F=P(1+i)n I =F−P

Solution: Solution:
0.07 1 (1) F=R∗m∗t
F=1,000,000 1+ ( 1 ) F=31,000 (12 ) ( 5 )=P 1,860,000
Answer:
F=P1, 070,000 I =P1,860,000−P1,200,000
Note: The amount P1,070,000 must be paid Answer:
after 1 year I=P 660,000
Example 2.
If a house is sold for P3,000,000 and the bank
requires 20% down payment, find the amount Example 4.
of the mortgage Mr. Reyes bought a truck. After paying the
down payment, the amount of the loan is
Solution 2. P400,000 with an interest rate of 9%
Given: Cash Price CP = P3,000,000 compounded monthly. The term of the loan is 3
DP = 20% of P3,000,000 years. How much is the monthly payment?
Asked: Mortgage Amount
Formula: Solution 4.
Mortgage Amount=CP−DP Given: Amount of the loan P = P400,000
j = 9%
Solution: m = 12
 20

t = 3 years The learner…

Asked: R  Illustrates a proposition
Formula:  Symbolizes a proposition
P  Distinguishes between simple and
R=

[ ] compound propositions
−n
1−(1+ i)
i  Performs the different types of operations
on propositions
Solution:  Determines the truth values of propositions
400,000  Illustrates the different forms of conditional
R=

[ ]
0.09 −12(3 ) propositions
1−(1+ )
12  Illustrates different types of tautologies and
0.09 fallacies
12

PROPOSITION
−36 - a declarative sentence that is either true or
¿
1−(1+ 0.0075) false, but not both
400,000 - if a proposition is true, then its truth value is
R=
[ ¿¿ 0.0075 ] true; denoted by T
- if a proposition is false, then its truth value
is false; denoted by F
400,000
R=
[ 1−0.76414896
0.0075 ] SIMPLE PROPOSITION
- A proposition is simple if it cannot be
400,000 broken down any further into other
R= component prepositions.
[ 0.235851039
0.0075 ]
COMPOUND PROPOSITION
400,000 - is a proposition formed from simpler
R=
[ 31.44680525 ] propositions using logical connectors or
some combination of logical connectors

Answer:
R=P 12,719.89 LOGICAL OPERATORS
- are symbolic counterparts of the connectors
“not”, “and”, “or”, “if…then”, and “if and
only if”

GENERAL MATHEMATICS NEGATION – logical operation of negating or

LOGIC
making negative; denoted by

LEARNING COMPETENCIES
 21

CONJUNCTION – a truth-functional connective

1. Jesie is not at the office
similar to "and" in English; denoted by ˄

DISJUNCTION – a truth-functional connective

similar to "or" in English; denoted by ˅ 2. Either Rosel or Lheng is at the office.

CONDITIONAL – a truth-functional connective

similar to "if…then" in English; denoted by
3. Rosel and Jesie are at the office.

BICONDITIONAL – a truth-functional connective

similar to "if and only if" in English; denoted by

4. If Rosel is at the office then Lheng is at

TAUTOLOGY the office.
- is a true sentence

Note: A statement is a tautology if the last

entries in the truth table are all true
5. Jesie is at the office if and only if Lheng
is at the office.

LOGICAL CONNECTIVES TABLE

6. If Rosel and Lheng are at the office then
SYMBOLS READ AS
Jesie is at the office.
~p not p
p˅q p or q
p˄q p and q
7. If Jesie is at the office then either Rosel
p q If p then q
or Lheng is at the office.
p q p if and only if q

Example:
Let p, q, and r be the following sentences: 8. Jesie and Rosel are at the office if and
p: “Jesie is at the office.” only if either Rosel or Lheng is at the
q: “Rosel is at the office.” office.
r: “Lheng is at the office.”

Use the logical connectives to express the

following sentences:
 22

9. If neither Lheng nor Rosel is at the office

then either Jesie or Lheng is at the
office. BICONDITIONAL / IF AND ONLY IF (p if and only if q)
p q (p q)
T T T
T F F
F T F
10. Jesie and Lheng are not at the office if F F T
and only if neither Rosel nor Jesie is at
the office.

Examples:
Use the truth tables to determine which of the
TRUTH VALUES OF PROPOSITIONS following sentences in the propositional calculus are
tautologies
TRUTH TABLES
1. (p (p ˅ r))
NEGATION (not p)
p p ) p r (p ˅ r) (p (p ˅ r))
( T T
T F T F
F T F T
F F

CONJUNCTION (p and q) The sentence is ________________________

p q (p˄q)
T T T
T F F 2. ((q ˄ r) p)
F T F
F F F p q r (q ˄ r) ((q ˄ r) p)
T T T
T F T
DISJUNCTION (p or q) F T F
F F F
p q (p˅q)
T T T
T F T The sentence is ________________________
F T T
F F F
3. (( p ˄ q ) ( q ˅ r ))

CONDITIONAL / IMPLICATION p q r (p ˄ q) (q ˅ r) (( p ˄ q ) ( q ˅ r ))
T T T
(if p then q OR p implies q)
T F T
p q (p q) F T F
T T T F F F
T F F
F T T
The sentence is ____________________
F F T
 23

4. ((q ˄ r) (p ˅ q))
p q r (q ˄ r) (p ˅ q) ((q ˄ r) (p ˅ q))
T T T
T F T
F T F
F F F

The sentence is _________________

24
 25

5. ((p q) ˅ (r q)) The sentence is

p q r __________________________
T T T 10. ((( q)˅(
T F T p)) ˅ ( (
F T F r) p))
F F F ( ( (((
The sentence is p q r p q)˅( r
__________________________ q
p) r) p
6. ((r q) (p ˅ r)) T T T
p q r r q p ˅ r T F T
T T T F T F
T F T F F F
F T F The sentence is
F F F __________________________
The sentence is
__________________________
7. ((( p ) ˅ q) (r ˅ p))
p ( p )˅q
p q r

T T T
T F T
F T F
F F F
The sentence is
__________________________
8. ((( r ) p) ˄ (r ˅ q))
r ( r )
p q r
p
T T T
T F T
F T F
F F F
The sentence is
__________________________
9. ((r ˅ ( p )) ˄ (q ˅ (
r)))
r ˅ (
p q r p
p)
T T T
T F T
F T F
F F F