MATHEMATICS OF FINANCE

Interest – cost for the use money. When you deposit If interest is compounded n
money in a bank, it will earn interest but when you borrow
money from a bank, you will pay interest. Annually 1
Principal (P) – amount deposited in a bank or borrowed
Semiannually 2
from a bank
Interest rate(r) – percent used to determine the amount of Quarterly 4
interest
Time (t) – duration of deposit or loan Bimonthly 6
Simple Interest – interest paid on the original principal
Formula: I = Prt Monthly 12
Ex. You have deposited Php 5, 000 in a Savings Bank on Jan
1, 2016 with an interest rate of 3% and have withdrawn it Daily 360
on Jan 1, 2017. Calculate the simple interest.
I = Prt Ex. What is the compound and interest amount if Php 6000
I = (5000)(0.03)(1) is invested at 2% compounded monthly for 2 years?
I = 150 A = P (1 + r/n)nt
In exact method – t = number of days/365 A = 6000 (1 + 0.02/12)(12)(2)
While in ordinary method – t = number of days/360 A = 6000 (1 + 0.001667)(24)
Ex. Calculate the simple interest due on a 72-day loan of A = 6000 (1 + 0.001667)(24)
Php 3, 000 is the annual interest rate is 4%. A = 6000 (1.001667)(24)
P=3,000, r=0.04, t= 72/360 A = 6000 (1.04078)
Solution: I = Prt A = 6, 244.68
I = (3,000)(0.04)(72/360) The interest earned after 2 years is;
I = 24 I=A-P
I = 6244.68 - 6000
Maturity or Future Value – is the sum of the principal and I = 244.68
the interest. The formula is A = P + I. If we substitute Prt to Present Value Formula - original principal invested before
I, we will have A = P + Prt or A = P(1+rt). it earns interest; in the compound amount.
Ex. A cooperative released a Php 9, 000-emergency loan to P = A/(1 + r/n)nt
Ana with a simple interest of 4.5%. If she intends to pay it Ex. How much money should you invest at an interest rate
in 2 years, what amount will she pay back to cooperative? of 6% compounded monthly to have Php 400, 000 in 5
Solution: A = P + Prt years?
A = 9, 000 + (9,000)(0.045)(2) P = A/(1 + r/n)nt
A = 9, 000 + 810 P = 400000 / (1 + 0.060/12)(12)(5)
A = 9, 810 P = 400000 / (1 + 0.005)(60)
P = 400000 / (1.005)(60)
Present Value - the interest on loans may be deducted in P = 400000 / (1.34885)
advance from the principal amount S = P - I. If we P = 296, 548.91
substitute Prt to I, then S = P - Prt or S = P(1 - rt).
Inflation - economic conditions
Ex. Kleah needs Php 25000 now to buy a laptop. She has A = P (1 + r/n)^nt
decided to borrow money from a lending company that Ex. Suppose your salary now is Php 28, 000 per month.
charges 8% simple interest deducted in advance. How Assuming an annual inflation rate of 6%, what will be the
much loan will Kleah apply for if she pays it in 2 years? equivalent salary 10 years from now? P = 28, 000, r = 0.06,
S = P(1 - rt) t = 10, n = 1
25000 = P (1 - (.08)(2)) A = 28, 000(1 + 0.06/1)(1)(10)
25000 = P (1 - 0.16) A = 28, 000 (1.06)10
25000 = P (0.84) A = 28, 000 x 1.7908
0.84 0.84 A = 50, 142.40
P = 29, 761.90 Effective Rate Interest - nominal rate (r)
Compound Interest - is a method of calculating interest ER = (1 + r/m)m - 1
periodically on the sum of the principal and the Ex. A bank offer 4% compounded quarterly, what is the
accumulated interest of previous periods. It means that the effective rate? m = 4, r = 0.04
earned interest will also earn interest. ER = (1 + r/m)m - 1
A = P (1 + r/n)nt ER = (1 + 0.04/4)4 - 1
Interest Formula: I = A - P ER = (1 + 0.01)4 - 1
A = future value or compound amount ER = (1.01)4 - 1
n = number conversion periods per year ER = (1.0406) - 1
 ER = .0406 x 100 = 4.06% n = 60
Ex. Hannah purchase a cellular phone for Php 65, 000. She
Credit Cards make a down payment of 10% and agrees to repay the
balance in 12 equal payments. If the balance is charged
Ex. Your statement date is every 23rd of the month. You with a simple interest rate of 2% calculate the monthly
made a purchase on January 19. When is the statement payment. A = 65000 - 6500 = 58, 500, i = 0.02/12 =
date for the said purchase? 0.00167, n = 12
January 23 PMT = A [i/1 - (1 +i)n]
PMT = 58500 [0.00167/1 - (1 +0.00167)12]
average daily balance = sum of the total amount owed each day PMT = 4, 928.08
of the month / number of days in the billing period scical: 58500 x [(0.00167÷(1-(1+0.00167)-12]
Ex. An account had a balance of Php 7000 and paid Php
3500 on the November 7 due date. A purchase of 2000 was Loan Payoffs - paying the remaining loan before the end of
made on November 10, and a payment of 2, 300 was made the loan term.
on November 16, the interest on the average daily balance A = PMT [1 - (1+i)-n/i]
is 2.75% per month. Find the finance charge on the Ex. Mike wants to pay his home loan that he has owned for
November 18 bill. 10 years. His monthly payment is Php 7, 000 on a 15-year
loan at an interest of 4.5% annual percentage rate. Find
Date Payment Balance Num of Days Unpaid
the loan payoff amount. PMT = 7000, i = 0.00375, n=60
Oct. 19- — 7000 19 133000 A = PMT [1 - (1+i)-n/i]
Nov. 6
A = 7000 [1 - (1+0.00375)-60/0.00375]
Nov. 7-9 3500 3500 3 10500 A = 375, 375.66
Nov 10-15 2000 5500 6 33000
STOCKS, BONDS, and MUTUAL FUNDS
Nov 16-18 2300 3200 3 9, 600 Ex. A stock pays an annual dividend of Php 60 per share.
Calculate the dividend paid to Eva who has 120 shares of
Total 186100 the company's stock.
average daily balance = sum of the total amount owed each day (120)(60) = 7, 200
of the month / number of days in the billing period
average daily balance = 186100 / 31 Dividend Yield - amount of dividend divided by the price of
average daily balance = 6.003.23 the stock.
Finance Charge on Dec 7 Ex. A stock pays an annual dividend of Php 80 per share. If
I = Prt the stock is trading at Php 1, 500, what is the dividend
I = (6003.23)(0.275)(1) yield? P = 1500, I = 80
I = 165.09 I = Prt
Annual Percentage Rate - rate paid on a loan 80 = (1500)(r)(1)
APR = 2Nr/N+1 80/1500 = r
Ex. Suppose you have a loan of Php 20, 000 from a bank r = 0.053 = 5.3%
with a simple interest of 8% payable in 2 years.
I = Prt Market Value - in the price for which the stockholder is
I = (20000)(.08)(2) willing to sell a share.
I = 3, 200 Ex. You owned 50 shares of stocks in Company A. You
If we try to analyze the problem, the principal loan at the purchased the shares at a price of Php 1, 200 per share and
beginning is Php 20, 000. For the payment of one year, you sold them at Php 1, 400 per share. If your broker charges
only owe Php 10, 000. This amount is supposedly principal 3.5% of the total sale price, what is your profit or loss on
in computing interest in the second year. This is an the sale of stock? What is the commission of the broker?
illustration of APR. To compute the APR, we use the Profit = Selling price - Purchase price
formula. Profit = (1400x50) - (1200x50)
Profit = 70000 - 60000
Continuation Profit = 10, 000
APR = 2(2)(0.08)/2+1 Commission = 0.035 x 70000
APR = 0.32/3 Commission = 2, 400
APR = 0.1067 x 100 = 10.67%
Consumer Loans - monthly payment, average percentage Bonds - when issued the company is borrowing money
rate from the bond holder
Monthly Payment Ex. A bond with a face value of Php 1, 000 has a 4% coupon
PMT = A [i/1 - (1 +i)-n] and a 15-year maturity date. P=1000, r=0.04, t=15
i = annual interest rate / number of payment per year I = Prt
Ex. A five-year loan is repaid on a monthly basis. What is I = (1000)(0.04)(15)
the value of n in the formula for payment. I = 600

Mutual Funds - business whose assets are stocks and
bonds & making investment.
Net Asset Value of a Mutual Fund is
NAV = A - L / N
Ex. A mutual fund has Php 450, 000, 000 worth of stock.
Php 300, 000, 000 worth of bonds, 35, 000, 000 in other
assets. The funds total liabilities amount to Php 2, 100,
000. There are 15, 000, 000 shares outstanding. You invest
Php 50, 000 in this fund. Find the net asset value of the
mutual fund. How many shares will you purchase?
NAV = 785000000 - 2100000/15000000
NAV = 52.1933
Determine the number of shares that you have
Number of shares = 50000/52.1933
Number of shares = 957.98
Ex. You invested Php 20, 000 in a financial institution for a
trust fund with NAV of Php 65 per share. How many shares
have you invested?
Number of shares = 20000/65
Number of shares = 307.69
HOME OWNERSHIP
Mortgage - amount borrowed to buy the property.
Mortgage = selling price - equity
Ex. Suppose you buy a Php 1, 700, 000 house with an equity
of Php 500, 000. Find the mortgage.
Mortgage = 1700000 - 500000
Mortgage = 1, 200, 000
HAMILTON METHOD - this was suggested by Alexander
Hamilton and was approved by Congress in 1791.
STEPS:
a. Find the Standard Divisor (SD)
SD = total population/number of people to apportion
b. Find standard quota (SQ) of each subgroup. Standard
Quota is the whole number part of the quotient of a
population divided by the standard divisor.
SQ = subgroup population/ SD
c. Take the highest whole number in the computed SQ
(lower quota)
d. Allocate the remaining seats to states whose standard
quota (SQ) has the largest fraction part (decimal part).
EX. A hospital district consists of six hospitals. The district
administrators have decided that 48 nurses should be
apportioned based on the number of beds in each of the
hospitals. The following table shows the number of beds in
each hospital.
Hospital Number of beds
A 242
B 351

When you apply for a home loan from a bank you are C 308
required to pay a down payment, which is at least 10% of
the selling price. D 190
Mortgage = selling price - down payment
E 275
Ex. You plan to buy a house and lot through a home loan
from a bank. The selling price is Php 2, 500, 000 and the F 410
bank requires a down payment of 10% of the selling price.
What is the mortgage? Total 1776
Mortgage = 2, 500, 000 - 250, 000
Mortgage = 2, 250, 000
Solution:
Ex. You purchase a house and lot for Php 1, 350, 000 and Step 1: SD = total population/ number of people
obtain a 25-year fixed rate mortgage of 6.5%. If the equity need to apportion
is Php 200, 000. What is the mortgage and what is the SD = 1776/48
monthly payment. SD = 37
Mortgage = 1350000 - 200000 Step 2: SQ = subgroup population/SD
Mortgage = 1, 150, 000 SQa = 242/37 SQd = 190/37
Monthly payment SQa = 6.5405 SQd = 5.1351
PMT = A [i/1 - (1 +i)n] SQb = 351/37 SQe = 275/37
PMT = 1150000 [0.0054/1 - (1 +0.0054)-300] SQb = 9.486 SQe = 7.4324
PMT = 7, 750.52 →monthly payment SQc = 308/37 SQf = 410/37
SQc = 8.3243 SQf = 11.0810

APPORTIONMENT & VOTING Lower Quota

Hospital No. of bed SQ No. of
Apportionment - a method of dividing a whole into various (rounding
Nurses
parts. The concept/idea of apportionment is of historical down)

origin. It began when the Constitution of the United State

(1970). A 242 6.5405 6 7

B 351 9.486 9 10
The five methods in solving problem involving
apportionment outlined below: C 308 8.3243 8 8
 D 190 5.1351 5 5 Total 1776

E 275 7.4324 7 7
Solution:
F 410 11.0810 11 11 Step 1: SD = 37
Step 2: SQ (rounded down)
Total 1776 …… 46 48 Step 3: Since we seen from the Hamilton method
that after dividing by the standard divisor (SD = 37)
and then rounding down, the result has not yielded
1. Lower Quota - it is the biggest whole number in the
the correct number of nurses (short of 2 nurses)
standard quota.
proceed to step 4.
2. From the computation, the apportionment is only
Step 4: Use a modified standard divisor (SD m),
46 not 48. There's a deficit of 2 nurses.
SDm < SD. Choose values of SDm less than 37, say 34,
3. Only one nurse should be added per hospital.
34.7, 35, 36, 36.5, etc.
4. Get the 2 hospitals whose SQ has the highest
decimal part. Hospital A (6.5405) and Hospital B
Hospital No. of bed SQ (SDm = Lower SQ (SDm = No. of
(9.486). 35) Quota 35) Nurses
5. Therefore, Hopital A and B get the remaining 2
nurses (1 nurse each). A 242 6.914 6 7.01 7
Final Apportionments:
Hospital A - 7 D-5 B 351 10.028 10 10.17 10
B - 10 E-7
C-8 F - 11 C 308 8..8 8 8.92 8
JEFFERSON METHOD - this was suggested by President
D 190 5.428 5 5.5 5
Thomas Jefferson to compete with the apportionment
method of Hamilton. First apportionment method used by E 275 7.857 7 7.97 7
the US Congress starting 1791 - 1842.
STEPS: F 410 11.714 11 11.88 11
a. Calculate the standard divisor (SD)
Total 1776 …… 47 48
b. Find the standard quota (SQ) of each state
Final Apportionments:
Hospital A - 7 D-5
c. Take the highest whole number in the computed SQ
B - 10 E-7
C-8 F - 11
d. If the allocation is not yet attained, introduce a modified
,,,Hamilton and Jefferson method don't require the same
standard divisor (SDm) this divisor can be chosen by trial
result of apportionment. They can have different results.
and error. In a specific apportionment calculation, there
may be more than one number that can serve as the SD m.
ADAMS METHOD - this was suggested in 1822 by President
The modified standard divisor should always be smaller
John Quincy Adams. It is also known as Method of Smallest
than the standard divisor (SDm < SD).
Divisors.
STEPS:
EX. A hospital district consists of six hospitals. The district
a, Find the standard divisor (SD)
administrators have decided that 48 nurses should be
b, Find the standard quota (SQ) and round up (round off to
apportioned based on the number of beds in each of the
the next integer)
hospitals. The following table shows the number of beds in
c, If the required apportionment is not attained, use a
each hospital.
modified standard divisor SDm. (SDm > SD).

Hospital Number of beds EX. A hospital district consists of six hospitals. The district
administrators have decided that 48 nurses should be
A 242 apportioned based on the number of beds in each of the
hospitals. The following table shows the number of beds in
B 351 each hospital.
C 308
Hospital Number of beds
D 190
A 242
E 275
B 351
F 410
C 308
 D 190 E 275

E 275 F 410

F 410 Total 1776

Total 1776 Solution:

Step 1: SD = 37
Solution: Step 2: SQ (the rules of rounding off numbers apply)
Step 1: SD = 37 Ex. 6.5405 = 7 11.0810 = 11
Step 2: SQ (rounded up) Step 3: In this method, a modified standard
Step 3: In this method, the standard quota (SQ) is divisor is also used (SD<SDm<SD)
rounded up, unlike in the Hamilton and Jefferson in If too few; SDm<SD (Jefferson Method)
which SQ is rounded down. If too many; SDm>SD (Adams Method)

Upper Upper
Hospital No. of SQ Quota
SQ Quota
Hospital No. of bed SQ
SD = 37
Upper
Quota
SQ
SDm = 36.8
Upper
Quota
bed SD = 37 SD = 39
A 242 6.5405 7 6.576 7
A 242 6.5405 6 6.205 7
B 351 9.486 9 9.535 10
B 351 9.486 9 9 9
C 308 8.3243 8 8.369 8
C 308 8.3243 8 7.897 8
D 190 5.1351 5 5.163 5
D 190 5.1351 5 4.871 5
E 275 7.4324 7 7.472 7
E 275 7.4324 7 7.05 8
F 410 11.0810 11 11.141 11
F 410 11.0810 11 10.512 11
Total 1776 …… 47 48
Total 1776 …… 52 48
Final Apportionments:
Final Apportionments: Hospital A - 7 D-5
Hospital A - 7 D-5 B - 10 E-7
B-9 E-8 C-8 F - 11
C-8 F - 11
WEBSTER METHOD - it was proposed by Daniel Webster in
1832. It was adopted by the Congress in 1842. MATHEMATICAL LOGIC
STEPS: Statement - is an assertion which can be regarded as true
a, Find the standard divisor (SD) or false.
b, Find the standard quota (SQ) Simple Statement - is a single statement which does not
c, Round SQ to the nearest whole number contain other statement as part.
d, If less than the required apportionment, modified SD<SD Compound statement - contains two or more statements.
e, If more than the required apportionment, modified Logical Connective - combines simple statement into
SD>SD compound statement.

EX. A hospital district consists of six hospitals. The district Connectives Propositional logic Symbol Example Read
administrators have decided that 48 nurses should be Not p (p is false)
Not negation ~ ~p
apportioned based on the number of beds in each of the
hospitals. The following table shows the number of beds in And/ But conjunction ^ p^q p^q (both p and q are true)

each hospital. p or q (either p is true or q

Or disconjunction v pvq is true or both true)

Hospital Number of beds Implies conditional → p→q If p then q

p implies q and q implies p

If and only if biconditional <—> p <—> q
A 242 p if and only if q

Example
B 351 h: Harry is not happy
v: Harry is going to watch a volleyball game
C 308
r: It is going to rain
D 190 s: Today is Sunday
a, Today is Sunday and Harry is not happy.
b, Today is Sunday and Harry is not going to watch a
volleyball game.
c, If it is going to rain, then Harry is not going to watch a
Definition Graph Example
volleyball game.
d, Harry is going to watch a volleyball game if and only if he Connected Graph - a graph is connected if there is a path
connecting every pair of vertices.
is happy.
e, Harry is happy only if it is not going to rain. Multigraph - is a graph with multiple edges between the
same vertices. These edges are called parallel or multiple
f, Harry is going to watch a volleyball game or it is going to edges.
rain.
Disconnected graph - is a graph consisting of two
different sections.
Solution:
a, s^h d, v<—>~h Loop - is an edge that connects a vertex to itself.

b, s^~v e, ~h→~r
Simple Graph - is a graph that has no loops or multipe
c, r→~v f, vVr edges.
CONJUNCTION
Null graph - is a graph with vertices, but no edges. It is
p q p^q also an example of a disconnected graph.

Isolated graph - is a vertex that has no edges incident

T T T with it.

Pendant vertex - is a vertex that has one incident with it.

T F F
Complete graph - is a connected graph in which every
F T F possible edge is drawn between vertices (w/ out any
mutiple edges)

F F F Degree of a vertex - is the number of edges that meet at a

vertex. The degree of a vertex v is denoted by deg(v).
Note that a loop at a vertex contributes two to the degree

MATHEMATICS OF GRAPH
of that vertex.

Graph Theory - such connections can be illustrated and

analyzed using a branch of mathematics. Also known as
Mathematics of Graph.
- used as a tool to solve some practical
problems in our daily living.
Graph - collection of vertices (nodes) and edges (arcs),
while connect vertices (nodes) in the graph. Generally, a
graph (G) is represented as G = (V,E), where V is a set of
vertices, and E is a set of edges.
EX. A graph with 5 vertices and 6 edges is shown below.
We labeled this graph as graph G, and it can be defined as
G = (V,E) where V ={A, B, C, D, E} and E = {(A,B), (A,C), (A,D),
(B,D), (C,D), (B,E), (E,D).
Equivalent Graphs - if the edges forms the same
connections of vertices in each graph.
Graph Coloring - used to model the avoidance of conflicts
in making schedules.
MATHEMATICS IN SYSTEMS
The concept of modular arithmetic - in solving problems
involving large numbers, the tedious or cumbersome
process can be reduced. Some of these are ISBN
(International Standard Book Number), UPC (Universal
Product Code), credit cards, money orders, bar codes,
document numbers of airline tickets, and many more.

● Regular Clock - 12 hour format

● Military Clock - 24 hour format

● ⊕ means addition, 'after'

● ⊖ means subtraction, 'ago'
a.m. — in Latin “ante meridiem” means before midday
p.m. — in Latin “post meridiem” means after midday

Ex. 9:00 am it means 9 hours after midnight

9:00 pm it means 9 hours after noon
On the other hand, to determine the time 7 hours after 8
o'clock, we need to consider that once we have passed 12
o'clock, we begin with 1. Therefore, 7 hours after 8 o'clock
is 3 o'clock.
8⊕7=3
We can also use subtraction on 12 - hour clock. For
instance, if the time now is 8 o'clock, then 6 hours ago the
time was 2 o'clock.
 8⊖6=2 m = is the month using 1 for March, 2 for April,… 10 for
December, January and February are 11 and 12
Ex. a. 6 ⊕ 10 = 4 respectively.
b. 5 ⊕ 9 = 2 d = is the day of the month
c. 8 ⊖ 11 = 3 c = is the first two digits of the year
d. 2⊖ 8 = 6 y = is the last two digits of the year if the month is March
Day-of-the-Week Arithmetic through December; if the month is January or February, y
Solving day-of-the-week arithmetic is similar to clock is the last two digits of the year minus 1.
arithmetic. In this case, we assign each day of the week x = is the day of the week (Sunday = 0, Monday = 1,....
with a number, such as, Saturday = 6)
Monday - 1 Thursday - 4 Sunday - 7
Tuesday - 2 Friday - 5 Ex. Robert was born on April 29, 1980. What day of the
Wednesday - 3 Saturday - 6 week was he born? m=2, d=29, c=19, y=80
Ex. Sis days after Thursday is Wednesday, and 12 days after x = ([13m - 1/ 5]+[y/4]+[c/4]+d+y-2c) mod 7
Sunday is Friday. In symbol, we write x = ([13(2) - 1/ 5]+[80/4]+[19/4]+29+80-2(19))
4⊞6=3 7 ⊞ 12 = 5 mod 7
The repeating cycle can be represented mathematically by x = ([13m - 1/ 5]+[y/4]+[c/4]+d+y-2c) mod 7
using modular arithmetic or arithmetic modulo n x = (5+20+4+29+80-38) mod 7
Modulo n - two integers a and b are said to be congruent x = 100 mod 7
modulo n, where n is a natural number if a - b / n is an x = 2 →which represents Tuesday
integer. In this case, we write a = b mod n. The number n is
called the modulos. The statement a = b mod n is called a
congruence.

Ex. 33 = 8 mod 5 → congruence

33 - 8 / 5 = 25/5 = 5 which is integer

26 = 4 mod 7 → NOT a true congruence

26 - 4 / 7 = 22/7 →which is not integer

12 = -3 mod 15 → congruence
12 - (-3) / 15 = 15/15 = 1 which is integer

Leap Year

A year will be a leap year if it is divisible by 4 but not only by 100. If a year is divisible by 4
and by 100, it is not a leap year unless it is also divisible by 400.

Divisible by Divisible by 100 Divisible by 400

4

Leap Year ✓ x x

Not a Leap Year ✓ ✓ x

Leap Year ✓ ✓ ✓

Ex. The years, such as 1992 and 2016 are divisible by 4 but
not 100, thus, they are leap years.
Ex. The years, such as 1800 and 2100 are called century
years. Since they are evenly divisible by both 4 and 100 but
not by 400, they are not considered leap years.
Ex. The years such as 2000 and 2400 are also century years;
however, they are evenly divisible by both 100 and 400, so
they are leap years.

Computing the Day-of-the-week

x = ([13m - 1/ 5]+[y/4]+[c/4]+d+y-2c) mod 7