MATHEMATICS IN THE MODERN WORLD

Problem Set (Business Math)

1. Find the interest and final amount on P 12,800 at 5% simple interest for 3 years and 9 months.

Simple Interest

The simple interest is obtained by multiplying the principal, rate and time.
I = Prt

where: I = simple interest

P = principal
r = rate or percent of the principal which is to be paid per unit
of time
t = units of time (expressed in years or fractional parts of a
year)

The final amount or maturity value or amount to be paid at the end of the term of the loan is obtained
by adding the simple interest from the principal.

Final Amount Formula: F = P + I

2. How long will it take for P9,800 to earn P1,800 if it is invested at a simple interest
rate of 4 ½ %?

The term or time t can be determined when the principal, the simple interest rate and the simple
interest are known. The formula can be derived from I = Prt.

We have t= I .
Pr

Similarly, the simple interest rate can be determined when the principal, the term and the simple
interest are known. The formula which can be derived from I = Prt is

r= I
Pt

If the principal P is unknown given the simple interest rate, term and the simple interest, the
formula is P= I
rt

3. If a principal of P150,000 earns interest of P3,800 in 9 months, what simple interest

rate is in effect?

4. Find the principal invested if it earns P25,000 in 4 years and 8 months at simple
interest rate of 4.8%.
5. Find the compound amount and interest if P8,600 is invested at 8% compounded
quarterly for 6 years and 9 months.

The fundamental formula for compound amount is

S=P(1+i)n and I=S-P

where S = final or compound amount

P = original principal
i = periodic rate(i=r/m)
m = number of conversion periods per year
n = total number of conversion periods for the whole
term (n= mt)
I = compound interest

When no conversion period is stated in any investment problem, it is assumed that the
interest is compounded or converted annually.

6. Johnrey deposited P62,500 in a savings bank on June 30,2019 at a rate of 8%

compounded quarterly. How much will he get if he withdraws all his deposits on
September 30, 2021?

7. To provide for the purchase of a car worth P520,000 as a gift to his son when he
graduates from college 5 years from now, how much should Ike invest today at 10%
compounded semi-annually?

8. On May 8, Lance borrowed P95,000 at 4 ½ % compounded continuously for 2

years. How much would he pay then?

To simplify problems on continuous compounding, the following formulas will be used:

rt
F = Pe for compound amount using continuous compounding and

P = Fe – rt for compound present value using continuous compounding

9. How long will it take for a sum of money to triple itself if the interest rate is 10 ½ %
compounded yearly?

10. Which is more profitable, to invest P3.5M at 10% simple interest or to invest the same amount at 9

½ % compounded semi-annually for 7 ½ years? Why?

11. Find the amount and present value of P12,000 payable every six months for 3 years
if money is worth 8 % compounded semi-annually.

The amount of an annuity is the total of all the periodic payments at the
end of the term, while the present value of an annuity is the total of the present
value of all the payments of the annuity.
To determine the amount and present value of an ordinary annuity, apply the following
formula:

S = R (1 + i)n – 1 A = R 1- (1 + i)-n
i i

12. Manny owes P90,000 with interest at 10% payable quarterly for 2 years. Find his
periodic payment and construct the amortization schedule.

An amortization schedule is a table which shows how much is applied to reduce the principal
and how much is paid for interest to indicate the remaining liabilities on the outstanding principal after
each payment period.

a) R =

b) AMORTIZATION SCHEDULE

Payment Outstanding
Number Principal before Interest Periodic Principal Repaid
each payment Payment

Total ***
 c) How much is the outstanding obligation after two years? _________________

What is the third principal repaid? ______________

13. The sum of P120,000 will be needed at the end of 3 years. If money can be
invested at 8 % compounded semiannually, what would be the periodic
payment? Construct a sinking fund schedule.

A sinking fund schedule is a table showing the gradual growth of money deposited to create a
fund. It also shows how much interest is earned every period, and the amount before and after periodic
deposits.

a) R =

b) SINKING FUND SCHEDULE

Payment
Number Amount in Interest Periodic Increase in
Fund Deposit Fund

Total ***

c) How much is in the fund after two years? _________________

What is the third increase in fund? _________________

How much was actually deposited? _____________ ______________

14. A machine depreciates from an original cost of P90,800 to a scrap value of P8 000
in 5 years. Find the annual depreciation and construct a depreciation table.
 Depreciation is the loss or decline in value of an asset through use and passage of time.
Buildings, equipments and other assets depreciate through age, obsolesce, decrease in efficiency and
inadequacy.

The formula for the periodic depreciation is:

R = W/n
W=O–S
where O = original cost
S = scrap or salvage value
W = wearing value
n = useful economic life of an asset in years
R = periodic depreciation

Depreciation Schedule
Year Annual Depreciation Accumulated Depreciation
Book Value

Note: the accumulated depreciation change plus the book value always equals the original cost.

15. A machine costs P22,000 depreciates by 20% of its value each year. Find the book
value at the end of 10 years by setting – up a depreciation schedule.

Declining – Balance Method or Constant – Percent Method

This method shows that an asset depreciates by the same percent of the book value. This
means that every year the depreciation charge is a fixed percentage of the preceding book value. This
method has a property bearing the largest peso depreciation during the early years and the depreciation
charge becomes progressively smaller as the number of years increases.

Depreciation Schedule
Year Annual Depreciation Total Book Value
Depreciation