GENERAL MATHEMATICS

Second Quarter
1: Simple Interest
2: Compound Interest
3: Business and Consumer Loan (Amortization)
4: Annuity

1: Simple Interest

Definition: Interest is the cost or payment in using somebody else’s money for a certain period
of time.

Two types of Interest: (1) Simple Interest and (2) Compound Interest.

Definition: Simple Interest is the charged-on amount borrowed (or invested) on which the
interest is calculated only by the principal.

Formula in finding the interest:

𝑰 = 𝑷𝒓𝒕
Where: I is simple interest
P is the principal or the original amount borrowed.
r is rate (percentage applied) per year
t is time (in terms of years)

Other formulas involving simple interest:

Definition: Principal or present value is the ORIGINAL/INITIAL AMOUNT borrowed (or

invested) on the origin date. (Other terms: present value, original amount, cash price/value)

𝑰
𝑷 = 𝒓𝒕
or
𝑭
𝑷=
𝟏 + 𝒓𝒕

Definition: Final amount or future value is the TOTAL AMOUNT that the lender receives from
the borrower on the maturity date. It is the combination of the interest and the principal
amount. (Other terms: future value, maturity value, total amount)

𝑭=𝑷+𝑰
or
𝑭 = 𝑷(𝟏 + 𝒓𝒕)

Note: You can use either of the two, depende kung ano ang available na given.

Definition: Rate, usually in percent, charged by the lender or rate of increase of the
investment.
 𝑰
𝒓=
𝑷𝒕

Definition: Time in years the money is borrowed or invested. It is the length of time between
the origin (beginning) and maturity (end) dates.

𝑰
𝒕=
𝑷𝒓

Two types of term (time):

1. Approximate time is expressed in 30 days in a month and 360 days in a year.
2. Actual time is expressed by the exact number of days in calendar and 365 days in a
year.

Two types of simple interest:

1. Ordinary Interest is computed in 360 days in a year as a time factor for the
denominator.
𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓𝑑𝑎𝑦𝑠
𝐼 = Pr ( )
360

2. Exact interest is computed in 365 days in a year as a time factor for the denominator.
𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓𝑑𝑎𝑦𝑠
𝐼 = Pr ( )
365

Definition: Banker’s method is the common method used by banks or lending institutions
where the interest charges on annual (360 days) basis.

Mga halimbawa about simple interest:

1. Ningning has an investment in a bank of Php 15500 and obtained an interest of Php 900
in just 6 months.
a. What is the rate?
b. How much is the exact interest?
c. How much is the ordinary interest?

Solution:
a. This problem is an example of simple interest, since wala naman tayo given na
compound period haha meaning, base lang sa isang principal ang ating interest.
Anyways…

Given:
principal (P) = Php 15500 (naginvest siya with this amount)
Interest (I) = Php 900 (stated naman na this is interest)
Time (t) = 0.5 years (yung 6 months converted to years 6/12)
Find:
Rate (r)

𝐼 900
𝑟= = = 0.1161 = 𝟏𝟏. 𝟔𝟏%
𝑃𝑡 (15500)(0.5)
 Note: (i-times mo sa 100 yung rate ha kung ‘di mo kayang ima-mano na pagconvert
bale: 0.1161 x 100 = 11.61%, 0.1 x 100 = 10%, ganern)

b. Given:
principal (P) = Php 15500 (naginvest siya with this amount)
Interest (I) = Php 900 (stated naman na this is interest)
Time (t) = 6 months
Rate (r) = 0.1161 (yung nakuha mo kanina)
Find:
Exact interest (time mo ay number of days/365. Note that interest I ang hinahanap
rito ah, ang maiiba is yung time)

So since exact interest ito, convert mo yung time na 6 months to days. Hindi po
given kung approximate or actual ang pagcompute ng days, kaya po, APPROXIMATE
ANG IYONG ICOCONSIDER. Ganito:

6 months x 30 days = 180 days

180
Therefore, ang time for this problem ay: 𝑡 =
365

180
Therefore ulit, 𝐼 = 𝑃𝑟𝑡 = (15500)(0.1161) (365) = 𝟖𝟖𝟕. 𝟒𝟓

c. Given:
principal (P) = Php 15500 (naginvest siya with this amount)
Interest (I) = Php 900 (stated naman na this is interest)
Time (t) = 6 months
Rate (r) = 0.1161 (yung nakuha mo kanina)
Find:
Ordinary interest (time mo ay number of days/360)

Again, approximate ang pag-convert natin to days.

6 months x 30 days = 180 days.

180
Therefore, ang time for this problem ay: 𝑡 = 360

180
Therefore ulit, 𝐼 = 𝑃𝑟𝑡 = (15500)(0.1161) (360) = 𝟖𝟗𝟗. 𝟕𝟖

2. Winter applied for a loan amounting to Php 85000 made on January 15, 2015 at 5.5%
and to be paid on May 15, 2020.
a. What is the approximate time?
b. How much is the simple interest?

Solution:
a. Given:
Beginning date: January 15, 2015
Final (end) date: May 15, 2020
 Find:
Approximate time (FINAL DATE MINUS BEGINNING DATE)

May 15, 2020: 2020 05 15

January 15, 2015: 2015 01 15
5 years 4 months 0 day(s)

If kailangan i-convert to days: 5(360) + 4(30) = 1920 days

b. Given:
Principal (P) = 85000
Rate (r) = 0.055
Time (t) = 5 years and 4 months = 5 + 4/12 (i-stay mo na lang as fraction yung
4/12 since repeating sya kapag nai-convert to decimal pero kung kaya naman for
example 3/12 = 0.25, edi ayon plus yung years. Pero with this case, stay as fraction)
Find:
Simple interest (I)

4
𝐼 = 𝑃𝑟𝑡 = (85000)(0.055) (5 + ) = 𝟐𝟒, 𝟗𝟑𝟑. 𝟑𝟑
12

2: Compound Interest

Definition: Compound Interest is a kind of interest where it makes the deposit or the loan
higher at a faster rate compared to simple interest.

For compound interest, yung interest na given sa isang situation ay pwedeng more than once i-
apply sa principal (per year). Here are the possible values of interest (compound) period,
denoted as 𝒎.

Interest Period (per year) 𝒎

Daily 365

Monthly 12

Quarterly 4

Semi-annually 2

Annually 1

Formulas related to Compound interest:

𝑟 𝑛
Future Value (F) 𝐹 = 𝑃 (1 + )
𝑚
𝑟 −𝑛
Principal Value (P) 𝑃 = 𝐹 (1 + )
𝑚
 𝐹
log (𝑃 )
Time (t) 𝑡= 𝑟
𝑚[log (1 + 𝑚)]

𝑛 𝐹
Rate (r) 𝑟 = 𝑚 ( √ − 1)
𝑃
Where:
𝑛 = 𝑚𝑡

Note that lahat ng terms na makikita natin kay compound (principal, future, etc.) ay same lang
naman kung paano natin siya i-define from simple. Sa lahat naman ng lesson natin, iisa lang
ibig sabihin nila.

If kailangan hanapin ang interest ng isang compound interest, remember niyo lang yung fact na
ang interest ay difference ng final amount at principal.

Mga halimbawa about compound interest:

1. Given an original amount of Php 1,550, how much is accumulated after 5 years at 8%
compounded quarterly?

Given:
Principal (P) = Php 1550
Time (t) = 5 years
Rate (r) = 0.08
Compound period (m) = 4 (quarterly)
𝑛 = 𝑚𝑡 = (4)(5) = 20

Find:
Final amount (F) kasi accumulated, yung tinaas.

𝑟 𝑛 0.08 20
𝐹 = 𝑃 (1 + ) = 1550 (1 + ) = 𝟐𝟑𝟎𝟑. 𝟐𝟐
𝑚 4

2. A loan worth Php 45,500 for 12 years, compounded quarterly has a maturity value
limited to Php 80,500. Compute for the bank interest rate.

Given:
Principal (P) = 45500
Future amount (F) = 80500
Compound period (m) = 4
Time (t) = 12 years
𝑛 = 𝑚𝑡 = (4)(12) = 48
 Find:
Rate (r) (formula na related to compound interest kasi syempre may compound period)

𝑛 𝐹 48 80500
𝑟 = 𝑚 ( √ − 1) = 4 ( √ − 1) = 0.0478 = 𝟒. 𝟕𝟖%
𝑃 45500

3: Consumer and Business Loan (Amortization)

Two types of Loan: Consumer and Business Loan

Definition: Consumer Loans are types of Loan intended for individual/personal purposes.
Hb. House mortgage (loan), student loan, car (auto) loan, travel loan, etc.

Definition: Business Loans are types of loans intended for business purposes that involve
debts which will be repaid with an interest,
Hb. starting capital for a business, furniture for business, additional equipment for business,
etc.

Definition: Amortization is defined as combine payment of principal and the interest in

sequence of equal installment (payment) over a period of time.

Formulas related to Amortization:

Periodic Payment (R) 𝑷𝑽

𝑹=
𝟏 − (𝟏 + 𝒊)−𝒏
[ ]
(another word is equal installment) 𝒊

Present Value (PV) 𝟏 − (𝟏 + 𝒊)−𝒏

𝑷𝑽 = 𝑹 [ ]
𝒊
(principal/original amount)

Where:

𝑛 = 𝑚𝑡
𝑟
𝑖=
𝑚

Note: i means interest rate per conversion/compound period

Mga halimbawa about amortization:

1. Karina acquired a loan of Php 60,000 to be amortized at the end of each 6 months for 3
years at 12% interest compounded semi-annually.
a. What is the interest rate per conversion period?
b. How many total number of payments are there?
 c. How much is the periodic payment?

Solution:

a. Interest rate per conversion period, meaning we are looking for i.

Given:
Rate (r) = 0.12
Compound period (m) = 2 (semi-annual)

𝑟 0.12
𝑖= = = 𝟎. 𝟎𝟔
𝑚 2

b. Total number of payments meaning ilang beses siya nagbayad for 3 years, which is
si n.
Given:
Compound period (m) = number of payments per year = 2 (semi annual and at the end
of each 6 months ang payment per year)
Time (t) = 3 years

𝑛 = 𝑚𝑡 = (2)(3) = 𝟔

c. Find: Periodic Payment (R)

Given:
Principal value (loan) (PV) = 60000
Time (t) = 3 years
Rate (r) = 0.12
Compound period (m) = 2
𝑛 = 𝑚𝑡 = (2)(3) = 𝟔
𝑟 0.12
𝑖= = = 𝟎. 𝟎𝟔
𝑚 2

𝑃𝑉 60000
𝑅= = = 𝟏𝟐, 𝟐𝟎𝟏. 𝟕𝟔
1 − (1 + 𝑖)−𝑛 1 − (1 + 0.06)−6
[ 𝑖 ] [ 0.06 ]

Definition: Amortization Schedule provides information on how to much amount should pe

paid every period or how much is applied to the principal and the outstanding balance.

Steps on constructing the amortization schedule:

1. Find the interest using simple interest formula.

Note: ang time for the formula ay nakadepende

sa bilang ng payment per year. For example,
semi-annual ang payment natin or every 6 𝐼 = 𝑃𝑟𝑡
months, edi ang time ay 6/12.
If annual, 12/12=1
If every 3 months (quarterly), 3/12
If monthly, 1/12
 2. Compute for amount paid.

Note: Nagbabago ang value ni amount paid,

kasi nagbabago principal (outstanding balance) 𝐴𝑚𝑜𝑢𝑛𝑡 𝑃𝑎𝑖𝑑
therefore nagbabago ang interest. = 𝑃𝑒𝑟𝑖𝑜𝑑𝑖𝑐 𝑃𝑎𝑦𝑚𝑒𝑛𝑡 − 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡

Pero ang periodic payment (installment) ay

constant, not changing.
3. Compute for outstanding balance.

Note: Nagbabago ang value ng outstanding

𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 𝐵𝑎𝑙𝑎𝑛𝑐𝑒
balance, eto ang nagiging principal ng interest
= 𝑃𝑟𝑒𝑠𝑒𝑛𝑡 𝑉𝑎𝑙𝑢𝑒 − 𝐴𝑚𝑜𝑢𝑛𝑡 𝑝𝑎𝑖𝑑
natin per period.

Dapat maging 0 ito at the very last period.

4. Repeat the process hanggang matapos.

Halimbawa ng amortization schedule:

1. A loan amounting to P15,000 is to be paid annually for 2 years with an interest rate of
5% compounded annually. Solve for the periodic payment and complete the table of
amortization schedule.

Given:
Present Value (loan) PV = 15000 (to be paid annually meaning isang beses lang sa isang
taon)
Time (t) = 2 years
Rate (r) = 0.05
Compound period (m) = 1 (annually)
𝑛 = 𝑚𝑡 = (1)(2) = 𝟐 (ito ang total number of payment natin, meaning dalwang beses
lang tayo magbabayad kabuuan)
𝑟 0.05
𝑖= = = 𝟎. 𝟎𝟓
𝑚 1

First, hanapin si Periodic Payment.

𝑃𝑉 15000
𝑅= −𝑛 = = 𝟖𝟎𝟔𝟕. 𝟎𝟕
1 − (1 + 𝑖) 1 − (1 + 0.05)−2
[ ] [ ]
𝑖 0.05

Period Periodic Payment Interest Amount Paid Outstanding Balance

0 0 0 0 15,000
1 8067.07 750 7317.07 7682.93
2 8067.07 384.15 7682.85 0.08 (0)
Total 16,134.15 1134.15 15,000

Note: 2 periods (n)

 First period (1)
Given: P = 15,000 (original - pasimula)
Periodic Payment (R) = 8067.07
Rate (r) = 0.05
Time (t) = 12/12 = 1 (time for this period, annual pagbayad diba? Kaya 12/12)

(i) Interest = Prt = (15000)(0.05)(1) = 750

(ii) Amount Paid = Periodic Payment – Interest = 8067.07 – 750 = 7317.07
(iii) Outstanding Balance = Principal – Amount Paid = 15000 – 7317.07 = 7682.93
(new principal para naman sa second period)

Second period (2)

Given: P = 7682.93 (outstanding balance)
Periodic Payment (R) = 8067.07
Rate (r) = 0.05
Time (t) = 12/12 = 1

(i) Interest = Prt = (7682.93)(0.05)(1) = 384.15

(ii) Amount Paid = Periodic Payment – Interest = 8067.07 – 384.15 = 7682.85
(iii) Outstanding Balance = Principal – Amount Paid = 7682.93 – 7682.85 = 0.08
(last period na ito so dapat 0 talaga, okay lang kung may decimals, ang
mahalaga kapag ni-round off 0 ahaahah – bale 0 talaga answer dapat)

Total

Final Amount = 8067.07 + 8067.07 = 16,134.15

Interest = 750 + 384.15 = 1134.15
Amount Paid = 7317.07 + 7682.85 = 14999.92 = 15,000 (dapat equal sa PV)
Outstanding Balance = 0 na sa last period

4: Annuity

Definition: Annuity is a sequence of periodic payment at a regular interval.

Hb. Monthly rentals, different kinds of loans, insurance, investment, etc.

Types of Annuities (in terms of duration):

1. Annuity Certain is an annuity with definite duration. It has beginning and end on a
definite date. Hb. Loan
2. Annuity Uncertain is an annuity with an indefinite duration. The annuity payment
depends on certain events or situations. Hb. Insurance
3. Perpetuity is an annuity that has beginning and continues indefinitely. Hb. Inheritance

Classification of Annuities:

1. Ordinary Annuity is an annuity that is received at the end of period. Hb: Investment
2. Annuity Due is an annuity that is received at the beginning of the period. Hb: Loan
 3. Deferred Annuity is an annuity that is not received at the beginning nor the end of each
period but a later time or date (payment is postponed or advanced)

Kinds of Annuities:

1. Simple Annuity is an annuity where the compound period is equal to the annuity per
year.
2. General Annuity is an annuity where the compound period is not equal to the annuity
per year.

Formulas related to Simple Annuity (𝒎 = 𝒑):

(1 + 𝑖)𝑛 − 1
Future value of Simple Annuity 𝐹𝑉 = 𝑅 [ ]
𝑖
1 − (1 + 𝑖)−𝑛
Present value of Simple Annuity 𝑃𝑉 = 𝑅 [ ]
𝑖
Where:
𝑛 = 𝑚𝑡
𝑟
𝑖=
𝑚
(i: interest per conversion period)

Mga halimbawa about simple annuity:

1. Ms. Gomez deposits Php 175,000 for every 6 months in a bank with 12% interest rate
compounded semi-annually. How much does she have in the bank after 5 years?

Given:
Periodic Payment (R) = 175000
Time (t) = 5 years
Rate (r) = 0.12
m=2
n = mt = (2)(5) = 10
i = r/m = 0.12/2 = 0.06

(1 + 𝑖)𝑛 − 1 (1 + 0.06)10 − 1
𝐹𝑉 = 𝑅 [ ] = 175000 [ ] = 2306639.11
𝑖 0.06

2. How much is required to be deposited in a bank if a person plans to withdraw an

amount of Php 6,050 twice a year for 36 months if the deposited money pays 7.5%
compounded semi-annually?

Given:
Periodic Payment (R) = 6050
Time (t) = 3 years (36/12)
Rate (r) = 0.075
m=2
n = mt = (2)(3) = 6
 i = r/m = 0.075/2 = 0.0375

1 − (1 + 𝑖)−𝑛 1 − (1 + 0.0375)−6
𝑃𝑉 = 𝑅 [ ] = 6050 [ ] = 31974.
𝑖 0.0375

Formulas related to General Annuity (𝒎 ≠ 𝒑):

(1 + 𝑖)𝑐𝑛 − 1
Future value of General Annuity 𝐹𝑉 = 𝑅 [ ]
(1 + 𝑖)𝑐 − 1
1 − (1 + 𝑖)−𝑐𝑛
Present value of General Annuity 𝑃𝑉 = 𝑅 [ ]
(1 + 𝑖)𝑐 − 1
Where:
𝑛 = 𝑡𝑝
𝑟
𝑖=
𝑚
𝑚
𝑐=
𝑝
(i: interest per conversion period)
(p: payment per year)

Mga halimbawa about general annuity:

1. How much will accumulate if Php 2,000 is paid at the end of the month for 4 years at
8% compounded quarterly?

Given:
Periodic Payment (R) = 2000
Payment per year (p) = 12 (at the end of the month-monthly)
Time (t) = 4 years
Rate (r) = 0.08
m=4
n = tp = (4)(12) = 48
c = m/p = 4/12 or 1/3
cn = (1/3)(48) = 16
i = r/m = 0.08/4 = 0.02

Solution:

(1 + 𝑖)𝑐𝑛 − 1 (1 + 0.02)16 − 1
𝐹𝑉 = 𝑅 [ ] = 2000 [ 1 ] = 112578.002
(1 + 𝑖)𝑐 − 1
(1 + 0.02)3 − 1

2. Find the cash equivalent of a stereo that is paying Php 5,050 per month for 24 months
with interest rate of 2.4% compounded semi-annually.

Given:
Periodic Payment (R) = 5050
Payment per year (p) = 12 (per month)
 Time (t) = 2 years (24 months/12)
Rate (r) = 0.024
m=2
n = tp = (2)(12) = 24
c = m/p = 2/12 or 1/6
cn = (1/6)(24) = 4
i = r/m = 0.024/2 = 0.012

Solution:

1 − (1 + 𝑖)−𝑐𝑛 1 − (1 + 0.012)−4
𝑃𝑉 = 𝑅 [ ] = 5050 [ 1 ] = 118236.35
(1 + 𝑖)𝑐 − 1
(1 + 0.012)6 − 1

Formulas related to Simple Deferred Annuity (postponed, advanced):

1−(1 + 𝑖)−𝑛
Present value of Simple Deferred Annuity 𝑃𝑉 = 𝑅 [ ] (1 + 𝑖)−𝑑
𝑖
Where:
𝑛 = 𝑡𝑝
𝑟
𝑖=
𝑚
𝑑 = 𝑚𝑡𝑑
(i: interest per conversion period)
(𝑡𝑑 : time of deferral)

Halimbawa about simple deferred annuity:

1. Find the present value of a deferred annuity with a periodic payment Php 2,000 every
quarter for 5 years, deferred 2 years, if the money is worth 8% converted every quarter.

Given:
Periodic Payment (R) = 2000
Time (t) = 5 years
Time of deferral (𝑡𝑑 ) = 2 years
Rate (r) = 0.08
m=4
n = mt = (4)(5) = 20
d = 𝑚𝑡𝑑 = (4)(2) = 8
i = r/m = 0.08/4 = 0.02

Solution:

1−(1 + 𝑖)−𝑛 −𝑑
1−(1 + 0.02)−20
𝑃𝑉 = 𝑅 [ (1
] + 𝑖) = 2000 [ ] (1 + 0.02)−8 = 27911.58
𝑖 0.02