Math Investment

• Simple Interest
• Compound Interest
• Simple Annuities
• Straight line Method
• Sinking fund Method
• Declining balancing Method
• Sum of year Digit (SYD) Method
• Break-even
• Capitalized cost and (Annual cost)
 Simple Interest
• 1-1 Definition of terms
In a business transactions, Interest may be defined in two different
ways
3. To Investor; Interest is an income derived from invested capital
4. To Debtor; Interest is money paid as rental for the use of money
In short
To an Investor, Interest is an incomes.
To a debtor, Interest is an expense
Interest is a fixed rated proportion as the rate of interest for any
specified time unit. The ratio of the Interest earned in one time unit to
the principal is called Interest rate (r). In the other words, r is the
measure of the interest on one peso for time to time.
Principal
Refers to the capital originally invested in a business transaction
represented by letter P.
Amount is referred to the full amount F which is the sum of the
principal and the invest due at any time after the investment of the
principal other word such as sum is also used instead of amount if it
is met colloquially
 Where in:
P= Principal or the Capital
R= Rate or percentage
T= Time
I= Interest
Example 1:
Find the ordinary interest and the full amount on 3,000 pesos at 5%
interest for two years .
where in the formula of simple interest is I=Prt and the full amount is
I=Prt
I=3000(.05)(2)
I=300
F=P+I
= 3000 + 300
= 3,300
 Example 2:
Find the value of the principal P and the full amount F if the the
Investment earns 200 in 18 months t at the rate of 8%
P=I/rt F=P+I
P=200/(0.8)(18/12) F= 1,666.67 + 200
P=1,666.67 F= 1,866.67
 Simple Annuities
1-1 Definition of the Terms

By definition annuity is a sequence of equal

periodic payments classified inter two.

1. Annuity Certain
2. Contingent Annuity

Annuity Certain – Refers to payment extended ever a

fixed term of years the term of payment is fixed and
known. One example is an equal payment for salary or
housing load where the installment plan forms an
annuity certain.
Contingent Annuity – refers to payments over a period of
time whose length cannot be foretold accurately. One
example is the equal sums paid as premium on life
insurance policy where payments end at the death of the
insured person. But as to when he is going to die is not
known.
 Depreciation
Is the reduction of fall in the value of an asset or physical property
during the course of its working life and due to the passage of the
time.
Types of Depreciation

Physical Depreciation - is due to the reduction of the physical

ability of an equipment or asset to produce results.

Functional Depreciation – is due to the reduction in the

demand for the function that the equipment or asset was
designed to render. This type of depreciation is often called
Obsolescence.
 Straight line method
In this method of Computing depreciation, it is assumed that the
loss in value is directly proportional to the age of the equipment
or asset.

Annual Depreciation charge, d

d= Co – Cn
n

Where : Co = First cost

Cn = Cost after “n” years

n = life of the property

Book value of the emd of “m” years of using, Cm

Cm = Co – Dm

Where : Dm – total depreciation after “m” years

Dm = d(m)

Example :
A unit of welding machine cost 45,000 php. with
estimated life of 5 yrs. Its salvage solve is 25,000 php.
Find its annual depreciation charge d, total depreciation
after 3 yrs. Dm, and Book value BV after 4 years.
Co = 45,000php n = 5 yrs. Dm = 4 yrs.

Cn = 25,000php D3 = 3 yrs.
a.)
d = Co - Cn 45,000 - 25,000
n = 8,500php/ years
5
b.)

Dsub3 = 8,500/years (3 years) = 25, 500php

c.)
Dm = 8,500/years (4 years) = 34,000php

BV = Co - Dm
BV = 45,000 – 34,000 BV = 11,000php Second hand price
 Sinking fund Method
In this method of Computing depreciation it is assumed
that a sinking fund is established in which fund will
accumulate for replacement purposes.

Annual depreciation charge, d

D =(Co-Cu) (i) Where : Co = First cost
n Cn = Cost after “n” years
(1-i) -1
n = life of the property
Book value at the end of “m” years of using, Cm
Cm = Co - Dm
Where Dm = total depreciation after “m” years
n
Dm = d[(1+i) - 1]
i
Example :
An equipment costs 10,000 php with a salvage value of 500
php at the end of 10 years. Calculate the depreciation cost by
sinking fund method at 4% interest.

Co = 10,000php n
D[(1 – i) - 1]
Dm =
Cn = 500php i
i = 0.04
a.) 2nd year
n = 10 yrs. 2
(791.76)[(1+0.04) - 1]
Dm =
(Co – Cn)(i) 0.04
d= n Dm = 1614.17
(1 – i) -1
b.) 3rd year
(10,000 - 500)(0.04) 3
(791.76)[(1+0.04) - 1]
d=
(1 – 0.04 10 - 1 ) Dm =
0.04
d = 791.26php/yr.
Dm = 2470.00
 Declining Balancing Method
In this method of computing depreciation it is assumed that the
annual cost of depreciation is fixed percentage of the Book value
at the beginning of the year, This method sometimes known as
constant percentage method of the mathesm on formula.

Matheson formula :

n Cn Cm
K=I– Co or K = I – n Co

The Value of K is the Constant percentage, hence K must be

Decimal and a value less than 1. In this method the salvage or
scrap value must not be zero.
Example :
A machine costing 720,000php is estimated to have a book value
of 40,545.73php when retired at the end of 10 yrs. Depreciation
cost is computed using a constant percentage of the declining
value. What is the annual rate of depreciation in %?

Cn = 40,545.73php Co = 720,000php n = 10 yrs.

n Cn n
K=1- BV = Co (1 –k)
Co
10
10 40,545.73 40,545.73 = 720,000 (1 –k)
K=1- 720,000
K = 0.25 or 25 %
K = 0.25 or 25 %
Sum of the Years Digit (SYD) Method
Respective depreciation charges.
n
First year, D1 = (Co – Cn)
year
n
Second year, D2 = (Co – Cn)
year

n
Third year, D3 = (Co – Cn)
year
Book value at the end of “m” years of using, Cm
Cm = Co – (D1+ D2 +…….+ Dm)
Sum of year digit year
Year = n(n+1)
2
Example :

A company purchases an asset for 10,000php and plans to keep

it for 20 yrs. If the salvage value is zero at the end of 20 yrs. What
is the Book Value at the 3rd year?
n
Co = 10,000php Cn = 0 n = 20 yrs. Dm = (Co – Cn)
Year
n(n+1) D1 = (10,000 – 0)(20/201) = 952.38
Year =
2 D = (10,000 – 0)(20-1/201)= 904.76
2
20(20+1) D3= (10,000 – 0)(20-2/201) = 857.14
Year = = 210
2 Dm = 2,714.28

BV = Co – Dm
BV = 10,000 – 2,714.28
BV = 7285.72
 Break – Even

Refers to the situation where the sales generated (income)

is just enough to cover the fixed and the variable cost
(expenses) the level of production where the total income
is equal to the total expenses is known as break-even point.

Break-even Chart – Is a diagram which showns relationship

between volume and fixed cost, variable cost, and income.
The ff. is an example of even Chart
Example :

The annual maintenance cost of a machine shop is 69,994php. If

the cost of making a forging is 56php per units and its selling
price is 135php per forced unit. Find the number of units to be
forged to break-even.

Expenses = Income Prove!

69,994 + 56x = 135x 69,994 + 56(886) = 135(886)
69,994 = 135x – 56x 119,610 = 119,610
69,994 = 79x
x = 886
Capitalized cost and Annual cost
Capitalized cost - any structure or property is the sum of its first
cost and the present worth of all costs for replacement,
operation and maintenance for a long time or forever.

Annual cost – any structure or property is the sum of the annual

depreciation cost
Example of Capitalized cost and annual cost :

At 6% find the capitalized cost of a bridge 10 base cost is 250

million pess and life is 20 yrs. It the bridge must be practically
rebuilt at a cost of 150 million pesos at the end of each 20 yrs.?

Co = 250 million pesos Cn = 150 million pesos

n = 20 years
i = 0.06

Cc = Co + (Co-Cn)/(1+i)n -1
Cc = 250 + (250 – 150)/(1+0.06)20 -1 = 295.31 million pesos

Ca = Co(i) + [(Co-Cn)(i)]/[(1+i)n -1] +A

Ca = 250(0.06) + [(250 – 150)(0.06)]/[(1+0.06)20 -1] + 0
Ca = 17.72 million pesos