MATHEMATICS OF

INVESTMENT
BY: JUDY ANN I. CAMINOC, BSMATH
WHAT IS AN INVESTMENT?

• According to business dictionary, it entails money committed or property acquired for

future income.
• According to Economics, an investment is the purchase of goods that are not consumed
today but are used in the future to create wealth.
• In finance, an investment is a monetary asset purchased with the idea that the asset will
provide income in the future or appreciate and be sold at a higher price.
SIMPLE INTEREST

• When you deposit money in a bank, for example in a savings account, you are permitting
the bank to use your money. The bank may lend the deposited money to costumers to
buy cars or make renovations on their homes. The bank pays you for the privilege of
using the money. The amount paid to you is called interest.
• The amount deposited in a bank or borrowed from a bank is called the principal. The
amount of interest paid is usually given us a percent of the principal. The percent used to
determine the amount of interest is called the interest rate. Interest paid on the
original principal is called simple interest.
•
Ex.
1. 1. Calculate the simple interest earned in 1 year on a deposit of $1000 if the interest
rate is 5%.
Sol.
P= 1000, r= 5%=0.05, and t=1
I= Prt
I= 1000(0.05)(1)
I= 50
The simple interest earned is $50.
•
SW#1

1. Calculate the simple interest due on a 2-month loan of $500 if the interest rate is 1.5% per
month.
2. Calculate the simple interest due on a 4-month loan of $1500 if the interest is 5.25%.
3. Calculate the simple interest due on a 5-month loan of $700 if the interest rate is 1.25% per
month.
4. Calculate the simple interest due on a 45-day loan of $3500 if the annual interest rate is 8%.
5. The simple interest charged on a 6-month loan of $3000 is $150. Find the simple interest rate.
ASSIGNMENT #1

• The federal deficit is the amount by which government spending exceeds the federal
budget. The topic of the news clipping in USA is the federal deficit of $1.3 trillion for the
just-completed fiscal year 2009-2010. This deficit is $122 billion less than in 2008-2009.
Suppose the government borrows the money to fund this federal deficit, with a 1-year
loan and an interest of 1.2%. What would be the interest owned on the loan?