FINANCIAL MANAGEMENT – UNIT 5

FINANCIAL MANAGEMENT
Part 1

Maria Luz A. Santos, MSME

University of Santo Tomas
What business you want to have in the future?

*Pharmaceutical
*Clinic
*Others
Definition of Terms

The person who borrows

money for any purpose is a
debtor or maker and the person
or institution or even company
which loans the money is the
lender.
Definition of Terms

When a debtor borrowed, the

person or institution which
lends the money would like to
get something in return for the
use of the money.
Definition of Terms

Interest, is the payment for the use

of borrowed money
Principal, is the capital or money
invested
Rate of interest, is the fractional part
of principal that is paid on the loan
(usually expressed as percent)
Term of loan or time, is the number of
units (days, weeks, months, years) for
which the money is borrowed and for
which interest is calculated
Definition of Terms

Final amount or maturity value, it

is the sum of the capital or
principal and interest accumulated
at a certain time
Present value or proceeds, is the
amount received by the borrower
Two Types of Interest

Simple interest is the interest in

which the capital or principal bears
interest for the entire term of loan
Compounded interest is the interest
added to the principal at the end of
a certain period of time which the
interest is computed on the new
principal.
Simple Interest’s Formula
 
Simple interest

Where:
Other Formulas
 
Other formulas:

Where:

Note: In business the interest rate is expressed as

percent. In computing the interest it is necessary to
convert the ratio into fraction or decimal
Time or terms can be expressed in any of the ff. ways:
 
1. Years ;
2. months ;
3. Days ; a. ordinary interest

b. Exact interest
When time expressed between dates, there are 4 ways

 
a.

b.
 When time expressed between dates, there are 4 ways

 
c.

d.

Note: * also known as bankers’ rule ( formula

being applied by banks in computing the
interest)
Simple Interest

Example(s):
1. Find the interest and
amount on P550 at 5 ½% simple
interest for 4 years.
Simple Interest
 
1. Given:
P = 550 ; = 5 ½% or .055 ;
t = 4 years
SOLUTIONS:
Simple Interest

2. Find the simple interest and

amount on P1, 500 at 6 ¼% simple
interest for 10 months.
Given:
P= P1, 500 ; r = 6 ¼ or .0625
t = 10mos = 10/12
Simple Interest
 
SOLUTIONS:
Simple Interest

Exercises:
1. Find the interest and amount on
P850 at 4 ¾% simple interest for 3
years and 7 months.
2. If the principal of P1,250 earns
interest of P172 in 2 years and 9
months, what is interest rate is in
effect?
Simple Interest

3. A principal earns interest of

P196 in 3 years and 6 months at a
simple interest of 6 ½%. Find the
principal invested.

4. How long will it take for P800 to

earn P240, if it is invested at 6 ½%
simple interest?
Simple Interest

5. Marlon borrowed P12, 500 from a

bank at 9 ½% simple interest for 3 years
and 6 months. How much Marlon pay
back the bank?

6. Find the ordinary and exact interest

on P5, 500for 95 days at 5 3/8% simple
interest.
Simple Interest

7. Find the ordinary interest and

amount on P6, 600 at 6 ½% simple
interest for 125 days.

8. Find the exact interest and amount

on P7, 700for 210 days at 7 ¼% simple
interest.
Finding the actual and approximate time
Example 1: Find the actual and approximate time of April
21, 2019 to October 4, 2019
Solution: Method 1
Actual days Month Approximate days
9 April 9
31 May 30
30 June 30
31 July 30
31 August 30
30 September 30
4 October 4
166 days 163 days
Simple Interest
Finding the actual and approximate time
Example: Find the actual and approximate time of April
21, 2019 to October 4, 2019
Solution: Method 2 or Alternative Solution

Actual Time: (Table 1) Approximate time

19 – 10 – 04 19
October 4 = 277 – 04 – 21
April 21 = 111 Difference 05 – 13
Difference = 166 days (5*30) + 13 = 163 days
Finding the actual and approximate time
Example 2: Find the actual and approximate time of
October 12, 2019 to March 28, 2020
Solution: Method 1
ActualMonths Approximate
19 October 18
30 November 30
31 December 30
31 January 30
29 February 30
28 March 28
168 days 166 days
 Finding the actual and approximate time
Example 2: Find the actual and approximate time of October 12, 2019
to March 28, 2020
Solution: Method 2 or Alternative Solution
Actual:
January 1, 2019 – December 31, 2019 = 365
January 1, 2019 – October 12, 2019 = 285
80
January 1, 2020 – March 28, 2020 = 88
168 days
Approximate:
20 – 03 – 28
19 – 10 – 12
00 – 05 – 16
(5*30) + 16 = 166 days
 Finding the actual and approximate time
Example 3: Find the interest on P4,570 at 5 ¾% from January 17,
2019 to June 7, 2019 using the 4 methods.
Given: P - P4, 570; r – 5 ¾% = .0575;
t – Jan 17, 2019 to June 7, 2019
Solution/s:
Actual Months Approximate
14 January 13
28 February 30
31 March 30
30 April 30
31 May 30
7 June 7
141 days 140
 Finding the actual and approximate time
 Example 3: Find the interest on P4,570 at 5 ¾% from January 17,
2019 to June 7, 2019 using the 4 methods.
Given: P - P4, 570; r – 5 ¾% = .0575;
t – Jan 17, 2019 to June 7, 2019
Solution/s:
 Finding the actual and approximate time
 Example 3: Find the interest on P4,570 at 5 ¾% from January 17,
2019 to June 7, 2019 using the 4 methods.
Given: P - P4, 570; r – 5 ¾% = .0575;
t – Jan 17, 2019 to June 7, 2019
Solution/s:
Finding the actual and approximate time

Seatwork:
Find the interest and final amount of $6, 700 at
3 1/2% from August 18, 1990 to May 10, 1992 using the
4 methods.
End of Unit 5 (Part 1)