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The Mathematics of Finance
Outline of Discussion
Simple Interest
Ordinary Interest
Exact Interest
Maturity value
The following terms will be used in the discussion:
1. Principal (P) – the amount received by the debtor

2. Time/term (t) – number of unit of time for which the interest is
computed
3. Rate of interest (r)– the fractional part of the principal that is paid
on the loan
4. Final amount or maturity value (F)– the sum of the principal and
interest, which is accumulated at a certain time
5. Lender – the person who loans the money
6. Debtor – the person who borrows money for any purpose
Interest Simple Interest
 The payment made by a person or  When only the principal bears
entity for the use of borrowed the interest for the entire term
money. Money can be from a loan
or investment.
or investment.
I = Prt
or investment.
I = Prt
Interest
or investment.
I = Prt
Interest
Principal
or investment.
I = Prt
Interest
Principal rate
or investment.
I = Prt
Interest time
Principal rate
Example 1:
Find the interest of A Php25,300 investment at
6% interest rate for 1 year.
Example 1:
Find the interest of a Php25,300 investment at
Given:
t = 1 year
P = 25, 300
R = 6%
I=?
Example 1:
Given: Solution:
t = 1 year Using the formula I = Prt,
P = 25, 300
R = 6%
I=?
Example 1:
Given: Solution:
P = 25, 300
R = 6% I = Prt
I=?
Example 1:
Given: Solution:
P = 25, 300
R = 6% I = Prt
I=? = (25, 300)(0.06)(1)
Example 1:
Given: Solution:
P = 25, 300
R = 6% I = Prt
I=? = (25, 300)(0.06)(1)
= 1,518 pesos
Example 2:
Find the interest of a Php25,300 investment at
6% interest rate for 6 months.
Example 2:
Given:
t = 6 months
P = 25, 300
R = 6%
I=?
Example 2:
Given: Solution:
t = 6 months Using the formula I = Prt,
P = 25, 300
R = 6%
I=?
Example 2:
Given: Solution:
P = 25, 300
R = 6% I = Prt
I=?
Example 2:
Given: Solution:
P = 25, 300
R = 6% I = Prt
I=? = (25, 300)(0.06)(0.5)
Example 2:
Given: Solution:
P = 25, 300
R = 6% I = Prt
I=? = (25, 300)(0.06)(0.5)
= 759 pesos
Example 3:
Find the interest of a Php 65,850 investment at
6.72% interest rate for 2 ¾ years.
Example 3:
Given:
t = 2 year
P = 65, 850
R = 6.72%
I=?
Example 3:
Given: Solution:
P = 65, 850
R = 6.72%
I=?
Example 3:
Given: Solution:
P = 65, 850
R = 6.72% I = Prt
I=?
Example 3:
Given: Solution:
P = 65, 850
R = 6.72% I = Prt
I=? = (65, 850)(0.0672)(2.75)
Example 3:
Given: Solution:
P = 65, 850
R = 6.72% I = Prt
I=? = (65, 850)(0.0672)(2.75)
= 12,169.08 pesos
Example 4:
The interest earned on an Php 8,000 deposit is Php
1,250. How long was the term if the interest is 5%
simple interest.
Example 4:
simple interest.
Given:
P = 8,000
I = 1,250
r = 5%
t=?
Example 4:
simple interest.
Given: Solution:
P = 8,000 Using the formula I = Prt,
I = 1,250
r = 5%
t=?
Example 4:
simple interest.
Given: Solution:
I = 1,250
r = 5% (I = Prt)
t=?
Example 4:
simple interest.
Given: Solution:
I = 1,250
r = 5% (I = Prt)
t=?
Example 4:
simple interest.
Given: Solution:
I = 1,250
r = 5% (I = Prt)
t=?
Example 4:
simple interest.
Given: Solution:
I = 1,250
r = 5% (I = Prt)
t=? =t
Example 4:
simple interest.
Given: Solution:
I = 1,250
r = 5% (I = Prt)
t=? =t
Example 4:
simple interest.
Given: Solution:
I = 1,250 t=
r = 5%
t=?
Example 4:
simple interest.
Given: Solution:
I = 1,250 t=
r = 5% t=
t=?
Example 4:
simple interest.
Given: Solution:
I = 1,250 t=
r = 5% t=
t=? t=
Example 4:
simple interest.
Given: Solution:
I = 1,250 t=
r = 5% t=
t=? t=
t = 3.125 years
Ordinary Interest, Exact Interest,
Ordinary Interest, Exact Interest,
• Is a type of interest wherein the • Is a type of interest wherein
interest is computed based on the interest is computed based
the assumption that the year on the assumption that the year
contains 360 days and each contains 365 days and it
month has 30 days considers the 28, 29, 30, 31
days in each month
• )
• )
Example 1:
Find the exact interest of a Php 29,300
investment at 6% interest rate for 125 days.
Example 1:
Given:
P = 29, 300
r = 6%
#days = 125
Example 1:
Given: Solution:
P = 29, 300 Using the formula ),
r = 6%
#days = 125
Example 1:
Given: Solution:
r = 6%
#days = 125 )
Example 1:
Given: Solution:
r = 6%
#days = 125 )
= (29,300)(0.06)(0.34246575)
Example 1:
Given: Solution:
r = 6%
#days = 125 )
= (29,300)(0.06)(0.34246575)
= 602.05 pesos
Example 2:
Find the ordinary interest of a Php18,300
loan at 7% interest rate for 225 days
Example 2:
Given:
P = 18,300
r = 7%
#days = 225
Example 2:
Given: Solution:
P = 18,300 Using the formula ),
r = 7%
#days = 225
Example 2:
Given: Solution:
r = 7%
#days = 225 )
Example 2:
Given: Solution:
r = 7%
#days = 225 )
= (18,300)(0.07)(0.625)
Example 2:
Given: Solution:
r = 0.7%
#days = 225 )
= (18,300)(0.07)(0.625)
= 800.625 pesos
Example 3:
Find the exact and ordinary interest of Php10,500
investment at 9.5% interest made on March 4, 2015
and is due on April 1, 2016.
Given:
P = 10,500
r =9.5%
t = March 4, 2015 to April 1, 2016
Find the exact and ordinary interest of Php10,500 investment at 9.5%
interest made on March 4, 2015 and is due on April 1, 2016.
Given:
P = 10,500
r = 9.5%
t = March 4, 2015 to April 1, 2016
Given:
P = 10,500
r = 9.5%
t = March 4, 2015 to April 1, 2016
Ordinary Interest Exact Interest

Given:
P = 10,500
r = 9.5%
t = March 4, 2015 to April 1, 2016
No. of days:
March 4, 2015 – March 4, 2016 (360 days)
Month of March (26 Days)
Month of April (1 Day)
Total # of Days: 387 Days
Given:
P = 10,500
r = 9.5%
t = March 4, 2015 to April 1, 2016
No. of days: No. of days:

March 4, 2015 – March 4, 2016 (360 days) March 4, 2015 – March 4, 2016 (365 days)
Month of March (26 Days) Month of March (27 Days)
Month of April (1 Day) Month of April (1 Day)
Total # of Days: 387 Days Total # of Days: 393 Days


) )

) )
) )

) )
) )
= 1072.31 pesos = 1074.02 pesos
Maturity Value
• Is the sum of the interest accumulated over
the period of time and the principal.
• F = P + I or F = P (1 + rt)
where F – final amount
P – principal
r – rate
t – time
I - interest
Example 1: (Our previous example)

Given: Solution:
P = 25, 300
R = 6% I = Prt
I=? = (25, 300)(0.06)(1)
= 1,518 pesos
Example 1: (Our previous example)

Given: Solution:
P = 25, 300
R = 6% I = Prt
I=? = (25, 300)(0.06)(1)
= 1,518 pesos
F=P+I
= 25,300 + 1,518
= 26,818 pesos

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The Mathematics of Finance

1. Principal (P) – the amount received by the debtor

Ordinary Interest Exact Interest

Ordinary Interest Exact Interest

Ordinary Interest Exact Interest

No. of days: No. of days:

Ordinary Interest Exact Interest

No. of days: No. of days:

Ordinary Interest Exact Interest

No. of days: No. of days:

Ordinary Interest Exact Interest

No. of days: No. of days:

Ordinary Interest Exact Interest

No. of days: No. of days:

Find the interest of a Php 25,300 investment at

Find the interest of a Php 25,300 investment at

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