CONSUMER

MATHEMATICS
• Borrowing
• Investing
The person or institution that makes financial resources available
to those who are in need is called a lender or a creditor.

The person or institution that avails of the financial

resources from the lender is called the borrower.
Simple and Compound Interest
 For the use of the financial resources, the lender charges the
borrower a certain amount called interest.
 Interest is a fee paid to the lender from the borrower’s use of the
money lent.
 There are two types of interest:
 SIMPLE
 COMPOUND
Simple Interest
 Simple interest is earned when only the original
principal earns interest for the entire period.
Interest is computed using the formula

Where P is the principal

r is the interest rate
t is the time in years
Simple Interest:

 I: amount paid to the lender by the borrower

 P: sum of money borrowed or invested
 r: interest rate will be expressed in decimal, rate charged by the
lender
 t: time or term of money borrowed or invested, expressed in years,
 If not, express months in years, divide the number of months by
12
 Or express days in years, divide the number of days by 365 (or
360)
Simple Interest
Example:
If ₱15,500 is invested at 7% simple interest for 3 years,
determine the interest earned and its maturity value.

Maturity (Future) Value =

=
=₱18,755
Simple Interest
What is the maturity value of ₱40,000 invested at 0.25%
per annum for 150 days?

 Maturity Value is ₱40,041.10

Simple Interest
 Example:
 On November 20, 2019, Ellen borrowed ₱36,500 from Elmer. She promised to pay the
principal and 11.75% simple interest on May 9, 2020. How much will Elmer receive on the
said date?
 Banker’s Rule:
 November 20, 2019 – May 9, 2020:
 number of days: (30 – 20) + 31 + 31 + 29 + 31 + 30 + 9 = 171

 ,
Simple Interest
 Compound Interest
Compound interest is a type of interest which
results from the periodic addition of simple
interest to the principal.
Interest rate at 3% per annum

Simple interest
earned Compound interest earned
Principal 10,000 10,000
Year 1 300 300
Year 2 300 309
Year 3 300 318.27
Year 4 300 327.81
Year 5 300 337.65
Total Interest
eaned 1500 1592.73
Maturity Value 11,500 11,593
 Compound Interest
Maturity Value at the end of the term is given by the
formula

Where
P is the principal
j is the rate of interest per year ( nominal rate)
m is the frequency of conversions
t is the length of term in years
Number of conversions: m

 Annually: m = 1, converted once a year

 Semi annually: m = 2, converted twice a year
 Quarterly: m = 4, converted four times in a year
 Monthly: m = 12, converted twelve times in a
year
Compound Interest

Example: If ₱10,000 is invested at 3% compounded

annually for 5 years. What is the maturity value?
Compound Interest


 Annuity
An annuity is a sequence of equal payments made at
equal intervals.
The amount of each payment is referred to as the regular
payment, denoted by R.
Interest rate at 3% per annum
Simple interest Compound interest Annuity
Principal 10,000 10,000Regular deposit 10,000 per year
Year 1 300 300 300
Year 2 300 309 609
Year 3 300 318.27 927.27
Year 4 300 327.81 1255.09
Year 5 300 337.65 1592.72
Total Interest eaned 1500 1592.73 4684.08
Maturity Value 11,500 11,593 53091.36
Annuity
 Amount of an Annuity: F
 Sum of all periodic payments made at the end of each term plus all accumulated compound
interest

 Present Value of an Annuity: P

 Sum of all periodic payments discounted to the present time. It is also the value of the annuity at
the beginning of the term
 P

 Regular Payment: R
Annuity
Example:
Ten thousand pesos is deposited annually for 5 years with an annual interest rate of
3%, how much will be in the fund at the end 5 years?
F

= ₱53,091.36
Annuity
Example: A smartphone is purchased with a down payment of ₱1,000 and the
balance will be paid at ₱1,075.83 a month for 1 year. What is its cash price if the
interest rate is 6% compounded monthly?

Cash price = down payment + P

[ ( )
]
− 𝑡𝑚
𝑗
1− 1+
𝑚
𝑃=𝑅
𝑗
𝑚

P = ₱12,500
cp = 1 000 + 12 500 = ₱13 500
 Annuity
Example: Find the monthly amortization for a ₱150,000 debt which is to
be repaid in 2 years at 7% interest compounded monthly.

150,000
¿

( ( )
)
−2 𝑥 12
0.07
1 − 1+
12
0.07
12

𝑅=₱ 6,715.89
AMORTIZATION

 Amortization is the process of settling a loan

(principal and interests) into a series of fixed
payments over time.


Amortization
 Example: A housewife buys a pair of earrings worth P20 000. She
pays P5 000 and the balance on semi annual installments for 2
years. If the interest rate is 4 ½%, find the semi-annual payment.
Amortization Schedule

N=tm R i=j/m Repayment=R-i OB

0 15000

15000*(.045/2) 3963.284-337.5 15000-3625.784

1 3963.284 =337.500 =3625.784 =11374.216

2 3963.284 255.920 3707.364 7666.852

3 3963.284 172.504 3790.780 3876.072

4 3963.284 87.212 3876.072 0.000

Exercises:
1. Teresa Angela borrowed P90 000 on December 18, 2019. She will repay the loan
today with interest of 10 ½%. Find the amount she’ll pay today. (Use the Banker’s
Rule)

2. How much loan will Julia ask from her friend if she needs P26 000 which will be
repaid in 6 months with an interest rate of 9 ½%?

3. What amount will be deposited in a bank at 10% compounded quarterly that will
accumulate to P125 000 after 6 years?
 Exercises:
4. On July 12, 2019, Veronica borrowed P100 000 and agreed to pay the interest at 7%
compounded monthly. How much must she pay if she wanted to discharge this debt on April
12, 2020.

5. Mrs Martin purchased a condominium unit and agrees to pay P200 000 cash and P40 000
every 3 months for 5 years. What is the cash price of the condominium unit if money is worth
10 ¾% compounded quarterly?

6. Leander borrows P200 000 and agrees to pay the principal and interest by making equal
payments at the end of every 6 months for 4 years. Find his semi annual payments if the
lender charges 12% compounded semi annually.
Teresa Angela borrowed P90 000 on December 18, 2019. She will repay the
loan today with interest of 10 ½%. Find the amount she’ll pay today. (Use
the Banker’s Rule)
2. How much loan will Julia ask from her friend if she can pay P26
000 in 6 months with an interest rate of 9 ½%?
1. Lucy borrowed P40 000 from a lending firm that charges 6%
per year. How much will she pay the lending firm after 5
years?
2. Mr Alberto expects to have P1 615 200 in his fund at the
end of 12 years. How much will he invest if the interest rate
is 6.25%?
3. Find the number of days from October 15, 2019 to July 11,
2020.
4. Accumulate (or find the maturity value) of P35 000 for 15
months at 24% compounded monthly.
5. If money is worth 7% compounded semi annually, find the
present value of P64 400 due 2 years and 6 months.
6. If money is invested at 6% compounded semi annually, find
the present value of P94 500 in 3 years.