General Mathematics/Business Mathematics

Lesson 1: Simple and Compound Interest

Business Mathematics
This subject is designed to introduce and reinforce the essential mathematics skills
needed to understand, analyze and solve mathematical problems related to business and
economics.
It introduces you to mathematical techniques used to solve finance problems involving
simple and compound interest, simple and general annuities, stocks, bonds and loans.
Principal P
 An amount of money that is invested, lent or borrowed
 The base in which interest is computed
Term t (time)
 Unit of time for which the principal is loaned
 Length of time the principal is borrowed
i. Ordinary time (Bankers’ Rule)
 Based on 30-day month computation (360 days)
ii. Exact time
 Based on the exact number of inclusive dates of the transaction (365 days)
Interest I
 Charge for the privilege of borrowing money
 The amount paid for the use of another amount of money
 Amount of ownership a stockholder has in a company usually express as a
Percentage
Interest Rate r (%)
 The percent of principal charged by the lender for the use of its money
 The multiplier expressed as a percent of the principal to be paid each term.
Simple Interest Is
The amount earned for one year is calculated by multiplying the principal by the
interest rate.
Compound Interest Ic
The amount earned for one year is calculated by multiplying the principal by the
interest rate however in compound interest, the interest earned is added to the
principal to become the new principal which this new principal will use as basis in
computing for another interest.
Maturity Value A
 The sum of the principal and the interest that accumulates over the agreed term

Lender or Creditor
Person (or institution) who invests the money or makes funds available.
The one who sells on credit or makes a loan
Borrower or Debtor
Person (or institution) who owes the money or avails of the funds from the lender
Anyone who buys on credit or receives a loan
Origin or Loan Date
Date on which money is received by the borrower
Repayment Date or Maturity Date
Date on which the money borrowed or loan is to be completely repaid
Promissory Note
A legal written statement issued by a person who owes a certain amount from
another person or company
Consigner
 Person responsible for payment of the note if borrower or debtor does not pay as
promised.

Illustrative Example:
Simple Interest: Is = P r t
A. Complete the table
Principal P Rate r Term t Simple Interest Is Maturity Value A
10,000 Php 8% 15 yr (1) (2)
(3) 2% 5 yr $ 10,000 (4)
360, 000 Php (5) 11 mo 3,600 Php (6)
€ 500, 000 10.5% (7) €175,500 (8)
£ 880,000 9.25% 2.5 yr (9) (10)
B. Word Problem
1. A dollar investment of $1,200 is transacted for 5 months at 6%.
Find the: a. interest b. maturity value
2. An amount of Php. 1,000,000 is invested in a financial institution.
a. How long will it take for the amount to reach Php. 1,001,000 at 2% simple interest?
b. At what interest rate will it earn Php. 1,000 in 10 months?
3. An amount of money is invested by Mr. Roosvelt Humperdink in Petrol Corporation on
 June 24, 2017, with an interest rate of 2.3% and earned up to Php 165, 600 for 10 years?
What is the principal amount invested? Find the maturity value.
Exercises:
1. Mr. Rolando Ercillo borrowed 240,000 Php in Banko de
Mesa for 5 years at 6%. He received the borrowed money
July 18, 2016.
Find: a. interest b. maturity value

2. Mrs. Josefina Mendiola invested 90,000 Php in Pro-Life,

a
financial institution last February 8, 2017.
a. How long will it take for the amount to reach
95,000 Php at 4.5% simple interest?
 b. At what interest rate will it earn 102,000 Php in
2 years.
Performance Task:
1. Mr. Gorgonio Jacinto on April 10, 2018 receives a loan
amounting to 80,000 Php for 4 years at 7% from 567 Lending.
Find:a. interest b. maturity value
2. March 28, 2016, an amount of 300,000 Php is deposited by Mr.
Rogelio in a Lingap Cooperative.
a. How long will it take for the amount to reach 306,000 Php at
2% simple interest?
b. At what interest rate will it earn Php 20,000 in 2 years and 6
months.
3. What is the amount of money borrowed by Ms. Bilmoco from
Northeast Bank last October 30, 2022, in 7.3% interest rate, if in 5
years it will be charged 36,500 Php? What will be the value of the
money she borrowed by October 30, 2027?
Written Output:
1. Find the a. simple interest and b. maturity value.
1.1. 780,000 Php at 4% for 13 years
1.2. 186,000 Php at 5% for 7 years
2. Mrs. Cherry Samsung deposited an amount of 758,000 Php
last May 2, 2016, in the Bank of Commerce.
a. How long will it take for the amount to reach 770,000 Php
at 3.4% simple interest?
b. At what interest rate will it earn 20,000 Php in 8 months?
3. Today, Mr. Bartolomeo will invest an amount of money in
JCO Builders that in 10 years’ time will increase by 22,500
Php in an interest rate of 9%. How much money he will invest
and what will be the value of that money after the agreed
term?

3. An amount of money is invested by Ms. Gleciria Palomo in

Petrol Corporation on June 24, 2017 with an interest rate of
2.3% and grows up to Php 165, 600 for 10 years? What is the
principal amount invested? Find the maturity value.
Exercises:
Simple Interest: Is = P r t
A. Complete the table.
Principal P Rate r Term t Simple Interest Is Maturity Value A
80,000 Php 5% 4 yr (1) (2)
(3) 7.2% 12 yr $ 518,400 (4)
123, 000 Php (5) 9 mo 13,837.50 Php (6)
€ 350,500 12.6% (7) € 353,304 (8)
£ 42,350 8.35% 3.42 yr (9) (10)
Performance Task:
A. Complete the table.
Principal P Rate r Term t Simple Interest Is Maturity Value A

250,000 Php .9 % 6 yr (1) (2)

(3) 15 % 2.5 yr $ 24, 562. 50 (4)
1, 250, 350 Php (5) 7 mo 3, 646. 85 Php (6)
€ 570, 438 4.2 % (7) € 76, 666. 87 (8)
£ 12, 999 2.5 % 5 yr (9) (10)
1. Mr. Gorgonio Jacinto on April 10, 2018, received a loan amounting to 80,000 Php for
4 years at 7% from 567 Lending.
Find: a. interest b. maturity value
2. On March 28, 2016, an amount of 300,000 Php was deposited by Mr. Rogelio in a
Lingap Cooperative.
a. How long will it take for the amount to reach 306,000 Php at 2% simple interest?
b. At what interest rate will it earn Php 20,000 in 2 years and 6 months?
3. What is the amount of money borrowed by Ms. Bilmoco from Northeast Bank last
October 30, 2022, at a 7.3% interest rate, if in 5 years it will be charged 36,500 Php?
What will be the value of the money she borrowed by October 30, 2027?
Written Output:
A. Complete the table.
Principal P Rate r Term t Simple Interest Is Maturity Value A

50,000 Php 6% 3 yr (1) (2)

(3) .3 % 5.2 yr $ 3, 900 (4)
2, 550, 450 Php (5) 8 mo 204, 036 Php (6)
€ 350, 500 6.8 % (7) € 238, 340 (8)
£ 699, 250 12 % 4 yr (9) (10)
Written Output:
1. Complete the table.
Principal P Rate r Term t Simple Interest Is Maturity Value A
(1) .3 % 5.2 yr $ 3, 900 (2)
2, 550, 450 Php (3) 8 mo 204, 036 Php (4)
€ 350, 500 6.8 % (5) € 238, 340 (6)
2. Mrs. Cherry Samsung deposited 758,000 Php last May 2, 2016, in the
Bank of Commerce.
a. How long will it take for the amount to reach 770,000 Php at 3.4%
simple interest?
b. At what interest rate will it earn 20,000 Php in 8 months?
3. Today, Mr. Bartolomeo will invest an amount of money in JCO
Builders that in 10 years will increase by 22,500 Php at an interest rate of
9%. How much money he will invest and what will be the value of that
money after the agreed term?