Mathematics in

the Modern
World
Course Material in Mathematics

Jenette C. Pangilinan
Course Instructor
2 MATHEMATICS IN THE MODERN WORLD • NU LAGUNA

MATHEMATICS OF
FINANCE 9
LEARNING OUTCOMES

Here’s what I will teach you in this course material:

LESSON OUTLINE
• Define the key terms used in mathematics of finance.
• Simple Interest • Apply mathematics of finance in problem solving and sound reasoning
using simple and compound interests.
Unit Outline
• Compound • Use technology for problem solving in mathematics of finance using
Interest simple and compound interests.

RESOURCES NEEDED
For this lesson, you would need the following resources:

• Textbook:

• Video:

• Website:
MATHEMATICS IN THE MODERN WORLD • NU 3
LAGUNA

PRE-TEST
Before you start, try answering the following.
Solve each problem below:
1. Find the interest and amount on P800 at 6 ½% simple interest for 5 years.
2. If a principal of P2,500 earns interest of P185 in 3 years and 3 months, what
interest rate is in effect?
3. How long will it take for P8,000 to earn P2,400, if it is invested at 6 ½ %simple
interest?
4. What is the compound amount if Mr. Manny Clavel deposited P150, 000 in a
bank which pays 9% compounded quarterly for 5 years?

Answer:
4 MATHEMATICS IN THE MODERN WORLD • NU LAGUNA

PRE-ACTIVITY
Watch the video in the link below : Simple Interest vs Compound Interest
https://youtu.be/gyiiqUQgEeA

Then answer the following questions:

1. What is simple interest?

2. What is compound interest?
3. How does simple interest works compared to compound interest?
4. Which type of interest will give you better return of investment?
 MATHEMATICS IN THE MODERN WORLD • NU 5
LAGUNA

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
CONTENT AND deposited money to customers to buy cars or make renovations on their

DISCUSSION
homes. The bank pays you for the privilege of using your money. The amount
paid to you is called interest. If you are the one borrowing money from a
bank, the amount you pay for the privilege of using that money is also
called interest.
Interest is the sum of money received or paid for the use of someone else’s
money. For commercial institutions like banks, interest is also paid for the
services rendered. On the other hand, Principal is the original amount
borrowed, deposited or invested. Rate of interest is the percent of the
principal paid per time period. Time is the number of years, months or days.

Example:
Key Point
You deposited P1000 in a savings account with 5% interest per year for 3
years. Here, P1000 is the principal, and the annual interest rate is 5%. Time
is 3 years.
Interest may be overlooked
when the amount borrowed
is very small. However, this
SIMPLE INTEREST
is not the case when
thousands or even millions Simple interest is the interest earned at the end of the allotted time between the
are borrowed or invested. lender and the borrower. The formula is given below:
I = Prt
Simple interest calculates
for the added amount only where: I – simple interest
once for their given time. P- principal
Compound interest involves r- rate of interest
more complex calculation t- time
since, when applicable, it Time can be expressed like this,
calculates interest based on Time t
n years n
previously earned interest
n months n/12
within the time given.
N days n/365, Exact Interest
n/360, Ordinary Interest

Maturity Value is the total amount when the principal is added to the interest.
The formula is,
A=P+I
where: A – future value or the maturity value (amount after the interest)
P – principal
I – Interest
Note: Maturity value is the sum of the principal and the interest on a loan, while
Future value is the sum of the principal and the interest on an investment.
6 MATHEMATICS IN THE MODERN WORLD • NU LAGUNA

Example 1: A man deposited Php 50,000 at 1.25% for 1 year. Find the simple interest and the
future value.

Solution:
I = Prt
I = (Php50,000) (0.0125) (1)
I = Php 625 – simple interest

Then, the future value is

A=P+I
A = Php 50,000 + Php625
A = Php50, 625– the future value

Example 2: Calculate the maturity value of a simple interest, 8-month loan of Php80,000 if the
interest rate is 9.75%.
8
Given: Php 80, 000 – principal, 0.0975- interest, and 12 -time

Solution:
Since A = P + I, then we can substitute Prt for I. Hence, we have,
A=P+I
A = P + (Prt)
A = P (1 + rt)

Finding the maturity value will be,

8
A = Php 80, 000 1+ (0.0975)(12)
A = Php 85, 200 – maturity value

Example 3: How much was borrowed if a simple interest rate of 2.10% was offered payable in 4 months
with interest of Php 35.00?
4
Given: I – Php 35.00, interest rate – 0.0210, t – 4 months; ( )
12
Solution:
I = Prt
𝐼
P=
𝑟𝑡
35.00
P= 4 = Php 5000 – amount borrowed (principal)
(0.0210)( )
12

1
Example 4: How many years will it take Php20,000 to earn Php6, 650 at 9 % simple interest?
2
Given: P – Php 20,000, I- Php 6,650, r – 9.5% or 0.095
Solution:
𝑰
Since I= Prt, then, t = 𝑷𝒓
6,650
t = (20,000)(0.095)
t= 3.5 years
MATHEMATICS IN THE MODERN WORLD • NU 7
LAGUNA

Remember that in the simple interest formula, time t is measured in the same period as the interest
rate. Therefore, if the time period of a loan with an annual interest rate is given in days, it is
necessary to convert the time period of the loan to a fractional part of a year. There are two methods
for converting time from days to years: the exact method and the ordinary method.

Using the exact method, the number of days of the loan is divided by 365, the number of days in a
year.
𝒏𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒅𝒂𝒚𝒔
Exact Method: t =
𝟑𝟔𝟓

The ordinary method is based on there being an average of 30 days in a month and 12 months in a
year (30x12 = 360). Using this method, the number of days of the loan is divided by 360.

𝒏𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒅𝒂𝒚𝒔
Ordinary Method: t =
𝟑𝟔𝟎

Note: The ordinary method is used by most businesses. Therefore, unless otherwise stated, the
ordinary method will be used.

Example 5: Calculate the simple interest due on a 45-day loan of Php35,000 if the annual interest
rate is 8%.
45
Given: P- Php 35,000, r – 0.08, t – 45 days (360)
Solution:
I = Prt
45
I = (Php 35,000)(0.08)( 360)
I = Php 350
The simple interest is Php 350.

Example 6: The simple interest charged on a 6-month loan of Php30,000 is Php1500. Find the
simple interest rate.
6
Given: P- Php 30,000, I- Php 1500, t =
12
Solution:
𝑰
Since I= Prt, then r =
𝑷𝒕

1500
r= 6
(30,000)(12)
r = 0.1 or 10%

COMPOUND INTEREST

Compound interest is the interest earned on previously earned interest added to the principal. It is
an interest calculated not only on the original principal, but also on any interest that has already
been earned. For compound interest, present value will be used instead of principal.
8 MATHEMATICS IN THE MODERN WORLD • NU LAGUNA

COMPOUND AMOUNT

Compound amount is the sum of the principal and the interest.

Example 1: Find the compound amount and interest if P15,000 is invested at an interest rate of
9% compounded annually for 3 years.
Solution:
-the term “compounded annually” means that the interest earned for 1 year is added to the
principal to earn additional interest for the next year.

The original principal is P15,000.

Interest for year 1: P15,000 (0.09) = P1,350
Amount at the end of 1 year: P15,000 + P1,350 = P16,350.
Interest for year 2: P16,350(0.09) = P1,471.50
Amount at the end of 2 years: P16,350 + P1,471.50 = P17, 821.50
Interest for year 3: P17, 821.50 (0.09)= P1,603.935
The amount at the end of 3 years: P17,821.50 + P1,603.935 = P19,425.44

Therefore, the compound amount in 3 years is P19, 425.44, and the compound interest is,
P19,425.44 – P 15,000 = P 4,425.44

If the earning is at a simple interest rate of 9% for 3 years, the interest earned is only
P15,000(.09) (3) = P4,050 or the interest of P1,350 each year.

Note: The principal earns more interest at the rate of compound interest than at simple interest
if invested for a period of more than one year.

Compound amount formula:

𝑟
𝐴 = 𝑃 (1 + 𝑛)𝑛𝑡

where: A – the compound amount

P – amount of money deposited
r- annual interest rate
n-number of compounding periods per year
t- number of years

For the values of n (number of compounding periods per

year), refer to the table on the right.
MATHEMATICS IN THE MODERN WORLD • NU 9
LAGUNA

Example 2: Find the compound amount if Php10,000 is invested at 9% compounded

semiannually for 4 years.
Given: P = Php10,000, r – 0.09, n- 2 (semiannually), t- 4

Solution:
0.09
A = 10,000 (1 + 2 )2𝑥4
A= P14,221.00613  Php 14, 221.01

Therefore, the compound amount is Php 14, 221.01.

Example 3: Calculate the future value of Php5000 earning 9% interest, compounded daily, for 3
years.
Given: P- Php 5000, r – 0.09, n = 360, t = 3

Solution:
𝑟
𝐴 = 𝑃 (1 + )𝑛𝑡
𝑛
0.09 360𝑥3
A = 5000 (1 + )
360
A = 6,549. 601  Php 6,549.60

PRESENT VALUE

The present value of an investment is the original principal invested, or the value of the
investment before it earns any interest. Therefore, it is the principal, P, in the compound
amount formula.
Present value is used to determine how much money must be invested today in order for an
investment to have a specific value at a future date.

Present Value Formula:

𝐴
P= 𝑟
(1+ 𝑛)𝑛𝑡

where: P- the original principal invested

A- compound amount
r- annual interest rate
n- number of compounding periods per year
t – number of years

Example 1: How much money should be invested in an account that earns 8% interest,
compounded quarterly, in order to have Php30,000 in 5 years?
Given: A – Php 30,000, r – 0.08, n- 4, t – 5
10 MATHEMATICS IN THE MODERN WORLD • NU LAGUNA

Solution:
𝐴
P= 𝑟
(1+ 𝑛)𝑛𝑡
30,000
P= 0.08 4𝑥5
(1+ )
4
P = Php 20, 189. 1399 Php 20,189.14

Example 2: Find the present value of P50,000 due at the end of 7 years if interest is
computed at 15% compounded semi-annually.
Solution:
𝐴
P= 𝑟
(1+ 𝑛)𝑛𝑡
50,000
P= 0.15 14
(1+ )
2
P = Php 18,165. 67
MATHEMATICS IN THE MODERN WORLD • NU 11
LAGUNA

HISTORICAL NOTE

CRITICAL THINKING

CRITICAL THINKING
Answer the following:

1. How many moths will it take Php 15, 000

to earn Php 56. 25 at 1.5% simple interest
rate?

2. If the time is unknown, derive the formula

for t using the present value formula.
 12 MATHEMATICS IN THE MODERN WORLD • NU LAGUNA

ASSESSMENT ACTIVITY
Direction: Answer the following problems.
1. If a principal of P2,500 earns interest of P185 in 3 years and 3 months, what
interest rate is in effect?
2. The loan of Php 11,350 is to be repaid in 1 year at 4.5% simple interest. How
much is added to the loan?
3. $10,000 is deposited for 2 years in an account earning 8% interest.
a. Calculate the interest earned if interest is compounded semiannually.
b. Calculate the interest earned if interest is compounded quarterly.
c. How much more interest is earned on the account when the interest is
compounded quarterly?

Answer:
MATHEMATICS IN THE MODERN WORLD • NU 13
LAGUNA

POSTTEST
Direction: Answer the following.
1. Accumulate P12,000 at 2 ½ % simple interest for 8 months.
2. Calculate the maturity value of a simple interest, 10-month loan of Php6,600 if the
interest rate is 9.75%.
3. Calculate the simple interest due on a 45-day loan of Php1600 if the interest rate is
9%.
4. Calculate the compound amount when Php8000 is deposited in an account earning
8% interest, compounded quarterly, for 5 years.
5. How much money should be invested in an account that earns 6% interest,
compounded monthly, in order to have Php150,000 in 5 years?

Answer:
14 MATHEMATICS IN THE MODERN WORLD • NU LAGUNA

ONLINE RESOURCES

VIDEO:
Simple Interest vs Compound Interest: https://youtu.be/gyiiqUQgEeA

REFERENCES

Auffman, R., Lockwood, J., Nation, R., Clegg, D. (2018) Mathematical Excursions (4th ed).
Brooks/Cole, Cengage Learning
Auffman, R., Lockwood, J., Nation, R., Clegg, D. (2013) Mathematical Excursions (3rd ed).
Brooks/Cole, Cengage Learning
A Course Module for Mathematics in the Modern World (2019). Quezon City: Rex Bookstore,
Inc.