MATHEMATICS OF

FINANCE
MATHEMATICS IN THE MODERN WORLD - FINALS
 SIMPLE INTEREST VS. COMPOUND
INTEREST – a charged for a borrowed INTEREST
money, generally a percentage of the amount borrowed.
SIMPLE INTEREST – based on the principal amount of a loan or the first deposit in a savings
account. A creditor will only pay interest on the principal amount and a borrower would never have to
pay more interest in the previously accumulated interest.
FORMULAS:
 SIMPLE INTEREST VS. COMPOUND
INTEREST
Where:
= simple interest
= principal amount
= rate of interest
= time
= future value or maturity value

NOTE:
Approximate Time/ Banker’s Rule – 360 days
Exact Time – 365 days
Dana deposited ₱ 7,000 in a rural bank at 5%
simple interest for 3 years. How much will she
earn after 3 years?
Given: Sol:
P = ₱ 7,000
r = 5% = 0.05
t = 3yrs.
 Erica borrowed ₱ 12,500 from her friend Aira.
She promised to pay it after 6 months at 3%
interest. How much will she pay after 6 months?
Given: Sol:
P = ₱ 12,500
r = 3% = 0.03
t = 6mos./12mos. = 0.5yr
If Mrs. De Vera borrowed ₱ 57,500 from a bank
at 9.5% simple interest, how much will she pay
at the end of 18 months?
Given: Sol:
P = ₱ 57,500
r = 9.5% = 0.095
t = 18mos./12mos. = 1.5yrs
Mr. Calma paid ₱ 4,800 interest on 10.5% for
2564 days (exact time) loan. What was the
original loan?
Given: Sol:
= ₱ 4,800
r = 10.5% = 0.105
t = 2564 days/365 days = 7.02yrs
 DMC Trading borrowed php100,000 from a
certain bank. If the bank charged php6,800
interest for the use of its money for the period of
915 days (approximate time), what was the
interest rate?
Given: Sol:
P = ₱ 100,000
= ₱ 6,800
t = 915 days/360 days = 2.54yrs
How many years will it take for ₱ 25,000 to earn
₱ 1,250 if it is invested at 8% simple interest?
Given: Sol:
P = ₱ 25,000
= ₱ 1,250
r = 8% = 0.08
How much was borrowed if the interest at 4%
after 15 months is ₱ 1,055?
Given: Sol:
= ₱ 1,055
r = 4% = 0.04
t = 15 mos./12 mos. = 1.25 yrs.
 Activity #1: Simple Interest
Direction: Complete the table below. Show your COMPLETE SOLUTIONS. (5pts each)

PRINCIPAL RATE TIME SIMPLE FUTURE VALUE

(1) 13.05% (2) ₱7, 019.25 ₱26, 794.01

₱146, 126.55 (3) 5.5 yrs ₱50,231 (4)

₱92, 433.88 5.15% 4590 days (Approximate (5) (6)

₱65, 942.73 (9) 10.5 yrs (10) ₱111, 294.84

(11) 4.95% 5110 days (Exact Time) (12) ₱131, 217.07

COMPOUNDING
TABLE Compounding/ Conversion Number of Conversions per Year
Frequency
Annually 1
Semiannually 2
Quarterly 4
Bimonthly 6
Monthly 12
Daily 360 or 365
FORMULAS:

Where:
= compound interest
= maturity/ future value
= principal amount
= nominal interest rate
= time/ term of loan or investment
= total number of conversion periods
= number of conversions per year
= rate per conversion period
Find the compound interest on ₱ 11,855 for 5
years at 7% compounded quarterly.
Given: Sol:
P = ₱ 11,855
= 7% = 0.07
t = 5yrs.
m=4
n = tm = (5)(4) = 20
i = = = 0.0175
 Nate and Zion deposited ₱ 23,650 in a savings
account at 13%. If interest is compounded
monthly, what will be the amount of their deposit
at the end of 8 years?
Given: Sol:
P = ₱ 23,650
= 13% = 0.13
t = 8yrs.
m = 12
n = tm = (8)(12) = 96
i = = = 0.010833333
In what amount must be invested right now in a
savings account earnings 17% compounded
semiannually to accumulate a total of ₱
306,196.75 after 5312 days (approximate time)?
Given: Sol:
F = ₱ 306,196.75
= 17% = 0.17
t = 5312 days/360 = 14.76yrs 549.56244
m=2
n = tm = (14.76)(2) = 29.52
i = = = 0.085
 The future value of a nine- year ₱ 7,435
compound interest investment certificate was ₱
235,140. What bimonthly compounded nominal
interest rate did the investment certificate earn?
Given: Sol:
F = ₱ 235,140
= ₱ 7,435
t = 9yrs
m=6
n = tm = (9)(6) = 54
 How long does it take if a future value of
₱341,009 and a present value of ₱18,135 is
invested at 4.5% compounded annually?
Given: Sol:
F = ₱ 341,009
= ₱ 18,135
j = 4.5% = 0.045
m=1
i = = = 0.045
 Activity #2: Compound Interest
Direction: Solve the given word problem. Show your complete solution. (5pts each)
1. Mr. Silvestre invested an amount of ₱ 369, 450 where he obtained an interest of ₱ 19, 760 at the end of
years. At what nominal rate compounded quarterly was it invested?
2. Sheiglyn deposited an amount of ₱ 179, 880 at 9.5% compounded monthly. How long would she let the
investment stay if she wants to earn ₱ 1, 045, 500?
3. In what amount must be invested right now in a savings account earnings 15% compounded
semiannually to accumulate a total of ₱ 475, 865 after years?
4. The future value of a seventeen year ₱ 13, 425 compound interest investment certificate was ₱ 246, 857.
What bimonthly compounded nominal interest rate did the investment certificate earn?
5. Solve for the compound interest earned at the end of 9.5 years if ₱ 27, 865.35 is invested at 14%
compounded monthly.
6. What will be the future value of ₱ 26, 325 invested for 17 months at 13.75% compounded bimonthly?
7. Find the compound interest earned at the end of 16 years if ₱ 39, 479.75 is invested at 7.5%
compounded every three months.