ATHE

ATICS
F
NVEST
ENTS
ita Ross
pinas. Ramil
Course Topics

Part I Interest

Simple Interest

The Simple Interest Formula

Time Between Dates

Accumulating and Discounting

The Simple Discount Formula

Equivalent Rates

Promissory Notes

Compound Interest

Part II Annuity

Part III Depreciation

Part IV Bonds

1
 PART I - INTEREST

WHAT IS INTEREST?
Interest is the money paid for the use of the used money.

There are two kinds of Interest:

Simple Interest Compound Interest

The interest paid on the principal When simple interest that is due is
(money lent) only is called simple not paid, the amount is added to the
interest. interest-bearing principal. The
interest calculated on this new
principal is called the compound
interest.

Topic 1.1 Simple Interest Formula

Formula: When interest is added to Formula:

I=Prt the principal at the end of I=Prt
the stipulated time, the F=P+I
where; total sum is called Future F=P+Prt
I - Simple Interest Amount (F). F = P (1 + r t)
P - Principal
r - rate of interest Formula: F
P=
t - length of time 1+ rt
F=P+I

Example:

1. Venus deposited P5,000 in a bank at 6.5% simple interest for 2 years. How
much will she earn after 2 years, assuming that no withdrawals were made?
Given: I=Prt
P = P5,000 I = (5,000)(0.065)(2)
r = 6.5% or 0.065 I = P650.00
t = 2 years
I=?

2. Christian invested P30,000 in the stock market which guaranteed an

2
 interest of P6,500 after 3 years. At what rate would her investment
earn?
Given:

P = p30,000 I=Prt I
r=
Pt
r=? I Prt
= r = 6,500 / 3,000 (3)
Pt Pt
t = 3 years
I r = 0.0622 or 6.22%
I = P6,500 r=
Pt

3. Lina borrowed P10,000 from a bank charging 12% simple interest with a
promise that she would pay the principal and interest at the end of the
agreed term. If she paid P4,500 at the end of the specified term, how
long did she use the money?
Given:

P = P10,000 I=Prt I
t=
Pr
r = 12% or 0.12 I Pr t
Pr
= Pr 4,500
t=? t=
10,000(0.12)
I
I = P4,500 t= t = 3.75 years
Pr

4. Rachelle paid P7,400 interest at 14.5% for a four-year loan. What was
the original loan?
Given:

P=? I=Prt I
P=
rt
r = 14.5% or 0.145 I P rt
rt
= rt 7,400
t = 4 years P=
(0.145)( 4)
I
I = P7,400 P = rt P = P12,758.62

5. Vincent borrowed P35,000 from a bank at 12.5% simple interest for 5

years. How much will he pay the bank after 5 years?
Given:

3
P = P35,000 I=Prt F=P+I
r = 12.5% or 0.125 I = (35,000)(0.125)(5) F = 35,000 + 21,875
t = 5 years I = P 21,875.00 F =P 56, 875.00
I=?
F=?

6. If Rose borrowed p42,000 from a bank at 10.5% simple interest, how

much will she pay at the end of 15 months?
Given:
P = P42,000 F = P (1 + r t)
r = 10.5% or 0.105 F = (42,000) [ 1 + (0.105) (1.25)]
t = 15 mos or 1.25 years F = (42,000) [1 + (0.13125)]
F=? F = P47,512.50

7. The total amount paid on a loan is P84,000. If the loan was for 2 years
at 9% simple interest, what was the original loan?
Given:
P=? F = P (1 + r t) F
P=
r = 9% or 0.09 F (1+rt )
P (1+ rt)
= 84,000
t = 2 years (1+rt ) (1+ rt)
P=
[1+ ( 0.09 ) ( 2 ) ]
F = P84,000
F P = 84,000
P= ¿¿
(1+rt )
84,000
P=
1.18
P = P71,186.44

4
Topic 1.2 Times Between Dates

Actual Time Approximate Time

The exact count of time within a The assumption that a month consist
certain period. of exactly 30 days.
Example: Example:
January 2020 - 31 days January 2020 – 30 days
February 2020 – 29 days February 2020 - 30 days
March 2020 – 31 days March 2020 – 30 days
April 2020 – 30 days April 2020 – 30 days
May 2020 – 31 days May 2020 – 30 days

Example

1. Determine the number of days from September 16, 2007 to November 25,
2007. Use actual time and approximate time.
Actual Time Approximate Time
September - 14 September - 14
October - 31 October - 30
November - 25 November - 25
70 days 69 days

2. Determine the number of days from January 22, 2008 to May 8, 2008.
Use actual time and approximate time.
Actual Time Approximate Time
January - 9 January - 8
February - 29 February - 30
March - 31 March - 30
April - 30 April - 30
May - 8 May - 8
107 days 106 days

Exact Interest (Ie) Ordinary Time (Io)

Length of time is equal to the time Length of time is equal to the time
(either actual or approximate) over 365 (either actual or approximate) over 360
days in a year days in a year?
actual time approximate time actual time approximate time
t= t= t= t=
365 days 365 days 360 days 360 days
Banker’s rule

1. On March 23, 2007, Mary Ann applied for a P48,000 loan at 9.5% simple
interest. She promised to pay on July 12, 2007. Compute the interest of the

5
 loan using:
a. Actual time, exact interest
b. Approximate time, exact interest
c. Actual time, ordinary interest
d. Approximate time, ordinary interest
Actual Time Approximate Time
March - 8 March - 7
April - 30 April - 30
May - 31 May - 30
June - 30 June - 30
July - 12 July - 12
111 days 109 days

a. Actual time, exact interest

Ie = P r t
111
Ie = (48,000)(0.095)( )
365
Ie = P1,386.74

b. Approximate time, exact interest

Ie = P r t
109
Ie = (48,000)(0.095)( )
365
Ie = P1,361.75

c. Actual time, ordinary interest

Io = P r t
111
Io = (48,000)(0.095)( )
360
Io = P1,406.00 Banker’s Rule

d. Approximate time, ordinary interest

Io = P r t
109
Io = (48,000)(0.095)( )
360
Io = P1,360.67

2. Find the ordinary and exact interests on a P230,000 loan at 16% from April
12, 2007 to August 8, 2007. Use the following:
a. Actual time, exact interest
b. Approximate time, exact interest

6
 c. Actual time, ordinary interest
d. Approximate time, ordinary interest
Actual Time Approximate Time
April - 18 April - 18
May - 31 May - 30
June - 30 June - 30
July - 31 July - 30
August - 8 August - 8
118 days 116 days

a. Actual time, exact interest

Ie = P r t
118
Ie = (230,000)(0.16)( )
365
Ie = P11, 896.99

b. Approximate time, exact interest

Ie = P r t
116
Ie = (230,000)(0.16)( )
365
Ie = P11,695.34

c. Actual time, ordinary interest

Io = P r t
118
Io = (230,000)(0.16)( )
360
Io = P12, 062.22 Banker’s Rule

d. Approximate time, ordinary interest

Io = P r t
106
Io = (48,000)(0.095)( )
360
Io = P11,857.78

7
Topic 1.3 Accumulating and Discounting

The Principal (or present value) P, or the sum of money on the origin date is said
to accumulate to the value of the amount, F, at the end of t years. Likewise, the
amount F, is discounted to the present value, P.

Accumulating Discounting
To “accumulate” is to find the To “discount” is to find the present
amount, F. value, P.
Example

1. Accumulate P75,000 at 8% simple interest for 15 years.

Given:
P = P75,000 F = P (1 +r t) I=Prt
r = 8% or 0.08 F = 75,000 [1 + (0.08)(15)] I = (75,000)(0.08)(15)
t = 15 years F = 75,000 [1 +(1.12)] I = P90,000.00
F =? F = 75,000 (2.12)
F = P165,000 F=P+I
F = 75,000 + 90,000
F = P165,000

2. Compute for the amount if P24,000 is in at 9.5% for 5 years.

Given:
P = P24,000 F = P (1 = r t)
r = 9.5% or 0.09 F = 24,000 [1 +(0.09)(5)]
t = 5 years F = 24,000 [1 +(0.475)]
F=? F = 24,000 (1.475)
F = P35,400.00

8
 3. If the money is worth 12% simple interest, what must be invested now to

P69,000 at the end of 4.5 years?

Given:
P=? P= F
¿¿
r = 12% or 0.12
t = 4.5 years P = 69,000
¿¿
F = P69,000 69,000
P=
1.075
P = P41,860.47

4. What is the present value of P45,000 at 11.25% simple interest at the

end of 240 days?

Given:
P=? P= F
¿¿
r = 11.25% or 0.1125
t = 240 days P = 45,000
¿¿
F = P45,000
45 , 000
P=
1.54

P = P44,805.19

9
Topic 1.4 – The Simple Discount Formula

As mentioned earlier, the phrase “to discount” is to compute for the present
value, P, of a given amount, F.

I=F–P

I is called the interest in advance. In borrowing money, interest is charged for the
use of money. When deducted in advance, this interest is referred to as simple
discount.

Simple Interest Formula: I=Fdt

I I I
d= t= F=
Ft Fd dt

I=F–P P=F-I
I=Fdt P=F–Fdt
factoring P = F (1 – d t) Proceeds Formula
finding for F p Maturity Value
F=
1−d t Formula

Comparison of Simple Interest and Simple Discount Formula

Simple Interest Formula Simple Discount Formula

Simple Interest I=Prt Simple Discount I=Fdt
Principal F Proceeds P = F (1 – d t)
P=
1+ r t
Amount F = P (1 + r t) Maturity Value P
F=
1−d t

10
 1. Discount P25,000 for 3 years and 6 months at 10% simple discount.
Given: P = F (1 – r t)
F = P25,000 P = 25,000 [1 – (0.10) (3.5)]
d = 10% or 0.10 P = 25,000 [1 – (0.35)]
t = 2.5 years P = 25,000 (0.65)
P=? P = P16,250.00 proceeds

2. If P12,300 is due at the end of five years at 8% simple discount, find the
proceeds and simple discount.
Given:
F = P12,300 P = F (1 – r t) I=F–P
d = 8% or 0.08 P = 12,300 [1 – (0.08) (5)] I = 12,300 – 7,380
t = 5 years P = 12,300 [1 – (0.4)] I = P4,920.00
P=? P = 12,300 (0.6) simple discount
I=? P = P7,380.00 proceeds

3. On April 2, Mr. Crisostomo received P65,000 from a credit union and

promised to pay P68,000 on October 2 on the same year. If interest was
deducted in advance, what was the discount rate?
Given:
F = P68,000 I=F–P I
d=
P = P65,000 I = 68,000 – 65,000 Ft
t = 5 months I = P3,000 3,000
d=
I=? 68,000(0.5)
d=? d = 8.82%

4. Mr. Rodriguez wishes to have P100,000 payable in 5 years. What sum

should be borrowed now if the discount rate is at 18%
Given:
F = P100,000 P = F (1 – d t)
d = 18% or 0.18 P = 100,000 [1 – (0.18) (5)]
t = 5 years P = 100,000 [1 – (0.9)]
P=? P = 100,000 (0.1)
P = P10,000

11
Topic 1.5 – Equivalent Rates

Two rates are equivalent for the same present value, P, they yield the same
maturity value, F, at the end of the term.

At simple interest rate, r, At simple discount rate, d,

F = P (1 + r t) P
F = 1−d t

Since,
F=F

P
P (1 = r t) =
1−d t

Transforming the variables and solving for the r and d, we have,

d
r=
1−d t

r
d=
1+ r t

The relationship between the simple interest rate and simple discount is called
the equivalent rates.
Example

1. A bank discounts a P160,000 loan due in 3 years at 10% simple

discount. Find the equivalent simple interest rate.
Given: d
r=
F = P160,000 1−d t
0.10
d = 10% or 0.10 r=
1−( 0.10)(3)
t = 3 years 0.10
r=
r=? 1−( 0.3)
0.10
r=
0.7
r = 0.143 or 14.3%

12
 2. Find the simple discount rate equivalent to 15% simple interest for 240
days.
Given: r
d=
d=? 1+ r t
0.15
t = 240 days d= 240
1+(0.15)( )
r = 15% or 0.15 360
0.15
d=
1+(0.15)(0.67)
0.15 0.15
d= =
1+(0.15)(0.67) 1.1
d = 0.136 or 13.6%

3. How many months will it take for P300,000 to grow to P350,000 at:
a. 12.5% simple interest
b. 12.5% simple discount
Given: I I
t= t=
P = P300,000 Pr Fd
F = P350,000 50,000 50,000
t= t=
r = 12.5% or 0.125 300,000(0.125) 350,000(0.125)
d = 12.5% or 0.125 12months 12months
t = 1.33 years ( ) t = 1.12 years ( )
I = P50,000 1 year 1 year
t = 16 months t = 13.7 months

4. If P10,000 accumulates P12,500 for 9 months, find:

a. The simple interest rate
b. The simple discount rate
Given: I I
r= d=
P = P10,000 Pt Ft
F = P12,500 2,500 2,500
t = 9 months r= 9 r= 9
10,000( ) 12,500( )
I = P2,500 12 12
r=? 2,500 2,500
r= r=
d=? 7,500 9,375
r = 33.33% r = 26.67%

13
Topic 1.6 – Promissory Notes

A Promissory Note is a written promise on the part of the borrower to pay

another person his financial obligation.

It includes the agreed interest or discount rate and term.

There are two types of Promissory Notes:

Simple Interest Note Bank Discount Note
It is a promissory note where the It is an often-used promissory note
principal, P, is explicitly written. It is where the maturity value, F, is
better referred to as the face value of explicitly written. It is the amount
the loan. The total amount to be paid by the borrower. The interest is
repaid on the maturity date is the computed on this amount and
maturity value, F. deducted in advance. The sum of
money received by the maker is called
proceeds, P.

Simple Interest Note

P 100,000 Manila, Philippines June 29, 2008

One hundred twenty days after the above date, the undersigned to pay to
the order of Rodolfo Dizon the sum of one hundred thousand pesos only
(P100,000) with interest at 16% per annum payable at NorthEast Banking
Corporation, Manila

Signed: Kevin Laserna

The maker of the note is Kevin Laserna.

The payee is Rodolfo Dizon.
The face value of the simple interest note is P100,000.
The simple interest rate is 16%.
The term f the simple interest note is 120 days.
The origin date of the term is June 29, 2008.

Finding the Maturity Date after 120 days:

14
June - 1
July - 31
August - 31
September - 30
October - 27
120 days
The maturity date of the term is on October 27, 2008.

Finding the interest to be paid:

I=Prt

120
I = (100,000) (0.16) ( ¿
360

I = P5,333.33
The interest to be paid is P5,333.33.

Finding the maturity value:

F=P+I

F = 100,000 + 5,333.33

F = P105,333.33
The maturity value is P105,333.33.

15
Bank Discount Note
The maker of the note is Remedios Mutuc.

P 150,000 Manila, Philippines March 23,

2008
One hundred fifty days after the above date, for the value received with
interet at 9% per annum discounted to maturity, the undersigned promises to
pay to the order op Manila Finance, the sum of one hundred and fifty thousand
pesos only (p150,000.00) payable at Manila, Finance.

Signed: Remedios Mutuc

The payee is Manila Finance.

The face value of the simple interest note is P150,000.

The simple interest rate is 9%.

The term f the simple interest note is 150 days.

The origin date of the term is March 23, 2008.

16
Finding the Maturity Date after 150 days:
March - 8

April - 30

May - 31

June - 30

July - 31

August - 8

150 days
The maturity date of the term is on August 20, 2008.

Finding the interest to be deducted in advance:

I=Fdt

150
I = (150,000) (0.09) ( ¿
360

I = P5,625.00
The interest to be deducted in advance is P5,625.00.

Finding for the proceeds:

P = F -I

P = 150,000 – 5,625

P = P144,375.00
The proceeds is P144,375.00.

17
Example

1. The maturity value of a six-month simple interest note was P33,000. If

the interest rate as 18% per year, what is the face value of the note?
Given: F
P=
1+ r t
r = 18% or 0.18
33,000
t = 6 months P= 6
1+(0.18)( )
12
F = P33,000
33,000
P=? P=
1.09

P = P30,275.23

2. A simple interest notes for P80,000 at 16% per annum was signed for

102 days. Find the maturity value

Given: F = P (1 + r t)

r = 16% or 0.16 102

F = 80,000 [1 + (0.16) ( ¿]
360
t = 102 days
F = 80,000 [1 + 0.045)
P = P80,000
F = 80,000 (1.045)
F=?
F = P83, 626.67.

18
 3. Rizza signed a P62,000 bank discount note at 10%. If the proceeds was

P60,000, what was the term of the note?

Given: I
t=
Fd
F = P62,000
2,000
d = 10% or 0.10 t=
(62,000)(0.10)

P = P60,000 2,000
t=
6,200
I = P2,000
t = 0.323 years or 3.87 years
t=?

4. A bank discount note for P80,000 at 8% has a term of 9 months. Find

the interest charged in advance and the proceeds.

Given: I=Fdt

d = 8% or 0.08 9
I = 80,000 (0.08) ( )
12
t = 9 months
I = P4,800.00
F = P80,000

I=?
P=F–I
P=?
P = 80,000 – 4,800

P = P75,200.00

19
Topic 2.1 – Compound Interest Formula

n Compound Amount Formula

F = P (1 + i)
-n Compound Present Value Formula
P = F (1 + i)

Where:
F - Compound Amount
j
i= P - Present Value
m
i - Rate of Interest
n – Number of Periods
n = tm
j – Nominal Rates
m – Frequency of Conversion
t – Time in Years

n
(1 + i) Accumulation Factor
-n
(1 + i) Discount Factor

Interest can be compounded: Example, “an investment of 16%

a. Annually m=1 compounded quarterly for 5

b. Semiannually m=2 years.”

c. Quarterly m=4 j 0.16

i= = = 0.04
m 4
d. Monthly m = 12
n = tm = (5)(4) = 20

20
Example

1. Find the compound amount if P50,000 is invested at 8% compounded

quarterly.
Given: j 0.08
i=
m
= 4
= 0.02
P = P50,000
j = 8% n = tm = 4(4) = 16
n
m=4 F = P (1 + i)
t = 4 years F = 50,000 (1 +0.02)16
F=? F = P68,639.29

2. Accumulate P12,000 at 9% compounded semiannually for 2 years.

Given: j 0.09
i=
m
= 2
= 0.045
P = P12,000
j = 9% n = tm = 2(2) = 4
n
m=2 F = P (1 + i)
t = 2 years F = 12,000 (1 +0.045)4
F=? F = P14,310.22

3. Discount P25,000 at 12% compound monthly

21