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Chapter 6

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Jezail Mae A. Sanchez
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57 views12 pages

Chapter 6

Uploaded by

Jezail Mae A. Sanchez
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF or read online on Scribd
Be) SiG Introduction Interest may be overlooked > when the emount borrowed is very ‘small. However, this is not the case when thousands or even millions are i borrowed, Activity (Collaboration) ‘On a piece of paper, write at least 3 words that describe or explain the word ¥ INTEREST. Analysis (Communication) Interest is a 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 randered. Principal is the original amount borrowed, depositad or invested, Rate of interest is the percent of the principal paid per time period. Time is the number of years, months ‘or days. Simple interest is the interest earned at the end of the slotted time between the , ender and the borrower. The formula is given below: 1=Prt Where /= simple interest P= principal i r= rate of interest t= time ‘The maturity value is the total amount when the principal is added to the interest. its formula is given below: M=P+i=PU4 +76) P= Principal Fe inlegest -Toltustrate this, a men deposited PhpS0,000 at 1.25%6for 1 year. Findthe simple © Interest and the maturity value. 1=Pa= (Php50,0000.0125)(1) = Phpé25 [M-= Php60,000 + Php625 = Php50.625 Abstraction (Critical Thinking) How many months will ittake Php18,000 to earn PhpS6.25 at 1.5% simple interest rate? q Application (Creativity) A How much was borrowed if 2 simple interest rate of 2.10% was offered payable in 4 months with interest of Php35.007 ‘What is the eimple interest on a Pho600 loan at 2.5% interast to be pald at the end of 6 months? “The loan of Php1,380 is to be repaid in 4 year at 4'6% simple interest. How much is added to the loan? How long will Php60,000 accumulate to Php62,430 if the simple Interest rate agreed is 1.50%? 4408 A Course Module for Mathematios in the Modern World What is the maturity value of @ loan of Php64,000 eaming an interest of Php12,7337 ‘Mia Benson invested her summer eamings of Php3,000 in a savings account ‘hich pays 2.5% interest, How much will this amount to in 6 months? Summary ’ ‘Simple interest is a basic tool to compute for the extra amount every time money 's Invested, deposited or borrowed. Introduction ‘Simple interest calculates for the” added amount only once for the given time. Compound interest involves ‘more complex calculation since, when, applicable, it calculates interest based ‘on previously earned interest within the time given. © Activity (Collaboration) 4. Calculate for the maturity value for Pnp§.000 at 10% simple interest rate for | 1 year. Calculate for tha maturity value for Php5,000 at §% simpla intarest rata for ; 1 year. Using the result as the principal, find the new maturity value at 5% simple interest rate also for t year. Analysis (Communication) ‘Compound interest is the interest earned on previously earned interest added to : the principal, For compound interest, present value will be used instead of principal. i Aside from present value and rate of interest, compound interest will use the following 4 terms: 1 1. frequency of conversion (m) — the number of times the interest will be added to the present value. It may be annually or effective (1), semi-annually (2), quarterly : (4), bi-monthly (6), or monthly (12) 5 2. nominal rate () — annual inierest rate 3. periodic rate (i) — annual interest rate per frequency of conversion number of conversions (1) — product of frequency of conversions and time ‘The maturity value of compound interes! is given by: m= ay where P= presant value - iy j= annual interest rate = frequency of conversions t= time ‘To make calculations easier, | Land n=mt. To illustrate this, Anthony Villacon plans to invest Php100,000 in a business venture. He is offered 6% compounded semi-annually. How much will he receive at the end of 3 years? The formula for maturity value is used: M=P+i? Since n =(2(8)= 8 end /= 2 = 003 (M= Php100,000 (1 + 0.03)*= Php 119,405.23 Abstraction (Critical Thinking) 1. Ifinterest rate is unknown, give the formula for annual interest rate, j. 2._ Ifthe time is unknown, derive a formula for f Application (Creativity) e A. What is the present value of Php65,000 at 11% compounded annually for 4 years? ‘A Php?,000,000-trust fund was set up and to be Used by an 8-year old nephew when ne goes to college. in 8 years, how much will the fund be ifthe investment rete js 7.5% compounded quarterly? -442_ A Course Mosiule foe Mathematics in he Modern World Ryza borrows Php150,000. At what rate compounded bi-monthly will her interest be if she agrees to pay Php10,000 more at the end of 2 years? Find the amount at the end of 5 years if Php17,535 is invested at 2.45% ‘compounded quarterly. ifmoney isworth 6% compounded bi-monthly, find the presentvalusof Php 125,700 for 2 years. Ifthe rate is at 1.25% effective, how long will Php5,000 become Php5,500? ‘Summary Compound interest gives higher interest than simple interest. Introduction ‘The growth of businesses depends on the ability to receive and ive sound investments. The practice of lending end borrowing investments is practiced not only by privately- owned corporations but also by those ‘owned by the government. © Activity (Collaboration) Watch any one of the three rmovies listed: 1. Too Big to Fail 2. Margin Call 3. The Wolf ot Wall Street Enumerate words which you think may be important to the discussion on ‘stacks and bonds and define them using any source (Google, dictionary, Business books, etc). Analysis (Communication) ‘Stocks indicate ownership, including 'clsims on the assets and earnings, in a ‘company of @ corporation. Stock price is the highest or lowest amount someone Is willing to pay for the stocks. Shares are slightly different from stocks, They are 2 portion of the ownership of a company or corporation, Dividend is the monetary portion of the corporation's earings decided by its Board of Directors, which is a group of individuals elected to represent stockholders in meslings. They decide what policies to implement for the benefit of the company. Stockholders can be preferred stockholders or common stockholders, Preferred stockholders have limited voting rights but receive priorities in claiming a fixed dividend while common stockholders are the real owners of the company. ; annual dividend yearly ions hide a eee ae Zarrant stock price * "0%" ~~ eamings per share xs Dividend peyout ratio measures the parcentage of net ncome thet distributed to shareholders in the form of dividend during the year- . total dividends dividend payout ratio = — 5p x 100% Examples are provided below: : 4. Five hundred shares of ABC Incorporation are owned by Relnes. Each shore pays Php60 in annual dividends. ifthe current stock price is Php60, what's tne dividend yield? : Php50. ‘dividend yleld = pygggp + 0.0% 100% = 99% 2B Sette Co. has a current market price per share of Php260. As of last year t paid 'Pinp250,000 in dividends with 1,000 shares outstanding. Find the yield of the dividend. et) dividend yield = + 10000 _1-= 100% php550 . 3, Tully Bed and Breakfast has saveral shareholders. tis reflected on her income stalomient that she has a nel inoome of Php 10,000 and issued Php3.000 of dividends to her shareholders during the year. ‘What percent of her nat income Is paid to her shareholders? mi aiid ghee 0.30! 100% = 30% BS haces °* Phpi0,000 Biles 2, (1 +9) 9 Where P, = stock price at time 0 0,= current dividend D,= the next dividend g = growth rate in dividends ‘r= the required retum on the stock rg ‘Non-constant Growth Stock: P= Ps te (4+q7 haa where P, = stock price at time 0 1D, = the expacted dividend at time ¢ T= the number of years of non-constant growth 9, =the long-term constant growth rate in dividends: r= the required return on the stock o

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