2nd QUARTER Interest (I)

BUSINESS MATHEMATICS ₱72,500 8% 3 yr (1)

₱3,000 12% 0.5 yr (2)
DEFINITION ₱48,200 11% 2.5 yr (3)
The simpleinterest I - is the amount equal to
₱161,500 10% 4 yr (4)
P ∙r ∙ t , where P is the principal, r is the annual simple ₱450,000 9% 2 yr (5)
interest rate, and t is time in years.
Page 1
In symbols,
I =P ∙r ∙ t
I DEFINITION
r= if the rateis unknown
Pt Maturity value A - is the sum of the principal and
the interest.
I In symbols,
P= if the principalis unknown
rt A=P+ I ∨A=P (1+ rt)
where A the maturity value, P the principal, I =interest
I
t= if timeis unknown
Pr EXAMPLES:
Find the maturity value A of the following loan amounts:
EXAMPLES:
1. P=₱ 50,000 , r=9 %∨0.09 ,∧t=2 yrs
1. Given:
Solutions:
P=₱ 5,000, r =5 %∨0.05 ,∧t=2 yrs , find I
Solutions: A=P(I + rt)
I =P ∙r ∙ t A=₱ 50,000 [ 1+(0.09)(2) ]
I =₱ 5,000 (0.05)(2) A=₱ 50,000(1+ 0.18)
I =₱ 500 A=₱ 50,000(1.18)
A=₱ 59,000
2. Given:
P=₱ 4,200 , I =₱ 63 ,∧t=0.75 yr , find r 2. P=₱ 120,000 , r=10 %∨0.10 ,∧t=2.5 yrs
Solutions: Solutions:
I A=P( I + rt)
r= A=₱ 120,000 [ 1+(0.1)(2.5) ]
Pt
A=₱ 120,000(1+ 0.25)
₱ 63 A=₱ 120,000(1.25)
r=
₱ 4,200( 0.75) A=₱ 150,000
₱ 63 ACTIVITY 2
r=
₱ 3,150 Complete the table below by finding the maturity value.
Principal (P) Rate (r) Time (t) Maturity
r =0.02=2 % Value (A)
₱35,600 6% 0.75 yr (1)
3. Given: ₱140,250 10% 1 yr (2)
P=₱ 10,000 , r=4.5 % ,∧I =₱ 1,800 , find t ₱75,800 8.5% 2 yr (3)
Solutions: ₱340,200 11% 6 yr (4)
I ₱1,400,500 9% 3 yr (5)
t=
Pr DEFINITION:
Ordinary Interest or Banker’s Interest –
₱ 1,800 interest based on a 360-day year.
t=
₱ 10,000(0.045) Exact Interest – interest based on a 365-day year.

₱ 1,800 EXAMPLES:
t=
₱ 450 1. You get a 180-day ₱200,000 loan from a bank at
t=4 yrs a 10.5% interest. Calculate interest using
(a) 360-day year
ACTIVITY 1 (b) 365-day year
A. Express the following in decimal form. Solutions:
1. 8% 3. 12% 5. 11% (a) 360-day year: I =P ∙r ∙ t
2. 10% 4. 9% 6. 1.5% where, P=₱ 200,000 , r=10.5 %∨0.105 ,∧¿
B. Complete the table by finding the simple interest. 180
t= ∨0.5
Principal (P) Rate (r) Time (t) Amount of 360
 I =P ∙r ∙ t r = 10.2% = 0.102----- rate
I =₱ 200,000 ( 0.105 )( 0.5 ) K = 4 periods----------- no. of periods in a year
I =₱ 10,500 r 0.102
= =0.03------ periodic rate
(b) 365-day year: I =P ∙r ∙ t K 4
where, P=₱ 200,000 , r=10.5 %∨0.105 ,∧¿ Kt = 4(2) = 8------------ compounding periods
180
t= ∨0.493 B. Find the periodic rate if the rate is compounded
365 (a) annually, (b) semi-annually, and (c) quarterly
I =₱ 200,000 ( 0.105 )( 0.493 )
I =₱ 10,353 1. 10%
Note: A 360-day year is favorable for the lender while Solutions:
365-day year is favorable for the borrower. (a) annually K = 12 periods
Page 2 Rate r = 10% = 0.10
ACTIVITY 3 r 0.10
1. Find the amount due if ₱120,000 was invested at 10% for Periodic rate = =0.008
160 days using:
K 12
(a) ordinary interest (360-day year)
(b) exact interest (365-day year) Page 3

DEFINITION:
The compound interest on P is the amount (b) semi-annually K = 2 periods
of interest charged to the amount P and the interest earned Rate r = 10% = 0.10
on previous time periods. r 0.10
Periodic rate = =0.05
K 2
FORMULA:
Kt
r (c) quarterly K = 4 periods
A=P(1+ )
K Rate r = 10%
r r 0.10
where: is called the periodic rate Periodic rate = =0.025
K K 4
P – the principal
r – the interest rate C. Find the future value of the indicated principal.
t – time in years 1.
K – number of periods in a year ₱ 30,000 at 8 % compounded semi−annually for 1 year
Kt – compounding periods
Solutions:
Given: P = ₱30,000
Compounded monthly K = 12 periods
Compounded every 2 months K = 6 periods r = 8% = 0.08
Compounded quarterly K = 4 periods K = 2 periods – compounded
Compounded every 4 months K = 3 periods semi-annually
Compounded every 6 months K = 2 periods t = 1 year
Compounded semi-annually K = 2 periods Kt
r
Compounded yearly K = 1 period Formula: A=P(1+ )
K
Compounded annually K= 1 period 2(1)
0.08
A=₱ 30,000(1+ )
EXAMPLES: 2
2
A. Identify the interest rate, the time, the no. of periods in a A=₱ 30,000(1+ 0.04)
year, the periodic rate, and the compounding periods. 2
A=₱ 30,000(1.04 )
1. 12% compounded monthly for 4 years A=₱ 30,000(1.0816)
Solutions: A=₱ 32,448
t = 4 years---------- time
r = 12% = 0.12----- rate ACITIVITY 4
K = 12 periods----- no. of periods in a year A. Identify the interest rate, the time, the no. of periods in a
r 0.12 year, the periodic rate, and the compounding periods.
= =0.01--- periodic rate
K 12 1. 6% compounded every 4 months for 3 years
Kt = 12(4) = 48----- compounding periods
2. 10% compounded every 6 months for 5 years
3. 15% compounded semi-annually
2. 10.2% compounded quarterly for 2 years
Solutions: B. Find the periodic rate if the rate is compounded
t = 2 years-------------- time (a) annually, (b) semi-annually, and (c) quarterly
1. 12%
2. 8%
3. 16%

C. Find the future value of the indicated principal.

1. ₱35,000 at 6% compounded annually for 2 years

2. ₱12,500 at 8% compounded every 4 months for 1
year
3. ₱51,000 at 16% compounded quarterly for 1 year
4. ₱152,000 at 10% compounded every 6 months for 2
years

END