GENERAL MATHEMATICS REVIEWER

Week 7: INTERESTS
TERMS TO REMEMBER:
Interest
- Interest is the fee paid on an amount of money, whether it's loaned, borrowed, or invested
Lender or Creditor
- A person or an institution who invest the money or makes the funds available
Borrower or Debtor
- A person or an institution who avails the funds from the lenders
Origin or Loan Date
- Date on which the money is received by the borrower
Repayment Date or Maturity Date
- Date on which the money borrowed or loan is to be completely repaid

TYPES OF INTEREST
• Simple Interest
o “plain interest”
• Compound Interest
o “interest on interest”

SIMPLE INTEREST FORMULAS

INTEREST 𝑰= 𝑷×𝒓×𝑻

𝑰
PRINCIPAL 𝑷=
𝒓𝑻
𝑰
INTEREST RATE 𝒓=
𝑷𝑻
𝑰
TIME 𝑻=
𝑷𝒓

Where: 𝐼 = Simple Interest

𝑃 = Principal
𝑟 = Interest Rate
𝑇 = Time (in terms of Years)
Example:

How much interest is charged when ₱50 000 is borrowed for 9 months at an annual simple interest rate of 10 %?

Given:
Principal = ₱50 000
Interest Rate = 0.10 (from 10% converted into decimal)
Time = 0.75 Years (from 9 months converted into years)
Unknown: Interest

𝑰 = 𝑷𝒓𝑻
𝐼 = (₱50 000) x (0.10) x (0.75)
𝐼 = ₱3,750.00

COMPOUND INTEREST

Compound Interest is the addition of interest to the principal sum of a loan or deposit, or in other words, interest on
interest. It is the result of reinvesting interest, rather than paying it out, so that interest in the next period is then earned on
the principal sum plus previously accumulated interest

COMPOUND INTEREST FORMULA

𝑴 = [𝑷 (𝟏 +𝒊) 𝒎𝒏] – P

Where: 𝑀 = Compound Interest

𝑃 = Principal
𝑖 = Interest Rate
𝑚 = compounding periods
𝑛 = Number of Years

Example:

Mr. Z makes an initial investment of ₱ 5,000 for a period of 3 years. Find the value of the investment after the 3 years if
the investment earns the return of 10 % compounded annually.

Given:
Principal = ₱5 000
Interest Rate = 0.10 (from 10% converted into decimal) Compounding Periods = 1 (Annually = 1)
Number of Years = 3 Years
Unknown: Compound Interest

𝑴 = [𝑷 (𝟏 + 𝒊) 𝒎𝒏]− 𝑷
𝑴 = [₱5 000(𝟏+. 𝟏𝟎) 1(3)] − ₱5 000
𝑴 = ₱1,655.00
Week 8: Future and Present Value

Future Value - is the total amount of money in a savings account after 𝒏 years at an interest rate 𝑖.

“How much is my total money in the future?”

Formula:

𝒊
𝑭𝑽 = 𝑷 (𝟏 + 𝒎) 𝒎𝒏

Where:
𝐹𝑉 = Future Value
𝑃 = Principal
𝑖 = Interest Rate
𝑚 = Compounding Periods
𝑛 = Number of Year(s)

Example:

Find the maturity value and the compound interest if ₱10 000 pesos is compounded monthly at an interest rate of 2% in 5
years?

Given:
Principal = ₱10 000
Interest Rate = 0.02 (from 2% converted into decimal)
Compounding Periods = 12 (Monthly = 12)
Number of Years = 5
Unknown: Future Value

𝟎.𝟎𝟐 𝟏𝟐(𝟓)
𝑭𝑽 = ₱10 000 (𝟏 + 𝟏𝟐
)
𝟎.𝟎𝟐 𝟔𝟎
𝑭𝑽 = ₱10 000 (𝟏 + 𝟏𝟐 )
𝑭𝑽 = ₱11 050.79

The maturity value of ₱10 000 after five years is ₱𝟏𝟏 𝟎𝟓𝟎. 𝟕𝟗.
Present Value – is the current value of a future stream of cash flow(s) given a rate of return.
“How much should I save now to have a certain amount in the future?”

Formula:
𝑭𝑽
𝑷𝑽 = 𝒊
(𝟏+ )𝒎𝒏
𝒎

Where:
𝑃𝑉 = Present Value
𝐹𝑉 = Future Value
𝑖 = Interest Rate
𝑚 = Compounding Periods
𝑛 = Number of Year(s)

Example:

How much money does Luffy need to deposit in a bank that offers 12% interest that is compounded quarterly for him to
have 12 million pesos after 20 years?

Given:
Future Value = ₱12 000 000
Interest Rate = 0.12 (from 12% converted into decimal)
Compounding Periods = 4 (Quarterly = 4)
Number of Years = 20
Unknown: Present Value

𝟏𝟐 𝟎𝟎𝟎 𝟎𝟎𝟎
𝑷𝑽 = 𝟎.𝟏𝟐 𝟒(𝟐𝟎)
(𝟏+ )
𝟒

𝟏𝟐 𝟎𝟎𝟎 𝟎𝟎𝟎
𝑷𝑽 = 𝟎.𝟏𝟐 𝟖𝟎
(𝟏+ )
𝟒

𝑷𝑽 = ₱𝟏 𝟏𝟐𝟕 𝟕𝟐𝟓. 𝟏𝟔

Luffy needs to deposit ₱𝟏 𝟏𝟐𝟕 𝟕𝟐𝟓. 𝟏𝟔 so that he will have 12 million pesos after 20 years.
Week 9: Future and Present Value of Annuity

Annuities
Annuity – is a sequence of payments made at equal (fixed) intervals or periods of time. Note: An ordinary annuity makes
payments at the end of each time period, while an annuity due makes them at the beginning. All else being equal, the annuity
due will be worth more in the present.

Future Value of an Annuity (FVA)

- sum of future values of all the payments to be made during the entire term of annuity
Formula:
ORDINARY ANNUITY DUE

Where:
𝐹𝑉𝐴 =Future Value of Annuity
𝑃𝑀𝑇 = Regular Payment
𝑚 = Compounding Periods
𝑖 = Interest Rate
𝑛 = Number of Years

Example:

Find the amount of annuity of ₱7 000 payable at the end of each 6 months for 15 years, if money is worth 3.6% compounded
semi-annually.

Given:
Regular Payment = ₱7 000
Compounding Periods = 2 (Semi-annually = 2)
Interest Rate = 0.036 (from 3.6% converted into decimal)
Number of Year(s) = 15 Years
Unknown: Future Value of Annuity

FV A = ₱𝟐𝟕𝟓 𝟐𝟒𝟗. 𝟗4
Present Value of Annuity (PVA)
- sum of present values of all the payments to be made during the entire term of annuity
Formula:
ORDINARY ANNUITY DUE

Where:
P𝑉𝐴 =Present Value of Annuity
𝑃𝑀𝑇 = Regular Payment
𝑚 = Compounding Periods
𝑖 = Interest Rate
𝑛 = Number of Years

Example:

Ken borrowed an amount of money from Kat. He agrees to pay the principal plus interest by paying P38 973.76 each end
of the month for 3 years. How much money did he borrow if interest is 8% compounded quarterly?

Given:

Regular Payment = ₱38 973

Compounding Periods = 4 (Quarterly = 4)
Interest Rate = 0.08 (from 8% converted into decimal)
Number of Year(s) = 3 Years
Unknown: Present Value of Annuity

𝑷𝑽𝑨 = ₱𝟒𝟏𝟐 𝟏𝟓𝟐. 77