Gen math reviewer
PERCENT is the ratio of a number to 100; dividing a number by 100 is the same as moving
the decimal point two places to the left. It is one of the important concepts in computing
simple and compound interest.
SIMPLE INTEREST - is the amount earned for one year calculated by multiplying the
principal by the interest rate by the time. Only the principal, no more no less, is considered
for the computation of interest. This kind of interest is applied for transactions that usually
last only for less than a year.
T = I / PR
P = T / RT
R = I / PT
I=A-P
A=P+I
A = P + PRT
FORMULA: I = P x r x t or Prt
wherein P is the Principal amount (the amount borrowed or loaned), ris the annual simple
interest rate (percentage of principal payable per period), and / is the time in years (duration
or period of payment per year).
NOTE: if the time given is month or days convert it to year
*** 12 months = 1 year
*** 360 days = 1 year (Ordinary days)
*** 365 days = 1 year (Exact days)
Example #1: In order to buy a new gadget for your school works, you decided to borrow
P 5,000.00 at an annual simple interest rate of 5% to your uncle. After two years, how much
interest does you need to pay to your uncle?
SOLUTION:
You use P = Php 5,000.00,
r = 5% or 0.05, and
t=2 years
Thus, the interest is 1 = Pxr x Tor Prt
= Php 5, 000 x 0.05 x 2
= Php 500.00
After 2 years, you need to pay P 500.00 for the simple interest incurred. You will pay the
lender P 5,000.00 (the principal) plus the additional P 500.00 interest - a total of P 5,500.00.
This amount is called the future value (or accumulated value) of the principal after 2 years.
FUTURE VALUE (or accumulated or maturity value) - of an amount P is the value of P
including all the interest earned at some future time t.
A=P+I or A = P + Prt or A = P (1+ rt)
PRESENT VALUE (or face or principal value).- of an amount A is the amount needed now
to accumulate A in time t.
FORMULA:
P = A / (1+rt)
Wherein: A = Future Value, P = Principal, r= rate of interest, and t = time
Example #3: Your mother borrowed P 250,000.00 from a bank at a simple interest rate of
2% per year that will be used for her online business. How much interest must she pay after
54 months? How much is her debt after 54 months?
SOLUTION:
Given: P = Php 250,000.00,
r = 2% or 0.02, and
t= 54 months
Thus, the interest is / = P x r x T or Prt
= Php 250, 000 x 0.02 x (54 months / 12)
= Php 22, 500.00
The interest after 54 months is P 22, 500.00.
The debt of your mother after 54 months is P 250, 000.00 plus the interest worth P 22,
500.00, which give a sum of P 272, 500.00 (FUTURE VALUE).
COMPOUND INTEREST - is also the amount earned for one year calculated by multiplying
the principal by the interest rate. Borrowing, bonding, and saving in financial institutions
apply compound interest. Compound interests are usually used for long - term transactions.
When interests are added to the principal to become the new principal, the resulting interest
is said to be compounded. The periods of time when the addition of interest and the principal
occur is referred to as conversion period. These time intervals when applied, may have the
interests compounded annually (once a year), semi - annually (twice a year), quarterly (four
times a year) or monthly (twelve times a year).
FORMULA:
A - P(1 + r/k)^kt
wherein: A = Compound Amount, P = Principal, r= rate of interest, t = time, and K =
conversion period
Annuity is another common business practice of payments. It is a series of equal payments
at regular intervals. House rental, life insurance premiums, bond dividends, installment
payments and labor wages are form of annuities
A. Types of Annuity
Annuity Certain - Whose payments begin and end at fixed time (e.g., monthly payment of
car loan).
2. Annuity Uncertain or Contingent Annuity - Whose payments depend upon an event that
cannot be foretold accurately (e.g., insurance).
B. Classification of Annuity Based on Interest Period and Payment Interval
1. Simple Annuity - Is an annuity in which the interest conversion or compounding period is
egual or the same as the payment interval.
2. General Annuity (Complex Annuity) - Is an annuity in which the interest conversion or
compounding period is unequal or not the same as the payment interval.
SIMPLE ANNUITY
* Is an annuity in which the interest conversion or compounding period is equal or the same
as the payment interval
Annuity due
Deferred Annuity