Chapter 1:

FUNDAMENTAL OPERATIONS ON FRACTIONS,

DECIMALS, and PERCENTAGE
Objectives:
At the end of the module, the learners will be able to;
 solve problems involving fractions, decimals, and percent
 Perform operations: addition, subtraction, multiplication, and division on fractions, decimals, and
percentage accurately
 Express fractions to decimals and percent forms and vice versa
 Give real-life situations to illustrate fractions, decimals, and percent

References:
 Business Mathematics by: Norma D. Lopez-Mariano, PhD
 Resources
(1) C.P. McKeague, Prealgenra
(2) E.P. Vance, Modern Algebra and Trigonometry
(3) Bezuk, N., and Cramer, K. (1989). Teaching About Fractions: What,
When, and How? [Link]/ci/rationalnumberproject/89_1.html

INTRODUCTION
In this module, you can recall the basic mathematical concepts of fractions, decimals, and
percentages introduced in the earlier grade levels. Discuss the objectives of re-introducing fractions,
highlighting their importance and applications in business and other fields.

Having discussed fractions in previous lessons, decimals may be introduced as another form or
representation of fractions. Topics discussed under fractions, such as ordering and fundamental
operations (addition, subtraction, multiplication, and division) will also be applied to decimals and
percentages.

Lesson 1: Fundamental Operation on Fraction

It is important to remember that there are many ways to represent the same fraction.
Preferably those applications in everyday life and those relevant to certain jobs or professions.
 For example:
1. telling time (draw clock showing different positions of hour/minute hands)
2. budgeting money
3. discount ads such as “half the price”
4. comparing prices of the same item in a grocery store (reduce the price per unit of
1
measurement, e.g. which is cheaper: a - kilo bag costing PHP30 or a 2-kilo bag of the same
4
item costing PHP250?)
5. measurements of ingredients in a recipe (being able to compute the measurements of
ingredients if servings are to be increased or decreased)
6. reading of car’s fuel level
7. slicing portions of a cake or pizza
8. measuring fabric or clothing material

1
  Examples related to tasks, jobs or professions:
1. carpenters, plumbers, electricians (measurement of construction materials, pipes, wirings,
tools, etc.)
2. scientists, like chemists (measurements of chemicals or solutions used for experiments)
3. medical doctors (prescriptions of medicine dosage)
4. lawmakers (certain laws such as laws of succession)

Pre-test: Let’s review

A. Express the following as fractions of the units indicated:
1. 6 as part of a dozen

2. 18 weeks as part of a decade

3. 25 years as part of a century

4. 2 quarts as part of a gallon

5. 7 days as part of a week

B. A class is composed of 30 students. There are 20 girls and 10 boys. What fraction of the class are girls?
Boys?

Let’s Start:
a
The fraction is composed of a numerator (a) and a denominator (b).
b
A fraction remains equivalent if the numerator and the denominator are
multiplied or divided by the same number.

Example

2 2 x 5 10
= =
3 3 x 5 15

24 24 ÷ 6 4
= =
30 30 ÷ 6 5

 Review of basic concepts

1. Proper/Improper fractions; Mixed numerals
Give specific fractions with corresponding visual representations showing:

 Proper fraction as a portion of a whole;

 Improper fraction (express also as a mixed numeral) as a sum of whole(s) and portion of
a whole. (Visual models maybe in the form of rectangular blocks, pie charts, number lines,
etc.)

2
 Examples:

2
5

5 3
5
+ 5
p

8 3
5
or 1 5

 Emphasize fraction as a single number by positioning several examples of fractions (proper/,

improper fractions, mixed numbers on the real line.

1 5 2
Example: , , 6
2 4 3

2. Simplification of fractions or reducing a fraction to its lowest term

(a) Apply above mentioned principle on equivalent fractions.

2 1
Examples: (i) in lowest term is .
4 2

2 1 ∙2 1
since = =
4 2∙2 2

9 3
(ii) in lowest terms is .
6 2

9 3∙ 3 3
since = =
6 2∙ 3 2

(b) An alternative solution is to divide numerator and denominator by their greatest common
factor (GCF).
24 24 ÷ 4 6
Examples: (i) 4 is the GCF of 24 and 20, hence = =
20 20 ÷ 4 5

24 6
i.e. in lowest term is .
20 5

36 36÷ 9 4
(ii) 9 is the GCF of 36 and 63, hence = =
63 63÷ 9 7

4 36
i.e. in lowest term is .
7 63
3
 This link will give more information about fractions:
[Link]

 Fundamental Operation on Fractions

 Addition/Subtraction of fractions
 Start with the sum of two similar fractions (illustrate with visual models).
 Similar fractions are fractions with the same denominator.

 All the numerators are added and the denominators will be retain.

Examples:
2 3 1 2+3+1 When we add the numerators, we get 6. Then, copy the
1. + + =
4 4 4 4 6
denominator (4) to arrive at .
4
6
¿
4 2 2
If we divide 6 by 4, we get1. Then, reduce to lowest
4 4
2 1
¿ 1 ∨1 1 1
4 2 term which is . Therefore, the answer is1 .
2 2
1 5 14 1+5+ 14 Add the numerators to give us 20 and copy the
2. + + =
16 16 16 16 20
denominator (16) to arrive at .
16
20
¿
16 20
20 and 16 can be divided by 4. =5 as numerator and
4
5 1
¿ ∨1 16 5
4 4 =4 as denominator to give us , which when we
4 4

5 3 5−3 Subtract the numerators to give us 2 and copy the

3. − =
8 8 8 2
denominator (8) to arrive at .
8
2
¿
8 2
2 and 8 can be divided by 2. =1 as numerator and
2
1
¿ 8 1
4 =4 as denominator to give us the answer.
2 4

This leads to the following rule: Note: Final answers should be in lowest
a b a±b terms, if necessary.
± = ,c ≠ 0
c c c

 To add/subtract fractions with dissimilar fraction, we first convert the fractions to similar fractions
and then apply the rule on page 3.

Examples:
 Look for LCD of the denominators of the fractions to be
2 1 8 3 added/subtracted. The smallest number (LCD) which can
1. + = +
3 4 12 12 be divided exactly by the denominators without
remainder, becomes the denominator for both fractions.
11
=  Solve for numerators. The process is the same as
12
converting a fraction into a higher term, which we already
1 7 3 140 learned. We divide LCD to the denominator and multiply
2. + = + by the numerator to arrive to the answer.
360 54 1080 1080

4
 143
¿
1080

5 1 20 3 20−3 17
3. − = − ¿ ¿
6 8 24 24 24 24

Alternative Way of Finding the LCD

Example, to get the LCD for the following fractions:
3 5 6 3
+ −
14 18 15 14 18 15
2
1. List down the denominators.
14 6 5
2. Divide by a prime number common to two or more of them
(3 divides 18 and 15). So we divide 18 and 15 by 3 and we 7 3 5
write down 6 below 18 and 5 below 15. We bring down the
denominator that cannot be exactly divided by the common LCD = 3 x 2 x 7 x 3 x 5 = 630
prime number. So we bring down 14. We find the common
divisor for 14, 6, and 5 and only 14 and 6 have the common divisor 2 so we divide them. 14 divide by 2 is
7, and 6 divide by 2 is 3 so we write 7 below 14, and 3 below 6, and we bring down 5.

3. Continue dividing by a prime number common to two or more of the numbers until all become prime
numbers. The resulting numbers 7, 3, and 5 are all prime numbers so we stop dividing.

4. Multiply the prime numbers thus obtained: 3x2x7x3x5 = 630, the LCD.

5. We, then, add fractions.

3 5 6 135+175−252
+ − =¿ 630 ÷ 14 = 45 x 3 = 135
14 18 15 630
630 ÷ 18 = 35 x 5 = 175

630 ÷ 15 = 42 x 6 = 252

135 + 175 – 252 = 58

58 29 58
¿
630
= 315 630
is reduced to lowest terms by dividing the
29
numerator and denominator by 2 giving us
315

Addition/Subtraction of Mixed Numbers

1 3 1 1
A mixed number is a whole number and a fraction. 1 ,2 , 10 ,∧5 are mixed numbers. To
2 4 6 8
add/subtract mixed numbers, we have two methods:

First Method:

1.
3 3 1
3 +2 +2 =( 3+2+2 ) +
4 8 5
30+15+ 8
40 ( 53 13
=7 + =7+1 =8
40 40 )
13
40

5
 2.
4 3
12 −3 =( 12−3 ) +
6 5 (
20−18
30
2 2
=9+ =9 =9
30 30 )1
15

 We add/subtract a whole number to get the answers, in fraction we get the LCD and follow the
process of adding/subtracting fractions. Then add the whole number to fraction to get the answer.

Second Method:
3 3 1 15 19 11 150+95+ 88 333 13
1. 3 +2 +2 = + + = = =8
4 8 5 4 8 5 40 40 40

4 3 76 18 380−108 272 2 1
2. 12 −3 = − = = =9 =9
6 5 6 5 30 30 30 15

 Another method of adding/subtracting mixed numbers is to change the mixed numbers into
improper fractions and then add/subtract. To change mixed fraction to improper fraction just
simply multiply the whole number to denominator and add the answer to the numerator.

 Compare the result we obtained in the other method with the results we got using the first method.
They have the same answers.

 If there is a whole number to be add/subtract borrow one unit from whole number (10) so it
becomes 9 and we have fraction with the same denominator to be add/subtract, then go with the
process of add/subtract to get the answer.

Example:
3 4 3
10+ =9 + =9+
4 4 4
4+3
4
7
( )
3
=9+ =9+1 =9
4 4
3
4

3 4 3
10− =9 − =9+
4 4 4
4−3
4
1
=9+ =9
4 ( )
1
4

Note: Final answers should be in lowest terms, if necessary.

 Multiplication and Division of Fractions

Multiplication of fractions

a c ac
x = ,b ,d ≠ 0
b d bd

Division by a fraction is the same as multiplication by its reciprocal. The rule is

a c a d ad
÷ = x =
b d b c bc

Show the resulting quotient of two fractions using visual models.

Example:

1 3 3 1 3 3
1. x = “ of is equal to ”
2 5 10 2 5 10
6
 1 3 1 5 5
2. ÷ = x =
2 5 2 3 6

Other examples:

1.
3 20 x 3 60
20 x = = =12
5 1x 5 5

1 7 1 7 3
2. 3 ÷ 2= x = =1
2 2 2 4 4

 To multiply a fraction by another fraction, we multiply their numerators to obtain the numerator of
the product; then, multiply the denominators to obtain the denominator of the product and reduce
the product to lowest terms, if necessary. In multiplication you can cancel out the numerator to
denominator, not in the numerator to numerator and in the denominator to denominator.
 To divide a fraction by another fraction, invert the divisor (change the divisor to its reciprocal) and
multiply.

Note: Final answers should be in lowest terms, if necessary.

 Complex Fractions
A complex fraction is a fraction whose numerator and/or denominator are also fractions
or combinations of fractions. A complex fraction may be simplified by reducing the entire
numerator and/or entire denominator into single fractions and applying the rule on division of
fractions.

2 1 6 5 11
+ +
5 3 15 15 15 11 14 154
Example: 4 1 = 8 7 = 1 = ∙ =
15 1 15
− −
7 2 14 14 14

Sample problems:

A. Perform the indicated operations and simplify.

1.
3
4 (1 11
−3 +
2 8
+6 )
5
9

Solution:
3
4 (
1 11
−3 +
2 8
5
)
3 7 11 59
+6 = − +
9 4 2 8
+
9 ( )
3 7 11 59 54−252−99+ 472 175
= − − + = =
4 2 8 9 72 72
1 9
−7 +10
5 8
2. 4 3
3 −2
5 7

Solution:

1
( )
1 1 1 1 1
entire numerator = 5 − 8+ 8 +10= 5 −8− 8 +10=(−8+10 )+ 5 − 8 ( )
¿ 2+ ( 8+405 )=2+ 1340 =2 1340 ∨ 8340
7
 4 3
7 ( )
4
5
3
7
4 3
entire denominator = 3+ − 2+ =3+ −2+ =( 3−2 )+ −
5 5 7 ( )
¿ 1+ ( 28−15
35 ) 13 13 48
=1+ =1 ∨
35 35 35

1 9 83
−7 +10
5 8 40 83 48 83 35 581 197
Therefore, =¿ =¿ ÷ = x = or 1
4 3 48 40 35 40 48 384 384
3 −2
5 7 35

 Recall the PEMDAS (Parenthesis, Exponent, Multiplication, Division, Addition, and Subtraction) Rule in
the order of operations.

Let’s Practice your Skills

1 1
1. Carol worked in the store for 7 hours while Ling worked8 hours.
2 4
How many total hours did the two work? Express your answer as an
improper fraction.
2. The agreed capitalization of the partnership of Loyal, Honest, and
1 1
Faith was ₱ 90,000.00. They agreed that Loyal will contribute of the capital; Honest is ; and
2 8
Faith is the remainder. What will be the capital contribution of each partner?
2
3. The plastic cups at the school cafeteria each holds cup of juice. The juice bowl holds 24 cups of
5
juice. How many plastic cups can be filled from one bowl of juice?

Lesson 2: Changing Fraction to Decimal and Percent

and Vice Versa
Let’s Try:
 Enumerate several practical instances where decimals are used.
Examples:
- money matters (payslips, bank accounts, bills, receipts, financial reports, receipts, etc.)
- computations shown on calculators
- readings of gasoline consumption
- car’s odometer readings

Let’s Start:
8
 Converting Fraction to Decimal
We said that the line separating the numerator and the denominator of a fraction
indicates division. The denominator is the divisor and the numerator is the dividend. To reduce
fractions into decimal, we simply perform division.

Example:
3 .75
=0.75 To check: we divide 3 by 4
4 4 3.00
0
30
- 28
20
- 20
0

Other Examples:

.625
8 5.00 = 0.625 5
1. =¿
- 48 8
20
- 16
40
- 40
0

 Converting Fraction to Percent

To convert fraction to percent, we change the fraction into 15*decimal (by performing
division) and move the decimal point two places to the right, then affix the percent symbol (%).

Example:

5
1. =5÷ 12=0.41666=41.67 % (round off )
12

8
2. =8 ÷ 11=0.72727=72.73 % (round off )
11

1
3. =1÷ 2=0.50=50 %
2

 Converting Decimal to Fraction

We previously defined decimals as parts of units divided into any power of 10. We said
that if a unit is divided into 10 parts, we have tenths; into 100 parts, we have hundredths; and so
on. Therefore, to change decimal to fraction, we convert a decimal to a fraction with a
denominator in multiples of 10 (10, 100, 1000, etc.) and reduce the said fraction to the lowest
terms.
Examples:
75  0.75 has two decimal places. Our denominator has to
1. 0.75 ¿
100 have two zeros; hence, 100. We divide 75 by 25 (HCF or
highest common factor) and we get 3 and we divide 100 by
3
25 and get 4; hence, the answer is .
9 4
 75÷ 25
¿
100÷ 25
3
¿
4

375  375 has three decimal places. Our denominator should

2. 0.375 ¿
1,000 375
have three zeros; hence, 1,000. Reducing to lowest
1,000
375÷ 125 terms, we divide 375 by 125 (HCF) to arrive at 3; we divide
¿
1,000÷ 125 3
1,000 by 125 to arrive at 8; hence, our answer is .
8
3
¿
8

286  0.0286 has four decimal places. Our denominator should

3. 0.0286 ¿
10,000 have four zeros; hence, 10,000. The only common
denominator or the only number that can exactly divide 286
286÷ 2 and 10,000 is 2. If we divide by 2, we reduce our fraction to
¿ 143
10,000÷ 2 .
5,000
143
¿
5,000
143
In cases like (3) above, we cannot reduce any further because there is no other number
5,000
that can divide both the numerator and denominator exactly. Converting decimal to fraction is
usually done to those that we can convert to smaller fraction.

 Converting Decimal to Percent

To convert decimal to percent, we move the decimal point two places to the right and
affix the percent sign (%) or simply multiply the decimal by 100 and affix the percent sign (%).

Example:

1. 0.75 = 75% 3. 0.0065 = 0.65% 5. 1.25 = 125%

2. 2 = 200% 4. 33.38 = 3,338% 6. 0.015= 1.5%

 Converting Percent to Decimal

To convert percent to decimal, we move the decimal point two places to the left (as in
dividing by 100) and we drop the percent sign (%). This is exactly the opposite of what we did
when we converted decimal to percent.

Example:

1. 45% = 0.45 3. 03% = 0.03 5. 23.56% = 0.2356

2. 100% = 1 4. 250% = 2.5 6. 150.5% = 1.505

 Converting Percent to Fraction

10
 To convert percent to fraction, we first change percent to decimal, then decimal to
fraction and reduce to lowest terms.

Examples:

14 14 ÷ 2 7
1. 14% = 0.14 = = =
100 100 ÷ 2 50

5 5÷5 1
2. 0.5% = 0.005 = = =
1,000 1,000 ÷ 5 200

125 125 ÷ 25 5 1
3. 125% = 1.25 = = = =1
100 100 ÷ 25 4 4

50 50 ÷ 50 1
4. 50% = 0.50 = = =
100 100 ÷ 50 2

375 375 ÷ 5 75 75 ÷ 25 3
5. 0.375% = 0.00375 = = = = =
100,000 100,000 ÷ 5 20,000 20,000÷ 25 800

Let’s Practice your Skills

A. Change the following fractions to decimal and to percent. If not
whole number, compute up to four decimal places.

2
1.
5

15
2.
3

150
3.
22

2
4. 4
5

13
5.
12

11
 B. Change the following percent to decimal to fraction.

1. 30%

2. 0.105%

3. 55.5%

4. 7.135%

5. 2%

Checked:mpbsayson-08282020 checked: egp - 08282020

Chapter 2:
PERCENTAGE, RATIO, AND PROPORTION
Objectives:
At the end of the module the learners will be able to;
 identify and define base, rate, and percentage
 explain the relationship between base, rate, and percentage
 solve for the base, rate, and percentage
 Give real-life situations to illustrate base, rate, and percentage

References:
 Business Mathematics by: Norma D. Lopez-Mariano, PhD

 Resources
(1) Pre-Algebra (Prentice Hall Mathematics);
(2) New Mathematics Counts (Marshall Cavendish Education);
(3) Internet access

INTRODUCTION
After gaining knowledge on operation on fraction, decimal, and percent, learners will now be
introduced to percentage, ratio, and proportion. In this chapter, you will understand the key concepts
of ratio and proportion and they will learn to identify the different kinds of proportion and give
12
examples of each. Also, they will learn to solve problems involving direct, inverse, and partitive
proportion.

They will learn to compare and differentiate ratio and rate; relate base, rate, and percentage;
and find the percentage of increase/decrease. Furthermore, they will learn to solve problems related
to ratio and proportions illustrating real-life situations, and apply the knowledge gained in this
chapter in solving business problems.

Problems concerning commissions and overrides, trades and sales discounts, depreciation using
periodic rates, analysis of financial statements, and a lot more business problems in cases of
partnership sharing of profit and losses are solved with the use of it.

Pre-test: Let’s try this

3
1. 6% of 50 is what? 4. How many is as much as 250?
8

2 5
2. 25 of 100 is equal to? 5. as much as ₱ 2,500.00 is how much?
3 6

3
3. as large as 135 is what number?
4

Lesson 1: Base, Rate, and Percentage

Assuming a transportation equipment is depreciated at the rate of 5%
annually and its costs ₱ 250, 000.00. The yearly depreciate at the transportation
equipment will be ₱ 250, 000.00 x 5% = ₱ 12,500.00. The base here is the cost
of the transportation equipment, ₱ 250, 000.00, the rate is the 5%, and the
percentage is the ₱ 12,500.00.

Using the basic formula P = BR, where P (percentage), B (base) and R (rate) substitute and see
that relationship and solution are correct:

P = B x R

₱ 12,500.00 = ₱ 250, 000.00 x 5%

₱ 12,500.00 = ₱ 12,500.00

Let’s Start:
 Base (B) – refers to the number of which a certain number of hundredths is
taken. Base and percentage are compared to obtain rate.

- It is the number generally preceded by the words “of,” “as much as,”
“as large as,” “as many as,” and “as great as.” Also, it is regarded as the whole.

 Rate (R) – it is the result of comparing a number (percentage which is regarded as the portion or part)
to another number (base which regarded as the whole).

13
 - It can be expressed in percent, decimal, or fraction.

 Percentage (P) – it is the part of the whole and the number being compared to another number (base).

- Its result obtained when the rate is applied to the base.

- It is never expressed in percent, which is the common mistake of students.

If we take 100 as the whole and we take 30 as the part, the base is 100 (whole), percentage is 30 (part),
and rate is 30/100 (part/base).

The basic formula to show the relationship between the base, rate, and percentage is:

P = B x R

If any of the two are given, the remaining element can be solved for. It is, however, important
that we will be able to identify which is the base, and which is the percentage. The rate is easy to
identify because as previously mentioned it is expressed in percent, in fraction or in decimal.

Example:

Let us take a company that made a net sales of ₱ 100,000.00 in 2019 and a net sales of ₱ 85,000.00
in 2018. To get the percent of increase in sales, we do the following:

Sales∈2019−Sales∈2018
% of increase in sales =
Sales∈2018

₱ 100,000.00−₱ 80,000.00 ₱ 20,000

= =
₱ 80,000.00 ₱ 80,000.00

= 0.25 = 25%

Here, our base (basis of comparison) is the net sales for 2018 because this is the figure
that we are comparing our net sales for 2019. The difference between the net sales for the two
years, ₱ 20,000.00, is our percentage. Our rate is 25%.

To prove our formula P = BR,

₱ 20,000.00 = (₱ 85,000.00) (25%)

₱ 20,000.00 = ₱ 20,000.00

 Finding the Percentage

Follow our basic formula, P = BR, we find the percentage by multiplying the base by the
rate. If may convert the rate to percent, fraction, or decimal, whichever is easier to use.

Examples:
14
1. 25% of 60 is what? 3. In company workers of 50, 20% are girls:
Given: R = 25% a. How many are girls?
B = 60 Given: B (workers) = 50
Find: P = ? R = 20%
Solution: Find: P (girls) = ?
P = BR Solution: P = BR
25% =
P = (60) (25%) P = (50) (20%)
25 1
=
P = (60)
1
4 () 100 4 P = (50) (0.20)
60
P= P = 10 girls
4
P ¿ 15 b. How many percent are boys?
Given: 20% are girls
2. 50% of ₱ 400.00 is what? Solution: The whole workers represents
Given: R = 50% 100%, therefore,
B = ₱ 400.00 % of boys = 100% - % of girls
% of boys = 100% - 20%
Find: P =? % of boys = 80%
Solution:
P = BR c. How many boys are in the company?
P = (₱ 400.00) (50%) 50% = 0.5 Given: Entire workers = 50 = B
P = (₱ 400.00) (0.50) % of boys = 80% = R
P = ₱ 200.00 No, of girls (from a) = 10
Find: P = Number of boys

1
4. What is as large as 600? Solution: P = BR
4
1
Given: R = P = (50) (80%)
4

B = 600 P = (50) (0.8)

Find: P= ? P = 40

Solution: Alternative solution or check:

P = BR Number of girls (from a) = 10

P = (600) ( 14 ) 1
4
=0.25 Entire workers = Boys + Girls

P = (600) (0.25) Boys = Entire workers - Girls

P = 150 = 50 - 10

Boys = 40

As you can see, we convert the

percent to fraction, and also, we Take note:
can convert percent to decimal, In simple cases like the following examples (1), (2), and (3),
whichever is easy to solve. To the answer can also be obtained by transforming the worded
convert percent to decimal or question into an equation where “is” becomes the equal symbol
fraction, just recall our lesson on (=) and “of,” “as large as,” or other words preceding the base
module 1, the changing fraction become multiplication sign (x). We will call such transformation
to decimal and to percent and a sentence equation.
vice versa.

15
 Finding the Base
To find the base, we divide the percentage by the rate:

P
B=
R

This is an important tool to remember in business computations. If we want to get the whole or
100% (base), we simply divide the given number (percentage) by its corresponding percent or fraction.

Let us apply the foregoing formula to the following examples:

1
1. If you have ₱ 30.00 which represents of your entire money, how much money do you
4
have in all?
1
Given: P = ₱ 30.00 R= Find: B = ?
4

P
Solution: B=
R
₱ 30.00
=¿ 4
B= 1 ₱ 30.00 x
1
4
B = ₱ 120.00

2. 200 is 50% of how many?

Given: P = 200 R = 50% Find: B = ?

P
Solution: B=
R
200 200 2
= =200 x 200 200
B = 50 % 1 1 or B= =
50 % 0.5
2

B = 400 B=400

As what you have done in finding percentage, you can also transform word into an equation to
solve for the unknown.
Examples:
1. ₱ 75 is 200% of what amount?
₱ 75 = 200% x B (you can also solve for the base with our basic formula P=BR.}
₱ 75 200 % x B ₱ 75
= (eliminate 200% and now divide the then you can now
200 % 200 % 200 %
₱ 75
B= solve for the base)
200 %
₱ 75
B= (200% is equal to 2)
2
B = ₱ 37.5
16
 2
2. A number, 5 times as many as 20, is of what number?
3
2
5 x 20 ¿ x B
3
2B  We make use cross multiplication to eliminate fraction.
100=
3
 Also, we have to eliminate the 2 in 2B, we simply divide
100 2 B both side to 2.
=
1 3
2 B=( 100 ) 3
2 B 300
=
2 2
300
B=
2
B=150

 Finding the Rate

To find the rate, we divide the percentage by the base:
P
R=
B
Examples:
1. What part of 400 is 50?
Given: B = 400 P = 50 Find: R = ?
P
Solution: R=
B
50 5÷ 5 1
R= = To check: x 400=50
400 40 ÷5 8
1 400
R= =50 50 = 50
8 8

 We divide both side with 300 to

eliminate the numbers because if we
2. 50 is how many percent of 300? divide with the same number it is
equal to 1 and if we divide any number
Given: B = 300 P = 50 Find: R = ? by 1 the answer is the same that why R
is remain in other side and the other
P side we just simply divide the 50 by
Solution: R= 300 or get the lowest term.
B
 Now we have to change the fraction to
50 5÷5 1 decimal first, but percent is ask that’s
R= = =
300 30 ÷ 5 6 why we also change decimal to
percent, there’s two method to get the
percent.
R=0.1667=16.67 % - First, we move decimal point two
places to the right and affix the
percent (%) sign, and
Similarly, we can also solve for rate (R) by transforming - Second, we multiply the number
word problems into an equation: (0.1667) by 100 and affix percent
(%) sign.
3. How many percent of ₱ 550 is ₱150?

17
 Given: B = ₱ 550 P = ₱150 Find: R = ?
P
Solution: R=
B

₱ 150 15
R= =
₱ 550 55

15 ÷ 5 3
R= = =0.2727 x 100=27.27 %
55 ÷ 5 11

 Finding the Rate of Increase/(Decrease)

At the start of our lesson, we compare the net sales in 2019 to the net sales of 2018 obtaining
5% as our rate of increase in net sales. Now, we will study further how to compute for rate of
increase/ (decrease). Decrease is placed in parentheses because it is negative figure and that is how
expressed in accounting. In accounting parentheses also mean subtraction.

To compute the rate of increase or decrease, we first subtract the new quantity from the
original quantity. This is getting the difference between the original quantity and the new quantity.
This will give us the increase (positive) or decrease (negative). The difference is either positive if it is
an increase and a negative if it is a decrease. Then, we divide such increase/ (decrease) by the
original quantity, thus:

Q2 – Q1
Rate of Increase/ (Decrease) = = Inc./ (Dec.)
Q1 where
Q1 = Original quantity

Q2 = New quantity

The increase/ (decrease) is the percentage and the original quantity is the base. In our computations, we
will always denote a decrease by enclosing our figure in parentheses.

Examples:
1. Jenny’s current salary is ₱ 4,000.00 a month. Her previous salary was ₱ 3,600.00. What is the
rate of increase in her salary?

Given: Current salary = ₱ 4,000.00 = Q2

Previous salary = ₱ 3,600.00 = Q1
Find: Rate of increase
Solution: Q2 – Q1
R=
Q1
₱ 4,000.00 - ₱ Note:
= 3,600.00 There is an increase in salary (we got
₱ 3,600.00 positive ₱ 400.00 represents the
percentage). Our base is always the
₱ 400.00 ÷ 400 original quantity to which we are
= ₱ 3,600.00 ÷ comparing the new quantity.
400

1 = 0.1111
= 18
9
R = 11.11%
 2. This month’s sales were ₱ 15,000.00. Last month, the sales were ₱ 19,000.00. Find the rate
of increase/ (decrease).
Given: Current sales = Q2 = ₱ 15,000.00

Last month’s sales = Q1 = ₱ 19,000.00

Find: Rate of increase/ (decrease)

Solution:
Q2 – Q1 ₱ 15,000.00 – ₱ 18,000.00 =
Rate of increase/ (decrease) =
Q1 – ₱ 3,000.00 and it is rate of
₱ 15,000.00 – ₱ decrease.
= 18,000.00
₱ 18,000.00 In accounting to denote
(₱ 3,000.00) = (3) ÷ 3 = (1) rate of decrease/ negative
=
₱ 18,000.00 18 ÷ 3 = 6 figure we use parenthesis.
(1) = (0.1667)
=
6

Rate of (decrease) = (16.67%)

We can also solve other problems relative to increases or decreases:

1. ₱ 500.00 increased by 10% is how much?

₱ 500.00 + (10% x ₱ 500.00) = x

₱ 500.00 + ₱ 50.00 = x
₱ 550.00 = x
Or
Any number which is increased by a certain percent is equal to 100% (representing the
number) + the percent of increase; hence, in our example, the number we are looking for is equal
to 100% + 10% equals 110%.

Note:
x = ₱ 500.00 x 110%
For easy in computation, we
= ₱ 500.00 x 1.10 can change the percent (%) into
decimal.
x = ₱ 550.00

2. 800 decreased by 20% is how many?

800 – (20% x 800) = x 800 – 160 = x
640 = x
Or
Similarly, any number decreased by a certain percent is equal to 100% (representing the
number) less the percent of decrease; hence, in our example, the number we are looking for represents
100% - 20% or 80%, which is also equal to 0.8.

x = 800 x 80% = 640 or

x = 800 x 0.8 = 640

3. 20% more than what number is 900?

Here, we are looking for the original quantity, which is the base. 900 represents a number
that is 20% more than the base. In other words, 900 represents 120% of the base.

19
 Given: P = 900 R = 120% (100% + 20%) or 1.20 in decimal
Find: B= ?
Solution: P 900 900
B= = = = 750
R 120% 1.20

Proof: 900 = B + 20% (B) 900 = B x 120%

900 = 750 + (20% x 750) 900 = 750 x 120%
900 = 750 + (0.2 x 750) OR 900 = 750 x 1.2
900 = 750 + 150 900 = 900
900 = 900
4. Last semester’s enrollment was 1,500. Find the current semester’s enrollment if the rate
decrease is 15%.
Given: Q1 = 1,500 (last semester’s enrollment)
R = 15% = 0.15
Find: Q2 = (current semester’s enrollment)
Solution:
Q2 – Q1
R =
Q1

(15%) = Q2 – 1,500 Note: (Cross multiplication)

1,500 Add both side with +1,500 to eliminate
–1,500 in the left side.
(15%) x 1,500 = Q2 – 1,500
It is stated that the rate is rate of
Q2 – 1,500 = 1,500 x (15%) decrease therefore 15% is inside the
parenthesis to denote negative, therefore
Q2 = [1,500 x (15%)] + 1,500 1,500 x (15%) = (225) or -225.

Q2 = (225) + 1,500 = –225 +1,500

Q2 = 1,275
If there was a decrease of 15%, the current semester’s enrollment is 85% of last semester’s
enrollment, hence:
Given: B = 1,500 R = 85% Find: P = ?
Solution: P = BR
= 1,500 x 85% = 1,500 x 0.85
P = 1,275

Let’s Practice your Skills

Solve for the unknown. Use the formula P = BR and transform this
question into a sentence equation.

4
1. What number is as many as 390?
5

2. 25.05 is 5.15% of what numbers?

3
3. An amount, 6 times as large as 10, is of what amount?
8

20
 1
4. 30 % of what amount is ₱ 30.00?
4

5. 45 is how many percent of 105 less than 91?

6. An item that originally sells for ₱ 30.00 now sells for ₱ 35.00. What is the percent of increase/
(decrease)?

7. A company net sale is ₱ 80,000.00 in 2017, if the net sales in 2016 represents 40%
a. How much is the net sales in 2016?

b. What percent of increase/ (decrease) in net sales?

Chapter 2:
PERCENTAGE, RATIO, AND PROPORTION

INTRODUCTION
After gaining knowledge on operation on fraction, decimal, and percent, learners will now be
introduced to percentage, ratio, and proportion. In this chapter, you will understand the key concepts
of ratio and proportion and they will learn to identify the different kinds of proportion and give
examples of each. Also, they will learn to solve problems involving direct, inverse, and partitive
proportion.

21
 They will learn to compare and differentiate ratio and rate; relate base, rate, and percentage;
and find the percentage of increase/decrease. Furthermore, they will learn to solve problems related
to ratio and proportions illustrating real-life situations, and apply the knowledge gained in this
chapter in solving business problems.
Problems concerning commissions and overrides, trades and sales discounts, depreciation using
periodic rates, analysis of financial statements, and a lot more business problems in cases of
partnership sharing of profit and losses are solved with the use of it.

Lesson 2: Ratio and Proportion

Ratios are generally used in business in cases of partnership sharing of
profits and losses. Assume that Justin, Kikoy, and Zeth are partners sharing
profits and losses in a ratio of 1:2:3, respectively. If the partnership incurred a
net loss of ₱ 10,000.00 for the month, the share of the partners in the loss would be:

1 x ₱ 10,000.00 = ₱ 1,667.00
Justin =
6
2 x ₱ 10,000.00 = ₱ 3,333.00
Kikoy =
6
3 x ₱ 10,000.00 = ₱ 5,000.00
Zeth =
6

6
= ₱ 10,000.00
6

Objectives:
At the end of the module, the learners will be able to:
 define ratio and proportion
 determine the uses of ratio and proportion in a business
 identify the different kinds of proportions
 solve problems involving direct, indirect/inverse and partitive proportion; ratio and proportion
 apply the concept of ratio and proportion in real life situation

References
 Business Mathematics by: Norma D. Lopez-Mariano, PhD
 Resources
(1) Pre-Algebra (Prentice Hall Mathematics);
(2) New Mathematics Counts (Marshall Cavendish Education);
(3) Internet access

Pretest: Let’s try this

1. A poll taken in a certain subdivision on the operation of the Bataan Nuclear Power Plant showed
250 citizens voting “No” and 50 citizens voting “Yes.” What is the ratio of the No votes against the
Yes votes?
2. In certain city, 2,500 families owned cars, 3,500 families owned jeepneys, and 550 do not own any
automobile. What is the ratio among them?
3. Gary uses 4 eggs for every 5 cups of flour in her cupcakes. If he uses a dozen of eggs, how many
cups of flours will he need?

Let’s Start:
 Ratio
22
  It is a comparison of two quantities by division.

The ratio of a to b can be written in two ways:

1. as a:b (odds notation), where the symbol “:” is read as “is to”; or
a
2. , b ≠ 0 (fractional notation)
b
Example 1:
10
The ratio of 10 to 12 may be written as 10:12 (odds notation) or (fractional notation).
12
Example 2:
Simplify the following ratios to their simplest form.
1 3 1 3
a. : b. 1 : c. 0.09:0.12
3 4 4 4

Solution:
To simplify a ratio involving rational numbers, multiply each of the quantities by the LCM of their
denominators.
a. The LCM of 3 and 4 is 12; hence,
1
1 3
: = 12
3 4 () ()
1
3
: 12
3 12 36 12 4 4
4
= :
3 4
→ x = or 4:9
3 36 3 9

Alternative solution: (Reduce/simplify the way you would a complex fraction.)

1
1 3 3 1 4 4
: = = x = or 4:9
3 4 3 3 3 9
4
1 3
b. The LCM of the denominators of 1 : is 12.
3 4 4
1 3 4 3
1 : = : =¿ 12
3 4 3 4 ( 43 ) : 12( 34 )= 483 : 364 = 483 x 364 = 169 or 16:9
3

Alternative solution:
4
1 3 4 3 3 4 4 16
1 : = : = = x = or 16:9
3 4 3 4 3 3 3 9
4
c. When a ratio is in decimal form, write its equivalent form without the decimals then reduce the ratio as
needed. The ratio 0.09: 0.12 may be cleared of decimals by multiplying both the numerator and
denominator by 100. That is,
0.09 0.09 x 100 9÷ 3 3
= = = or 3:4
0.12 0.12 x 100 12÷ 3 4
Alternative solution: Convert to fraction so as to show which power of 10 is to be multiplied to the ratio.
9 1

0.09 100 9 100 9÷ 3 3

= = x = = or 3:4
0.12 12 100 1 12 12 ÷ 3 4
100

Example 3:
In a class of 40 students, the ratio of passing grades to failing grades is 5 to 3. How many failed the
course?
Solution:
The ratio 5 to 3 (or 5:3 or) indicates that for every 5 + 3 = 8 students, there are 3 who would fail.
That is,

23
 3
of the class failed or (40) = 15 students failed.
8

How do we use ratios in measurement? When comparing measurements, we use the same unit of
measurement in the numerator as in the denominator. (In this case, a ratio has no unit.)

Example 4:
A chocolate cake requires an average of one hour of baking time while a cupcake requires only 20
minutes of baking time. What is the ratio of baking time for chocolate cake to that for the cupcake?
Express you answer in simplest form.
Solution:
The chocolate cake requires 1 hour or 60 minutes to bake. The cupcake requires 20 minutes to bake.
Therefore, the ratio of the baking time for the chocolate cake to that for the cupcake is 60:20.
In simplest form, this is 3:1. (Note that the final answer has no unit.)

Example 5:
Write the ratio, 28 days to 8 weeks, as a fraction in lowest terms.
Solution:
4 weeks 1
Change 28 days to weeks: 7 days = 1 week, so 28 days = 4 weeks. Therefore, = .
8 weeks 2
The ratio of 28 days to 8 weeks is 1:2.

Would the answer be the same when you write the number of weeks as a number of days? Explain.

One application of ratio is finding the size or value of different groups of quantities given the ratio.

Example 6:
A piece of string, 20 cm long, is divided into two pieces in the ratio 3:2. What is the length of each of the
two pieces of string?
Solution:
Ratio = 3:2
Therefore, the Number of parts = 3 + 2 = 5
20
Length of each part =¿ 4 cm
5
Length of the longer piece = 4 cm 3 parts = 12 cm
Length of the shorter piece = 4 cm 2 parts = 8 cm

Alternative Solution:
The total number of equal parts = 3 + 2 = 5.
3 3
The length of the longer piece = of the length of the whole string = x 20 = 12 cm.
5 5
2 2
The length of the shorter piece = of the length of the whole string = x 20 = 8 cm.
5 5

Aside from the examples above, we have the following problems where ratio is used to illustrate real-life
situations.

Example 7:
a) We always use ratio in cooking: the ratio of eggs to flour; the ratio of salt to water; the ratio of
chickens to pork.
b) When at the grocery store, I buy 5 bananas for 60 pesos. The ratio is written as 5:60 or 60:5 or 12:1.

24
 c) At a grocery store, there was a sale of buy one take one free loaf of bread at PHP70. That is, for
every loaf of bread you buy, you get one free. The ratio is 1:1.

The notion of ratio is the same as the use of fraction in business that we have studied in chapter 1.
Example 1:
Anthon and Tony are candidates. Anton received 2,500 votes while Tony received 3,000 votes. What is
the ratio of Anthon’s vote against Tony’s?
2,500÷ 500 5
Anthon: Tony = 2,500: 3,000 = = or 5:6
3,000÷ 500 6
Check: Anthon’s votes + Tony’s votes = 5,500

5 6
(5,500) + (5,500) = 5,500 (5+6 =11, the denominator)
11 11

27,500 33,000
+ =¿ 5,500
11 11

2,500 + 3,000 = 5,500

5,500 = 5,500

Example 2:
Rose, Daisy, and Sundae are partners. Their capital balances are ₱ 10,000.00, ₱ 20,000.00, and ₱
30,000.00, respectively. What is their capital ratio?

Rose: Daisy: Sundae = 10,000: 20,000: 30,000 = 1:2:3

Example 3:
1 3 1
Donna, Rica, Shine, and Kim divided a pie in such a way that Donna got ; Rica got ; Shine got
5 10 10
2
; and Kim got 5 . Find the ratio in which the four divided the pie.

Solution:
Since the fractions are dissimilar, we first change to similar fractions:

1 1x 2 2
Donna = = =
5 5 x 2 10

3
Rica =
10

1
Shine =
10

2 2x 2 4
Kim = = =
5 5 x 2 10

Therefore, the ratio in which the four divided the pie would be:

Donna : Rica : Shine : Kim = 2 : 3 : 1 : 4

Use the numerators of similar fractions to get the ratio.

Example 4:

25
 Groot has three times as many blue marbles as his green marbles. If he has a total of 24 marbles, how
many blue and how many are green?

Blue: Green = 3: 1; therefore,

3 72
Blue = x 24 = = 18 (3 and 1 are the numerators and 3+1, which is 4, is the denominator.)
4 4

1 24
Green = x 24 = =6 Blue has 18 + Green has 6 = 24 Totals of all marbles.
4 4

 Proportion
It refers to the equality between ratios. The following are proportions:
a c
(a) a : b = c : d (b) =
b d
means
extremes

Each of the four numbers in it is called a term of the proportion.

a c
From = , a is the first term; b the second term; c the third term; and d the fourth term. The first and
b d
fourth terms are called the extremes. The second and third terms are called the means.

Example 1:
5 10
In the proportion 5: 6 = 10: 12 or = , name the four terms, the means, and the extremes.
6 12
Solution:
5 : 6 = 10 : 12

means
extremes

First term = 5 Second term = 6 Third term = 10 Fourth term = 12

The means are 6 and 10; the extremes are 5 and 12.

Fundamental Property of Proportions

In any proportion, the product of the means is equal to the product of the extremes. That is, the cross
a c
products of the terms are equal. In symbols, if = , then ad = bc.
b d

Example 2:
5 10
We use the Fundamental Property of Proportions to verify that = .
6 12
Equating the cross products of the terms gives
5 x 12 = 6 x 10. That is, 60 = 60.

Example 3:
We also use the Fundamental Property of Proportions to find the missing term in a proportion as
shown below.
5 n
Given: = . We set cross products equal:
6 12
6n = 5(12)
6 n 60
=
6 6
n = 10.
26
Example 4:
n+4 n−2
Solve for = .
5 3
Solution: The cross products are equated as shown below.

5(n – 2) = 3(n + 4) Check: Verify that 11 is the solution.

n+4 n−2
5n – 10 = 3n + 12 =
5 3
11+4 11−2
5n – 3n = 12 +10 =
5 3
2n 22 15 9
= =
2 2 5 3
n = 11 (15) (3) = (9) (5)
45 = 45

How do we recognize whether a given proportion problem involves a direct proportion, an inverse
proportion, or a partitive proportion? The definitions below determine the type of proportion (variation) a given
problem is.

 Types of proportion (variation):

1. Direct proportion – two variables, say x and y, varying such that as x increases, y also increases or as x
decreases, y also decreases proportionally; that is, the ratio is always the same. The same holds true with the
ratio.

2. Indirect/Inverse proportion – two variables, say x and y, varying such that as x increases, y decreases, or
as x decreases, y increases proportionally; that is, the product of x and y is always the same.

3. Partitive proportion – a whole is divided into more than two parts.

 Direct proportion
Examples:
1. Two boxes of chocolates cost PhP180. How much do 7 boxes of chocolates cost?
Solution: The more the boxes, the higher the cost; that is, both quantities are increasing. We
no . of box no . of box
have a direct proportion. The ratio is always the same. That is,
cost cost
no . of box
= Substituting the given values, we have
cost

2 7 1,260
= (2) cost = (180) (7) cost = cost = ₱ 630
180 cost 2

2. Eight tea bags are needed to make 5 liters of iced tea. How many tea bags are needed to make
15 liters of iced tea?

Solution:
Let t represent the number of tea bags. The problem translates to the following
proportion:
t 8
=
15 5

Note that both ratios in the proportion compare the same quantities; that is, both ratios
compare number of tea bags to liters of iced tea. In words, the proportion says “t tea bags to 15 liters
of iced tea as 8 tea bags to 5 liters of iced tea”.

27
 Using the fundamental property of proportions, we obtain the following:

t 8 5t 120
= → 5 (t) = 15(8) → = → t = 24 tea bags
15 5 5 5

 Indirect/Inverse proportion
Examples:
1. The relation between the time it takes to dig a well and install a water pump to supply the
house with water and the number of people needed to build it is an inverse proportion. The
more people you have, less time it takes. If it takes 3 people to do the job in 1 month, it will
1
take only month if you have 6 people working. If you double the numbers of workers, the
2
time is halved. If you triple the numbers of workers, the time becomes third.
Solution:

(3workers) (1 month) = (6 people) ( 12 month)

(3) (1) = (6) ( 12 )
6
3 = 2 → 3 = 3

2. A supply of food lasts for a week for 20 families. How long would the supply last if 3 more
families have to be supplied?
Solution:
(7 days) (20 families) = (x days) (23 families)
23x = 7(20)
23 x 140
23
= 23 → x = about 6 days

 Partitive Proportion
Examples:
1. When a partnership agreement stipulates an agreed capitalization of ₱ 100,000.00 and
the partners are to divide the said capitalization in a ratio of 1: 2: 2, we are talking about
partitive proportion and we get corresponding parts as follows assuming the partners are
Kat, Rin, and Viv, respectively , contributing the capital:
Solution: Add the ratio 1+2+2 = 5 and put it as our denominator. And the numerator is their
ratio.
1 ₱ 100,000.00
Kat = x ₱ 100,000.00 = = ₱ 20,000.00
5 5

2 ₱ 200,000.00
Rin = x ₱ 100,000.00 = = ₱ 40,000.00
5 5
2 ₱ 200,000.00
Viv = x ₱ 100,000.00 = = ₱ 40,000.00
5 5
₱ 100,000.00

2. A deceased person stated in his testament that his 30-hectares land be divided among his three
children using 1:2:3 partition, the oldest getting the biggest share. How much did the second
child receive?
Solution:
30 hectaresland 30
= = 5 → 2(5) = 10 hectares- the second child received
1+2+3 6

3. Forty liters of cooking oil is transferred into 3 containers in the ratio 1:3:4. How much cooking
oil is in each container?

28
 Solution:
The ratio 1:3:4 indicates 1 + 3 + 4 = 8 portions. 40 liters will be divided into 8 portions; that is,
40
= 5 liters (L) per portion.
8
Container 1 (1 portion) = 1 x 5 L = 5 L in it.
Container 2 (3 portions) = 3 x 5 L = 15 L in it.
Container 3 (4 portions) = 4 x 5 L = 20 L in it.
checked:egp09/24/2020
checked:mpbsayson-09252020

Chapter 3:
Trade Discount and Cash Discount
INTRODUCTION
The students will learn the key concepts in trade and cash discount and are expected to be able
to analyze and solve problems relative to merchandise.
Single discounts and series of discounts will be discussed in trade discount together with cash
discounts. In addition, the concept of them are applied to loans, mortgages, amortization, and
deposits. To entice buyers to buy, seller usually offer trade discount and cash discounts. It is generally
wholesalers who offer trade discounts, but there are also some retailers who offer them. Cash
discounts are recorded in the accounting records either as sales discounts in the book of the seller or
purchases discounts in the books of the buyer.
These are granted to buyer to encourage prompt payment of account.

Lesson 1: Trade Discounts

In accounting, trade discounts are not recorded because accounting records reflect
only the net invoice prices, that is, sales and/ or purchases are the recorded net of trade
discounts. For example, if the merchandise listed at ₱ 1,000.00 is sold subject to a 10 %
discount, the seller records the sale as a sale of ₱ 900.00 only, the net invoice price. Similarly,
the buyer will record the same as a purchase of ₱ 900.00.

Objectives:
At the end of the module the learners will be able to;
 compute for the single trade discount and series of discounts
 identify the difference of trade discount and cash discount
 solve problems involving trade discount and cash discount
 compute for deadline for discount period and credit period

References
 Business Mathematics by: Norma D. Lopez-Mariano, PhD
 Source: [Link]
from_action=save

Pretest: Let’s try this

1. What comes into your mind when you hear the word “DISCOUNTS”?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
29
 2. What do you think is the difference between trade discount to cash discount?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________

Let’s Start:
 Trade Discounts
 It is the amount of discount that the wholesaler or retailer receives off the list
price or the difference between the list price and the net invoice price.
 It could take the form of volume discounts for large purchases, dealer’s or
distributor’s discounts, or special discounts granted at the discretion of the
seller.
 It could either be a single discount or a series of discounts.

 Single Discount
Example of trade discount:

Hello Mr. Ricky! Yes sure! Since you will buy the whole box,
May I buy a box of canned pineapple I will give you a discount of 30%
juice to you?

KEY TERMS FOR TRADE DISCOUNTS

 Suggested Retail Price/Catalog Price/List Price – three common terms for the price which the
manufacturer suggests an item to be sold to the consumer.
 Net Invoice Price – the price the manufacturer or retailer pays or the list price minus the discount.
 Discount rate – a percent of the discount divide list price or the difference of list price and net invoice
price.
 Discount – the amount of the list price multiply to discount rate.
 Net Invoice Price Rate – a percent of the net invoice price divide list price or difference of list price and
discount rate.
 List Price Rate – a percent of the list price and always equal to 100%.

TRADE DISCOUNT FORMULA

Discount (D) = List Price (LP) x Discount rate (Dr)
or
D= LP x Dr
30
 Net Invoice Price (NIP) = List Price (LP) - Discount (D)
or
NIP= LP – D

Net Invoice Price rate (NIP rate) = List Price rate – Discount rate
or
NIP rate = LP rate - Dr
Examples:
1. Gal Esan will buy a box of canned sardines that lists for ₱ 650 and has a discount of 15%. How much is
the Net Invoice Price and the discount?

Given: List Price = ₱ 650

Discount rate = 15%

Find: a. Discount
b. Net Invoice Price
Solution:
D = LP x Dr
Discount = ₱ 650 x 15% or ₱ 650 x 0.15

= ₱ 97.5

NIP = LP – D
Net Invoice Price = ₱ 650 – ₱ 97.5

= ₱ 552.5

Another way of computing:

NIP rate = LP rate – Dr
NIP rate = 100% - 15%
= 85%

NIP = LP x NIP rate

= ₱ 650 x 85% or ₱ 650 x 0.85
= ₱ 552.5

To get the discount:

Discount = List Price – Net Invoice Price
= ₱ 650 – ₱ 552.5
= ₱ 97.5

 Series of Discounts or Chain Discount

 Additional discounts that are deducted one after another from the list price.
 In certain instances, a seller grants additional discounts other than the discount ordinarily given to the
buyer.

Examples:

1. Compute for the discount and the net invoice price if Mr. Ting Nga will buy a set of rubber shoes
that lists for ₱ 3, 000.00 is given a 15%, 10% and 5% discount.

Given: List Price = ₱ 3, 000.00

Discount rates = 15%, 10% and 5%

Find:
31
 a. Discount
b. Net Invoice Price

Solution: Three methods in calculating series of discount

Method 1:
We first multiply the list price by the first discount rate. To get the second discount, we
multiply the first difference between the list price and the first discount, and the second discount rate. To
get the third discount, we multiply the second difference between the first difference and the second
discount, and the third discount rate. We then deduct the third discount from the said difference to get the
net invoice price.

List Price ---------------------------------------- ₱ 3, 000.00

Less 15% (₱ 3,000 x 0.15) 450.00
--------------------
First Difference -------------------------------- ₱ 2, 550.00
Less 10% (₱ 2,550 x 0.10) 255.00
--------------------
Second Difference ----------------------------- ₱ 2, 295.00
Less 5% (₱ 2,295 x 0.05) -------------------- 114.75
Add the first Net Invoice Price ------------------------------ ₱ 2, 180.25 discount to second
discount and to third discount is equal to our total discount:

Total Discount = 1st Discount + 2nd Discount + 3rd Discount

= ₱ 450.00 + ₱ 255.00 + ₱ 114.75
= ₱ 819.75

Method 2:

(1) Deduct the first discount rate from 100%.

100% – 15% = 85% or 0.85

Multiply the list price by the first balance rate obtained in step (1).
List Price ------------------------------------ ₱ 3,
000.00
x 0.85
First Balance -------------------------------- ₱ 2,
(2) 550.00
Deduct the second discount rate from
100% and multiply the first balance obtained in (1) by the second balance rate obtained.

100% – 10% = 90% or 0.90

First Balance ------------------------------- ₱ 2,

550.00
Second balance rate x 0.90
Second Balance ---------------------------- ₱ 2,
295.00
(3) Deduct the third discount rate from 100% and multiply the second balance obtained in (2) by the third
balance rate obtained.

100% – 5% = 95% or 0.95

Second Balance ---------------------------- ₱ 2,

295.00
Third balance rate x 0.95
Net Invoice Price -------------------------- ₱ 2,
180.25

32
 This method involves a process similar to the use of the net invoice price rate (NIP rate) applied to the list
price to get the net invoice price. Our discount is still equal to the list price less the net invoice price.

Discount = List Price – Net Invoice Price

= ₱ 3, 000.00 – ₱ 2, 180.25

= ₱ 819.75

We obtained the same result as we got in Method 1.

Method 3:

Using this method, we convert the series of discounts to a single equivalent rate.

Step 1: Deduct the series of discounts individually from 100%.

(a) 100% – 15% = 85% or 0.85

(b) 100% – 10% = 90% or 0.90

(c) 100% – 5% = 95% or 0.95

Step 2: Multiply the resulting products by themselves to get the net invoice price rate.
(a) x (b) x (c) = 0.85 x 0.90 x 0.95

= 0.72675 or 72.675% (NIP rate)

Step 3: Deduct 100% from the result obtained in step 2 to get the single equivalent discount rate.

100% – 72.675% = 27.235% or 0.27235

Take note if we add the NIP rate and the single equivalent discount rate it is 100%.

To get the discount, we multiply the single equivalent discount rate by the list price.
Discount = List Price x Single equivalent discount rate

= ₱ 3, 000.00 x 0.27235

= ₱ 819.75

To get the net invoice price, we multiply the list price by the net invoice price rate (NIP rate) obtained in
the step 2.

Net Invoice Price (NIP) = List Price (LP) x NIP rate

= ₱ 3, 000.00 x 0.72675
= ₱ 2, 180.25

To prove the answer we deduct our list price from the discount.

Net Invoice Price (NIP) = List Price (LP) – Discount

= ₱ 3, 000.00 – ₱ 819.75
= ₱ 2, 180.25

Compare the results we obtained under this method with the results we got in method 1 and method 2.

33
Lesson 2: Cash Discounts
 Cash discount
 It is an incentive that a seller offers to a buyer in return for paying a bill owed before the scheduled due
date.
 A sales discount granted by the seller to the buyer.

Knuckle Method
Source: [Link]

 Term of Sale or Purchase

2 n 3 2 n n n
 These are expressed as , ; , , ; ; .
10 30 10 15 60 oem 45

 Take note of the following terms of payment.

2 n
1. ,
10 30

This read as “two ten, n thirty,” which means you will get a 2% discount if you pay within 10 days
of receiving the invoice. If the 10-day period has passed, the buyer will be given 30 days to pay the invoice
without additional charges or discounts into the account.

 Discount Period – the amount of time a cash discount is available for a customer to make a reduced cash
payment. In other words, this is the period that a seller is willing to reduce the price of a product if the
customer will pay for it in cash.
2 1 3
Example: , ,
10 15 10

 Credit period – the number of days the buyer is allowed to wait before paying an invoice.

34
 n n n
Example: , ,
30 45 60
3 2 n
2. , ,
10 15 60

This is read as “three ten, two fifteen, n sixty.” It means that the buyer will be given a 3%
discount if they pay within 10 days from the date of invoice; or a 2% discount within 15 days
from the invoice date; or to take advantage of the discounts being offered, they can pay within
60 days from the date of invoice.
n
3. −¿ it means that the buyer has to pay the net invoice price by the end of the month of purchase.
eom
n
Also, given 45 days from the date of purchase to pay the account.
45
 Computing for Discount Period and Credit Period
To compute for the deadlines for the discount period and credit period, let us study the following
examples:
2 n
1. Date of invoice: May 5 Term: =
10 30
a. To solve for the deadline for the discount period, we count 10 days from May 5; hence, we get
May 15:
Date of invoice May 5
Discount period 10 days
Deadline for the discount period May 15

b. To solve for the deadline for the credit period, we count 30 days from May 5. We cannot simply
add 30 + 2 since the most number of days in a month is 31. As such, we do the following:

May has 31 days

Less invoice date 5
No. of days in May 26
June 4 – Deadline for the credit period
Credit period 30

We deduct first the invoice date from the number of days in May which is 26. Then, we subtract
26 from 30 to get June 4, then deadline for the credit period.

If the buyer pays between May 5 and May 16, that is, up to May 15, you can get 2% discount. If
you pays on May 16 or later, you have no discount because the discount period has lapsed. To pay the
account, the buyer has June 4, the deadline for the credit period.

3 n
2. Date of invoice: November 29 Term: =
15 60
a. Deadline for discount period:
November has 30 days
Invoice date 29
Days in November 1
December 14 – Deadline for the discount period
Discount period 15 days

b. Deadline for the credit period:

November has 30 days
Invoice date 29
Days in November 1
December has 31 days
32

35
 January 28 – Deadline for the credit period
Credit Period 60

 Computing for Cash Discounts

To compute for cash discounts, we simply multiply the net invoice price by the cash discount rate. Let
us study the following examples:
2 n
1. Victor received an invoice of ₱ 3, 100.00 dated May 5, 2018, terms , . He paid it in full on May 13,
10 30
2018. How much did his net amount due, and cash discount?
Date of Invoice: May 5, 2018
Day 1 of the discount period: May 6, 2018
Last day of the discount period: May 15, 2018
Date of Payment: May 13, 2018 (Victor got a discount of 2% or 0.02)
Given: Net invoice price = ₱ 3, 100.00
Invoice date = May 5
2 n
Term = ,
10 30
Find:
a. Cash Discount
b. Net amount due
Solutions:
a. Cash discount = NIP x Cash discount rate
= ₱ 3, 100.00 x 2% or ₱ 3, 100.00 x 0.02
= ₱ 62.00

b. Net amount due = NIP – Cash discount

= ₱ 3, 100.00 – ₱ 62.00
= ₱ 3, 038.00
To check, if cash discount rate is 2%, the net amount due will represent 98% (100% - 2%);
hence, the Net amount due = NIP x 98% = ₱ 3, 100.00 x 0.98 = ₱ 3, 038.00

The foregoing implies that if the buyer (Victor) pays not later than May 15 then he pays
only ₱ 3, 038.00 instead of ₱ 3, 100.00. Beyond May 15, he pays the invoice amount of ₱ 3, 100.00.

3 n
2. AB Gas, Inc. received an invoice for ₱ 5, 000 dated November 29, 2019, terms , . The invoice is paid
15 60
on December 13, 2019. How much did his net amount due and cash discount?
Date of Invoice: November 29, 2019
Day 1 of the discount period: November 30, 2019
Last day of the discount period: December 14, 2018
Date of Payment: December 13, 2019 (AB Gas, Inc. got a discount of 3% or 0.03)
Given: Net invoice price = ₱ 5, 000.00
Invoice date = November 29, 2019
3 n
Term = ,
15 60
Find:
a. Cash Discount
b. Net amount due
Solutions:
a. Cash discount = NIP x Cash discount rate
= ₱ 5, 000.00 x 3% or ₱ 5, 000.00 x 0.03
= ₱ 150.00

b. Net amount due = NIP – Cash discount

36
 = ₱ 5, 000.00 – ₱ 150.00
= ₱ 4, 850.00

To check, if cash discount rate is 3%, the net amount due will represent 97% (100% - 3%); hence,
the Net amount due = NIP x 97% = ₱ 5, 000.00 x 0.97 = ₱ 4, 850.00

The foregoing implies that if the buyer (AB Gas, Inc.) pays not later than December 14
then he pays only ₱ 4, 850.00 instead of ₱ 5, 000.00. Beyond December 14, he pays the invoice
amount of ₱ 5, 000.00.

Chapter 4:
Simple Interest and Compound Interest
Objectives:
At the end of the module the learners will be able to;
 identify simple and compound interest
 differentiate simple and compound interest problems
 solve problems involving simple and compound interest
 compute for actual and approximate time, and ordinary and exact interest

Reference
 Business Mathematics by: Norma D. Lopez-Mariano, PhD
 Business Mathematics for Filipinos by: Christian Pual O. Chan Shio, Ph.D
 Source: [Link]

INTRODUCTION
Interest is the fee paid for borrowed money. We receive interest when we let others use our money (for
example, by depositing money in a savings account or making a loan). We pay interest when we use other
people’s money (such as when we borrow from a bank or a friend). Are you a “receiver” or a “payer”?

In this chapter we will study simple and compound interest. Simple interest is interest that is calculated
on the balance owed but not on previous interest. Compound interest, on the other hand, is interest calculated
on any balance owed including previous interest. Interest for loans is generally calculated using simple interest,
while interest for savings accounts is generally calculated using compound interest.

The concepts of this chapter are used in many upcoming topics of the text. So hopefully you have interest
in mastering the stuff in this chapter.

Pretest: Let’s try this

1. What comes in your mind when you hear the word “Loan or Lent or Borrow Money”?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
2. What do you think is the difference between Simple Interest and Compound Interest?

37
 ________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
3. What do you think is the comparison of simple and compound interest?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________

Lesson 1: Simple Interest

In business, capital is very important. However, not all
business owners always have enough capital to sustain their
business. More often than not, they have to borrow money for use
in the business. It is in this context that interest plays important
role. Borrowers need to pay interest on the money that they
borrow.

Let’s Start:
 Simple Interest
 It is an interest calculated on the original principal only.
 It is a set as a percentage of principal, and is multiplied by the amount of time.

Key Terms for Simple Interest

 Principal is the amount borrowed.
 Rate (interest rate) is the cost of using money expressed as a percentage of the principal for a given
period of time, which is usually per month and year.
 Time is the term of period of the loan.
 Interest Expense is the amount of money charged for the use of borrowed money (point of view of the
borrower).
 Interest Income is the amount of money earned on the invested money or money lent (point of view of
the creditor).

Simple Interest Formula

Note:
I=Prt The rate and the time should always agree, that is, if rate
is per annum, time should be in year; if rate is per
I – interest (amount paid for the use of money)
month, time should be in month; if rate is per quarter,
P – principal (amount borrowed/lent/invested) time should be in quarter; if rate is per semi-annual,
r – rate (percent of interest being charged to the time should be in semi-annual; and if rate is per day,
money) time should always be in day. In the absence of
stipulation to the contrary, a stated rate of interest is
t – time (number of periods for which the money
understood to be on a per annum or annual basis.
will be borrowed/lent/invested)

MATURITY VALUE or Future Value (F) – total amount due upon maturity.
F=P+I
F = P + (P r t)

F = P (1 + r t)
38
 Examples:
1. Budoy borrowed ₱ 2, 000.00 at 12% interest for 2 years. Find the interest (I) and maturity value (F).
Given: P = ₱ 2, 000.00 Find: I and F
r = 12%
t = 2 years
Solution: a. Interest (I) b. Maturity (F)
I = Prt F = P + I
12%
= ₱ 2, 000 x x 2 years = ₱ 2, 000 + ₱ 480
year

= ₱ 2, 000 x 0.12 x 2 = ₱ 2, 480

= ₱ 480

Note: If we are not asked for the amount interest, but only for the maturity value, we can use alternative
solution.

F = P (1 + rt)
= ₱ 2, 000 [1 + (12%) (2)]
= ₱ 2, 000 [1 + (0.12) (2)]
= ₱ 2, 000 [1 + 0.24]
= ₱ 2, 000 [1.24]
= ₱ 2, 480

Knowing the maturity value, it would be very easy to get the interest. We simply deduct the principal (P)
from the maturity value (F), thus:
I = F – P
= ₱ 2, 480 + ₱ 2, 000
= ₱ 480

2. Sonia lent ₱ 3, 000.00 at 14% for 6 months. How much will she get at the end of the term? How much
interest did she earn?

Given: P = ₱ 3, 000.00 Find: a. F

r = 14% b. I
t = 6 months

Solution A:
a. F = P [1 + rt] b. Interest (I)

= ₱ 3, 000 1+
[ ( 14 % )
yr .
x
(6 months )
12 months / yea r ] I = F–P
= ₱ 3, 210 – ₱ 3, 000

[
= ₱ 3, 000 1+ ( 14 % ) ( 12 )] = ₱ 210

=
[ ( )]
₱ 3, 000 1+
14 %
2

= ₱ 3, 000 [ 1+7 % ] Note:

= ₱ 3, 000 [1 + 0.07] We divide 6 months by 12 to convert it to years
=
=
₱ 3, 000 [1.07]
₱ 3, 210
( 12 year )because the rate is per annum.

39
 Solution B: We solve for the interest first, to wit:

I = Prt F = P + I
(14 %) 6 months
= ₱ 3, 000 x x = ₱ 3, 000 + ₱ 210
year 12 months / year
14 %
= ₱ 3, 000 x = ₱ 3, 210
2

= ₱ 3, 000 x 7%
= ₱ 3, 000 x 0.07

= ₱ 210

3. Cheska lent ₱ 600.00 to Christine at 1% per month for 2 years.

Given: P = ₱ 600 Find: a. I
r = 1% per months b. F
t = 2 years

Solution A: Convert r to per annum because t is in years.

1 % 12 months
r= x =¿ 12 % per year
mo . yr .

a. I = Prt b. Maturity (F)

12%
= ₱ 600 x x 2 years F = P+I
yr .
= ₱ 600 – ₱ 144
= ₱ 600 x 12% x 2 = ₱ 744
= ₱ 600 x 0.12 x 2
= ₱ 600 x 0.24
= ₱ 144

Solution B: Convert t to months because r is in a per month basis.

12 months
t=2 years x =¿ 24 months
yr .

a. I = Prt
1%
= ₱ 600 x x 24 months
month
= ₱ 600 x 1% x 24
= ₱ 600 x 0.01 x 24
= ₱ 600 x 0.24
= ₱ 144

4. Accumulate ₱ 1, 200.00 for 2 years at 3% per quarter simple interest.

Given: P = ₱ 1, 200.00 Find: F

r = 3% per quarter
t = 2 years

Solution A: Convert t to quarters to agree with r expressed per quarter.

4 quarters
t=2 years x =¿ 8 quarters
yr .
40
 F = P [1 + rt]
= ₱ 1, 200 [1 + (3%) (8)]
= ₱ 1, 200 [1 + (0.03) (8)]
= ₱ 1, 200 [1 + 0.24]
= ₱ 1, 200 [1.24]
= ₱ 1, 488

Solution B: Convert r to per annum to conform with t expressed in years.

3 % 4 quarters
r= x =¿ 12%/ years
qtr . yr .

F = P [1 + rt]
= ₱ 1, 200 [1 + (12%) (2)]
= ₱ 1, 200 [1 + (0.12) (2)]
= ₱ 1, 200 [1 + 0.24]
= ₱ 1, 200 [1.24]
= ₱ 1, 488
 Actual Time and Approximate Time
 Approximate time assumes that each of the 12 months in a year has 30 days (360 days in a year)
 Actual time counts the exact number of days (365 days in a year)

Knuckle Method
Source: [Link]

Examples:
3. Find the actual time and the approximate time between April 22 and August 25.

a. Actual Time b. Approximate Time

April has 30 April has 30

– 22 – 22
Days in April 8 Days in April 8
May 31 May 30
June 30 June 30
July 31 July 30
August 25 August 30
125 days 123 days

As stated, actual time is longer than approximate time.

41
 4. Find the actual time and the approximate time between October 18 2015 and March 2, 2019.

a. Actual Time b. Approximate Time

2015: October 31 2015: October 30

– 18 – 18
Days in Oct. 13 Days in Oct. 12
November 30 November 30
December 31 December 30
74 days 72 days
2016: 365 2016: 360
2017: 365 2017: 360
2018: 365 2018: 360
2019: January 31 2019: January 30
February 28 February 30
March 2 March 2
1, 230 days 1, 214 days

 Actual Time and Approximate Time

 Ordinary interest is taken as 360 days.
 Exact interest is taken as 365 days.

Formula: Note:
D D D
I o=P ×r × That ∨ replaces t in our basic formula I =
360 360 365
D Prt.
I e =P× r ×
365
Example:
1. Compute for (a) ordinary interest and (b) exact interest on ₱1000.00 at 8% for 90 days.
Given: P = ₱ 1, 000.00 Find: Io and Ie
r = 8%
t = 90 days
Solutions:
D
a) Io = P x r x
360
90
= ₱ 1, 000 x 8% x
360
8 1 1
= ₱ 1, 000 x x = ₱ 10 x 8 x
100 4 4
₱ 80
= =¿ ₱ 20
4
Note:
D Ordinary interest is higher than
b) Ie = P x r x
365 exact interest. If the problem is silent,
90 we always solve for ordinary interest as
= ₱ 1, 000 x 8% x
365 that is the interest most commonly
= ₱ 1, 000 x 0.08 x 0.02466 used.

= ₱ 19.73

2. Compute for (a) ordinary interest and (b) exact interest on ₱2,000.00 at 1% per month for 60 days.

42
 Given: P = ₱ 2, 000.00 Find: Io and Ie
r = 1% per month
t = 60 days

Solutions:
D
a) Io = P x r x
360
1% 60
= ₱ 2, 000 x x 12months x
month 1 360
60
= ₱ 2, 000 x 12% x
6
360
12 1 1
= ₱ 2, 000 x x = ₱ 20 x 12 x
100 6 6
₱ 240
= =¿ ₱ 40.00
6

D
b) Ie = P x r x
365
1% x 12 months 60 days
= ₱ 2, 000 x x
month year 365 days / yr
60
= ₱ 2, 000 x 12% x
365
= ₱ 2, 000 x 0.12 x 0.16438
= ₱ 39.45

Checked:eg

Lesson 2: Compound Interest

 Compound Interest
 Simple interest is very rarely used in real life: almost all banks and other financial institutions use
compound interest.
 This is when interest is added (or compounded) to the principal sum so that interest is paid on the
whole amount. Under this method, if the interest for the first year is left in the account, the interest for
the second year is calculated on the whole amount so far accumulated.
 It is interest earned on principal plus previous interest.

Example:
Trish and Hannah each have ₱ 100. Trish loans her ₱ 100 to a friend. Her friend agrees to repay her in 3
years, together with 6% simple interest. Hannah deposits her ₱ 100 in a savings account and leaves it there
for 3 years to accumulate interest at 6%, compounded annually. Calculate the amount Trish and Hannah will
have in 3 years.

Trish’s balance at the end of year 3 (simple interest):

I = PRT = ₱ 100 × 6% × 3 = ₱ 18 M = P + I = ₱ 100 + ₱ 18 = ₱ 118

Hannah’s balance at the end of each year (compound interest):

Yr. 1: I = PRT = ₱ 100 × 6% × 1 = ₱ 6 M = P + I = ₱ 100 + ₱ 6 = ₱ 106

Yr. 2: I = PRT = ₱ 106 × 6% × 1 = ₱ 6.36 M = P + I = ₱ 106 + ₱ 6.36 = ₱ 112.36
Yr. 3: I = PRT = ₱ 112.36 × 6% × 1 = ₱ 6.74 M = P + I = ₱ 112.36 + ₱ 6.74 = ₱ 119.10

Trish will end up with ₱ 118. Hannah will end up with ₱ 119.10. In figuring interest for Hannah, the year
1 ending balance (₱ 106) was used to calculate interest for year 2, and the year 2 ending balance (₱ 112.36) was
43
used to calculate interest for year 3. This is how compound interest works; interest is earned on principal plus
previous interest.

 Compound Interest Formula

( )
nt
r
F=P 1+
n

In the above formula,

 F – is the accumulated value or maturity value or future value;
 P – is the principal amount or the original amount borrow, lent or loan;
 r – is the nominal interest rate;
 n – is the number of times interest is compounded in year, semi-annual, quarter and/or monthly; and
 t – is the time in year.

If n is not specified, then it is assumed that interest is compounded annually (i.e., n = 1).

Example:
Donna borrows ₱ 12, 500.00 from Garry, and this loan payable in two years. How much will Donna pay
Garry at the end of two years if the 11.5% interest rate Garry mentioned was compounded (a) annually,
(b) semi-annually, (c) quarterly, and (d) monthly, and (e) daily?

Given: P = ₱ 12, 500.00

r = 11.5%

t = 2 years
Solution:
a. Annual interest means interest is compounded once a year, so n = 1. Hence,

( )
nt
r
F=P 1+
n

₱ 12, 500 ( 1+
1 )
1x 2
0.115
=
= ₱ 12, 500 ( 1+0.115 )
2

= ₱ 12, 500 (1.115)

2

= ₱ 12, 500 (1.243225)

= ₱ 15, 540.31

This means that Donna has to pay Garry ₱ 15, 540.31 at the end of two years.

b. We take n = 2 to reflect semi-annual payments, so the amount paid by Donna after 2 years is

( )
nt
r
F=P 1+
n

( )
2x 2
0.115
= ₱ 12, 500 1+
2
= ₱ 12, 500 ( 1+0.0575 )
4

= ₱ 12, 500 (1.0575)

4

= ₱ 12, 500 (1.250609)

= ₱ 15, 632.61

c. For quarterly payments, we let n = 4, and so the amount due to Garry is

( )
nt
r
F=P 1+
n

44
 ( )
4 x2
0.115
= ₱ 12, 500 1+
4
= ₱ 12, 500 ( 1+0.02875 )
8

= ₱ 12, 500 (1.02875)

8

= ₱ 12, 500 (1.254523)

= ₱ 15, 681.54

d. Monthly compounding means interest is computed n = 12 times a year. Hence, the amount Donna must pay
is

( )
nt
r
F=P 1+
e.
n

( )
12 x 2
0.115
= ₱ 12, 500 1+
12
= ₱ 12, 500 ( 1+0.009583 )
24

= ₱ 12, 500 (1.009583)

24

= ₱ 12, 500 (1.257213)

= ₱ 15, 715.16

e. For daily interest rate compounding, we have n = 365. Thus, Donna must pay Garry

( )
nt
r
F=P 1+
f.
n

( )
365 x2
0.115
= ₱ 12, 500 1+
365
= ₱ 12, 500 ( 1+0.0003151 )
730

= ₱ 12, 500 (1.0003151)

730

= ₱ 12, 500 (1.258583)

= ₱ 15, 732.29

Checked:eg

Chapter 5:
Sinking Funds and Loan Amortization
Objectives:
At the end of the module the learner will be able to;
 identify sinking funds and loan amortization
 differentiate of sinking funds and loan amortization problem
 solve problems involving sinking funds and loan amortization
 compute for sinking funds and amortization schedule

References
 Business Mathematics by: Norma D. Lopez-Mariano, PhD
 General Mathematics by: Lynie Dimasuay
 Source: [Link]

INTRODUCTION
Interest is the fee paid for borrowed money. We receive interest when we let others use our money (for
example, by depositing money in a savings account or making a loan). We pay interest when we use other
people’s money (such as when we borrow from a bank or a friend). Are you a “receiver” or a “payer”?

In this chapter we will study different methods of repaying interest-bearing loans, which is one of the
most important applications of annuities in business transactions.

45
 When a specified amount of money is needed at a specified future date, it is a good practice to accumulate
systematically a fund by means of equal periodic deposits and payments. Such as sinking fund and loan
amortization. A schedule showing how a sinking fund and loan amortizes accumulates.

When they used to liquidate an interest-bearing debt, a series of periodic payments, usually equal, is
made. As time goes on, the outstanding principal is gradually reduced and interest on the unpaid balance
decreases. The common commercial practice is to round the payment up to the next cent. Instead of rounding up
to the next cent, the lender may round up to the next peso. In any case the rounding of the payment up to the
cent, to the peso will result in a smaller concluding payment.

Pretest: Let’s try this

1. Why you need a sinking fund and loan amortization?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
2. What do you think is the difference between sinking fund and loan amortization?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
3. What do you think is the comparison of sinking fund and loan amortization?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Lesson 1: Sinking Fund
Annuities have many applications such as in nominal funds. Examples of
nominal funds are sinking funds which are funds formed to accumulate a certain
amount at a certain period of time.
We will now examine situations where regular periodic payments are
made to or taken from an account. When a sequence of payments of some fixed
amount are made into or taken out of an account at equal intervals of time, we
call this an annuity.
When the payments are made at the end of each period rather than at the beginning, we call it an
ordinary annuity. If the payments are made at the beginning of each period rather than at the end, we call it an
annuity due.
We will assume all annuities are ordinary and, furthermore, are certain, meaning the payments are made
over a set period of time. All annuities discussed will also have the number of payments equal the number of
compounding periods and all deposits/withdrawals will be stated.

Let’s Start:
 Sinking Fund
 It is a fund established to meet future needs or obligations by making payments or deposits into the
fund.
 The fund is put into an account providing compound interest. Also, most of it are in the form of an
ordinary annuity.

46
  When a specified amount of money is needed at a specified future date, it is a good practice to
accumulate systematically a fund by means of equal periodic deposits.

Sinking Fund Formula in finding Future Value and Regular Payment

[ ]( )
[( ) ]
i
nt
i
1+ −1 n
n
A = R R = A i
nt
i 1+ −1
n n

A – future value of accumulated amount Note:

R – regular payment for the fund or deposits or payment The rate and the time should always
agree, that is, if rate is per annum, time
i – nominal interest rate (percent of interest being should be in years; if rate is per month, time
charged to the money) should be in months; if rate is per quarter,
time should be in quarter; if rate is per
n – is the number of times interest is compounded in semi-annual, time should be in semi-annual;
year, semi-annual, quarter and/or monthly; and and if rate is per day, time should always be
in days. In the absence of stipulation to the
t – time (number of periods for which the money will be contrary, a stated rate of interest is
borrowed/lent/invested) understood to be on a per annum or annual
basis.

Examples 1:
A sinking fund is established in order to prepare for the replacement of equipment in a business. It is
estimated that the total amount required for sinking fund is ₱ 2, 000, 000.00. If the owner of business wants
to accumulate the needed amount after 10 years, how much must be the sinking fund payments if the
interest rate is 2% compounded semi-annually?

Given: A = ₱ 2, 000, 000.00

i = 2% = 0.02
t = 10 years
n = 2 (semi-annually)
Solution: Two-way solution to find the regular payment of the fund.
1. Future value formula. 2. Regular payment formula.

[ ]( )
[( ) ]
i
nt
i
1+ −1 n
n
A = R R = A nt
i i
1+ −1
n n

[ ]
( )
[( ]
0.02
(2)(10 )
0.02
1+ −1 2
2
₱ 2, 000, 000 = R R = ₱ 2, 000, 000
0.02
2
1+
2 )
0.02 (2)(10 )
−1

₱ 2, 000, 000 = R
[ ( 1.01 )20−1
0.01 ] R = ₱ 2, 000, 000
[ 0.01
( 1.01 )20−1 ]
₱ 2, 000, 000 = R [
0.220190039947966824
0.01 ] [ R =
0.01
₱ 2, 000, 000

]
₱ 2, 000, 000 = R [ 22.01900399 ] 0.220190039947966824

₱ 2 , 000,000 R = ₱ 2, 000, 000[ 0.04541531489 ]

R =
[ 22.01900399 ]
R = ₱ 90, 830.63
47
 R = ₱ 90, 830.63

Therefore, ₱ 90, 830.63 must be put into the fund at the end of each compounding period.

Note:
Don’t round off or round up all decimals in the computation, so that you turn your answer in a correct
procedure. Except for your final answer you can round off or round up to the nearest hundredths or two
decimal places. Just follow the steps in making the computation.

Example 2:
To prepare for their son’s college studies, Mr. and Mrs. Hope put up a sinking fund at 3% interest rate
compounded monthly. In four years, the fund must have ₱ 200, 000.00. How much monthly payment must be
put into the sinking fund?

Given: A = ₱ 200, 000.00 t = 4 years

i = 3% or 0.03 n = 12

Solutions:

[ ]
( )
[( ) ]
i
nt
i
1+ −1 n
n
A = R R = A nt
i i
1+ −1
n n

[ ]
( )
[( ]
(12)(4)
0.03 0.03
1+ −1
12 12
₱ 200, 000 = R R = ₱ 200, 000
)
(12)(4)
0.03 0.03
1+ −1
12 12

₱ 200, 000 = R
[ ( 1.0025 )48−1
0.0025 ] R = ₱ 200, 000
[ 0.0025
( 1.0025 )48−1 ]
₱ 200, 000 = R [ 0.127328021039933978
] R = ₱ 200, 000

₱ 200, 000 =
0.0025

R [ 50.93120842 ]
[ 0.0025
0.127328021039933978 ]
R = ₱ 200, 000[ 0.01963432699 ]
₱ 200,000
R =
[ 22.01900399 ] R = ₱ 3,926.87

R = ₱ 3,926.87

Hence, ₱ 3,926.87 must be put into the account every end of the month.
Illustration 4.1:
How long regular quarterly payment of ₱ 60, 0000.00 must be made into sinking fund in order to
accumulate a value of at least ₱ 1, 000, 000.00 at 5% annual interest compounded quarterly?
Given: This is an ordinary annuity with

R = ₱ 60, 000.00 n = 4

i = 5% or 0.05

You want to find t such that A ≥ ₱ 1, 000, 000.00

Solution:

48

3.625
 [ ] ( )
nt
i
1+ −1 ≥ ₱ 1, 000, 000
n
A = R
i
50
n
₱ 1 , 000,000
≥
₱ 60, 000 ₱ 60 , 000

[ ]
3

( )
(4)(t )
0.05
1+ −1
4
0.05
4
₱ 60, 000

(0.0125)
[ ( 1.0125 )4 t −1
0.0125 ] ≥
50
3
(0.0125)

4t 0.625
(1.0125) −1+1 ≥ + 1
3
4t 3.625
(1.0125) ≥
3

¿(1.0125)
4t
≥ ¿( )
3.625
3

¿(
3 )
3.625
4t In 1.0125 ≥

¿(
3 )
3.625
t ≥ ≈ 3.81
4∈1.0125

Since you have to restrict the number of compounding periods, nt, to integral values, then t must be in
years. Hence, it will take 4 years (or 16 quarters) to accumulate ₱ 1, 000, 000.00 in the sinking fund.

Another way of solving the example is to trace the balance in the fund until at least ₱ 1, 000, 000.00 is
made. The sinking fund schedule of the sinking fund is shown below.

49
 Deposit/Payment at
End of Period Interest Earned Balance at the end of
the end of the Period
(Quarter) during the Period (₱) the Period (₱)
(₱)
1 60,000 0.00 60,000.00
2 60,000 750.00 120,750.00
3 60,000 1509.38 182,259.38
4 60,000 2278.24 244,537.62
5 60,000 3056.72 307,594.34
6 60,000 3844.93 371,439.27
7 60,000 4642.99 436,082.26
8 60,000 5451.03 501,533.29
9 60,000 6269.17 567,802.45
10 60,000 7097.53 634,899.98
11 60,000 7936.25 702,836.23
12 60,000 8785.45 771,621.69
13 60,000 9645.27 841,266.96
14 60,000 10515.84 911,782.79
15 60,000 11397.28 983,180.08
16 60,000 12289.75 1,055,469.83
Total ₱ 960,000.00 ₱ 95,469.83

At the end of the 16th period or 16 quarter (equivalently, at the end of 4 years), the balance in
sinking fund is ₱ 1, 055, 469.83. This verifies the answer you arrived at.

Note:
In making a sinking fund schedule, if possible don’t use the rounding off or rounding up in computation
so that it will be in proper answer and get the balance or if you use round off or round up use at least 8 to
10 decimal places, just in the final answer in your answer sheet you can use the rounding off or round up
into the nearest hundredths or two decimal places, like our example above it is rounded off into the nearest
hundredths but not in the computation, because you cannot see the same answer in the balance if you
calculate in just two decimal places in your computation.

In the third column of the table represents the amount of interest earned in the sinking fund
balance.

The start of the quarter there is no interest earned that why the balance is ₱ 60, 000, the second
quarter that’s the start of the interest must be given in addition to the fund. Thus, the interest earned is

Interest earned during the Period = Balance at the end of the Period x []
i
n

= ₱ 60, 000 [ ]=
0.05
4
3 ,000
4
= ₱ 750.00

The forth column of the sinking fund schedule represent the amount added from the balance at the
end of the period and added the payment or amount deposited from the fund.

50
 Balance at the end of the Period = Balance + Deposit at the end of the Period + Interest
= ₱ 60, 000 + ₱ 60, 000 + ₱ 750
= ₱ 120,750.00

Continuing this process until the amount deposit in fund will be made give the entries in the sinking
fund schedule.

Lesson 2: Loan Amortization

We will now learn about conventional loans (also called amortized loans or installment loans). Examples
include auto loans and home mortgages. These techniques do not apply to payday loans, add-on loans, or
other loan types where the interest is calculated up front.
When making "large" purchases, (car, house, furniture ...), you may be required to put some money
towards the purchase and then finance the remaining balance. The amount of money you pay towards the
purchase, prior to financing, is called a down payment.
When the down payment is given as a percentage of the purchase price, d%, the loan amount can be
found by directly computing

 Amortization
 It is a process of paying a loan or debt by means of providing equal regular payments considering the
compound interest earned.
 The borrower repays the lender by means of installment payments at regularly spaced time points.

Amortization Formula in finding Present Value/Principal Amount and Regular

Payment

[ ] ( )
[ ( )]
i
−nt
i
1− 1+ n
n
P = R R = P i
−nt
i 1− 1+
n n

In the above formula,

 P – is the principal amount or the original amount borrow, lent or loan;
 R – regular payment for the loan.
 i – nominal interest rate (percent of interest being charged to the money);
 n – is the number of times interest is compounded in year, semi-annual, quarter and/or monthly; and
 t – is the time in year.
If n is not specified, then it is assumed that interest is compounded annually (i.e., n = 1).

Illustration 4.2:
The Sotto family made a loan of ₱ 750, 000 to buy a new house. They decided to amortize the loan at 3%
interest compounded quarterly. If the loan must be paid within 5 years, how much should the Sotto family pay
quarterly?
Given: P = ₱ 750, 000.00 i = 3% or 0.03; n = 4; and t = 5 years

Solution: Two-way solution to find the regular payment of the fund.

1. Present value formula. 2. Regular payment formula.

[ ] ( )
−nt
i
1− 1+
n
P = R
i
n

51
 [ ( )
] [ ( )]
0.03
−(4 )(5)
i
1− 1+ n
4
₱ 750, 000 = R R = P −nt
0.03 i
1− 1+
4 n

[ ]
[( ) ]
−20
1−( 1.0075 ) 0.03
₱ 750, 000 = R
0.0075 4
R = ₱750, 000 −(4 )(5)
0.03
₱ 750, 000 = R [ 1−0.86118985229725
0.0075 ] 1− 1+
4

₱ 750, 000 = R [ 0.1388101477027498708

0.0075 ]
R = ₱ 750, 000
[ 0.0075
1−( 1.0075 )
−20
]
₱ 750, 000 = R [ 18.5080196936 ]
R = ₱ 750, 000 [ 0.0075
1−0.86118985229725 ]
₱ 750,000 R = ₱ 750, 000
R =

R =
[ 18.5080196936 ]
₱ 40, 522.97
[ 0.0075
0.1388101477027498708 ]
R = ₱ 750, 000[ 0.0540306319395367 ]

R = ₱ 40, 522.97

Thus, the Sotto family must pay ₱ 40, 522.97 every quarter.
To keep track of the remaining loan balance, a table called amortization schedule is constructed. It
contains the remaining amount of payments for the loan, the interest charged against the loan balance, and the
remaining loan balance.

The amortization schedule for the loan of Sotto family is shown below:

Number of Regular Interest Earned by Reduction to

Loan Balance (₱)
Payments Payment (₱) the Loan Balance (₱) Loan Balance (₱)

0 750,000.00
1 40,522.97 5,625.00 34,897.97 715,102.03
2 40,522.97 5,363.27 35,159.70 679,942.32
3 40,522.97 5,099.57 35,423.41 644,518.91
4 40,522.97 4,833.89 35,689.08 608,829.83
5 40,522.97 4,566.22 35,956.75 572,873.08
6 40,522.97 4,296.55 36,226.43 536,646.65
7 40,522.97 4,024.85 36,498.12 500,148.53
8 40,522.97 3,751.11 36,771.86 463,376.67
9 40,522.97 3,475.33 37,047.65 426,329.02
10 40,522.97 3,197.47 37,325.51 389,003.51
11 40,522.97 2,917.53 37,605.45 351,398.07
12 40,522.97 2,635.49 37,887.49 313,510.58
13 40,522.97 2,351.33 38,171.64 275,338.93
14 40,522.97 2,065.04 38,457.93 236,881.00
15 40,522.97 1,776.61 38,746.37 198,134.63
16 40,522.97 1,486.01 39,036.96 159,097.67
17 40,522.97 1,193.23 39,329.74 119,767.93

52
 18 40,522.97 898.26 39,624.71 80,143.21
19 40,522.97 601.07 39,921.90 40,221.31
20 40,522.97 301.66 40,221.31 0.00

Total ₱ 810,459.48 ₱ 60,459.48 ₱ 750,000.00

Note:
In making a amortization schedule, if possible don’t use the rounding off or rounding up in computation
so that it will be in proper answer and get the balance or if you use round off or round up use at least 8 to
10 decimal places, just in the final answer in your answer sheet you can use the rounding off or round up
into the nearest hundredths or two decimal places, like our example above it is rounded off into the nearest
hundredths but not in the computation, because you cannot see the same answer in the balance if you
calculate in just two decimal places in your computation.

The third column of the table represents the amount of interest charged against the loan of the
balance.

At the start of the first quarter, the balance is ₱ 750, 000. Thus, the interest is

Interest earned by the Loan Balance = Loan Balance x [] i

n

= ₱ 750, 000 [ ]=
0.03
4
22,500
4
= ₱ 5, 625.00

The fourth column of the amortization table represents the amount deducted from the balance. This
deduction is the net of interest. During the first quarter, the amount of reduction in the loan balance is

Reduction to Loan Balance = Regular payment – Interest earned by the Loan Balance

= ₱ 40,522.97 – ₱ 5, 625.00
= ₱ 34, 897.97

Hence, the balance at the end of the quarter is

Balance at the end the Period = Loan Balance – Reduction to Loan Balance
= ₱ 750, 000 – ₱ 34, 897.97
= ₱ 715, 102.03

During the second quarter, the amount of interest earned by the loan balance is

₱ 715, 102.03 [ ]
0.03
4
=
21 , 453.0609
4
= ₱ 5, 363.27

Thus, the reduction in the loan balance is ₱ 40,522.97 – ₱ 5, 363.27 = ₱ 35, 159.70 and the balance at the end
of the second quarter is ₱ 715, 102.03 – ₱ 35, 159.70 = ₱ 679, 942.32.
Continuing this process until the loan balance is zero (or all payments are made) will be give the entries in
the amortization schedule.
Notice that interest earned by the loan is charged against the loan balance. This is why the interest decreases.
Often, to reduce the interest more, a portion of the total loan balance is paid during loan enrollment/property
acquisition. This portion of the loan is called the down payment.

Example 1:

You want to purchase a second-hand automobile worth ₱ 200, 000. The current owner of the automobile
suggested that you pay ₱ 70, 000 initially, and then the remaining at 2% interest compounded monthly for the
next 2 years. Suppose you accept the suggestion; how much you pay monthly?
53
Given:
The down payment for the automobile is ₱ 70, 000. Hence, ₱ 130, 000 will be amortized.

P = ₱ 130, 000, i = 2% or 0.02, n = 12, and t = 2 years

Solution: Using the two formula with the same result in finding R.

1. Present value formula. 2. Regular payment formula.

[ ] ( )
[ ( )]
−nt
i i
1− 1+
n n
P = R
i R = P −nt
i
n 1− 1+
n

[ ]
( )
[( ]
−(12)(2)
0.02 0.02
1− 1+
12 12
₱ 130, 000 = R
0.02 R = ₱ 130, 000
)
−(12)(2)
0.02
12 1− 1+
12

[ ]
−24
1−( 1.00166667 )
₱ 130, 000 = R
0.00166667 R = ₱ 130, 000
[ 0.00166667
1−( 1.00166667 )
−24
]
₱ 130, 000 = R [ 1−0.96082135372136826
0.00166667 ] R = ₱ 130, 000

[ 0.00166667
1−0.96082135372136826 ]
₱ 130, 000 = R [
0.03917864627863174
0.00166667 ] R = ₱ 130, 000

₱ 130, 000 = R [ 23.5071370230627 ] [ 0.00166667

0.03917864627863174 ]
₱ 130,000
R = R = ₱ 130, 000[ 0.04254026512674614 ]
[ 23.5071407528975 ]
R = ₱ 5, 530.23 R = ₱ 5, 530.23

Thus, you must pay ₱ 5, 530.23 monthly.

Example 2:

You can borrow ₱ 50, 000 from a Company A in exchange of ₱ 55, 000 that is to be paid by making equal
monthly payment at 0% interest for one and a half years. You can borrow the same amount from Company B in
exchange of paying the amount that is amortized at 3% interest compounded monthly for the next one and a half
year. Which firm will you choose to borrow in order to have lower monthly payments?

Solution:
Company A charge no interest, then the amount of monthly payment is
₱ 55 , 000 ₱ 55,000
R = = = ₱ 3 , 055.56
( 1.5 ) (12) 18

For Company B, you have

P = ₱ 50, 000, i = 3% or 0.03, n = 12, and t = 1.5 year

1. Present value formula. 2. Regular payment formula.

54
 [ ] ( )
[ ( )]
i
−nt
i
1− 1+ n
n
P = R R = P −nt
i i
1− 1+
n n

[ ]
( )
[( ]
0.03
−(12)(1.5) 0.03
1− 1+ 12
12
₱ 50, 000 = R R = ₱ 50, 000
)
−(12)(1.5)
0.03 0.03
1− 1+
12 12

[ ] [ ]
−18
1−( 1.0025 ) 0.0025
₱ 50, 000 = R R = ₱ 50, 000 −18
0.0025 1−( 1.0025 )

₱ 50, 000 = R [ 1−0.95605116874181847

0.0025 ] [ R = ₱ 50, 000
0.0025
]
1−0.95605116874181847
₱ 50, 000 = R [ 0.04394883125818153
0.0025 ] R = ₱ 50, 000 [ 0.0025
0.04394883125818153 ]
₱ 50, 000 = R [ 17.579532503272612 ]
R = ₱ 50, 000[ 0.056884334086463314 ]
₱ 50,000
R = R = ₱ 2, 844.22
[ 17.579532503272612 ]
R = ₱ 2, 844.22

Borrowing from Company B requires lower monthly payment.

Checked:mpbsayson-12182020

References:

 Business Mathematics by: Norma D. Lopez-Mariano, PhD

 Resources
(1) C.P. McKeague, Prealgenra
(2) E.P. Vance, Modern Algebra and Trigonometry

55
 (3) Bezuk, N., and Cramer, K. (1989). Teaching About Fractions: What, When, and How?
[Link]/ci/rationalnumberproject/89_1.html

 This link will give more information about fractions:

[Link]

 Resources
(1) Pre-Algebra (Prentice Hall Mathematics);
(2) New Mathematics Counts (Marshall Cavendish Education);
(3) Internet access

 Source: [Link]
from_action=save
 Business Mathematics for Filipinos by: Christian Pual O. Chan Shio, Ph.D
 Source: [Link]
 General Mathematics by: Lynie Dimasuay
 Source: [Link]

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