Ge 4 Module 5

QUIRINO STATE UNIVERSITY
MADDELA CAMPUS
Maddela, 3404 Quirino
COLLEGE OF TEACHER EDUCATION

…promoting pedagogical excellence
ONLINE LEARNING MODULE

Finals
in
GE 4
(Mathematics in the Modern World)
Prepared by:
LEONIDA P. BARTOLOME, MAT

A.Y. 2020-2021
VISION MISSION
The leading center for academic and technological excellence and Develop competent and morally upright professionals and generate
prime catalyst for a progressive and sustainable Quirino Province and appropriate knowledge and technologies to meet the needs of
Southern Cagayan Valley. Quirino Province and Southern Cagayan Valley.
“Molding Minds, Shaping Future”
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INSTRUCTION IN USING THIS ONLINE LEARNING

MODULE
1. Read all the topics discussed. This will give you an idea on what
you should know and be able to do after completing all the
modules.
2. Read the topics and at the same time look at the illustrations for
better comprehension.
3. After reading the module, you can proceed to Enrichment
Activities and Comprehension Check. Accomplished these
two requirements and send it to my Gmail. Read directions
very carefully. After that, you can now take the quiz before
proceeding to the next Module.(If there are any.)
4. Keep contact with your instructor for any questions regarding
your learning activities.
5. Be ready for a major examination. (Prelims, Midterms, and Final
Examinations)
6. God bless and happy working…
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Module 5 MATHEMATICS OF FINANCE

a. Simple and Compound Interests
b. Credit Cards and Consumer Loans
c. Stocks, Bonds and Mutual Funds
d. Home Ownership
Competencies 1. Use mathematical concepts and tools in other areas such as in finance, voting,
logic, business, networks and systems.
2. Support the use of mathematics in various aspects and endeavors in life.
3. Compute simple and compound interest.
4. Compute credit card finance charges.
5. Make an amortization schedule for a home loan.
6. Compute the profit or loss from a stock sale.
Discussion We live in a credit society. Many people and businesses “buy now and pay later”
or buy in installment. We may be short of cash but still buy a luxury items or any other
item we badly need at current time, especially if we can buy it with a bid discount.
However, everything has a price. The price we pay for “buying and paying later”, or
the amount added to the cash price when buying in installment plan, is interest. Think
of interest as a rental for the use of money.
Whoever gives or receives interest, it should be clear as to what will be the
basis of computing interest, simple or compound interest. Simple interest is interest on
the amount invested or borrowed at a given rate and for a given time. Compound
interest involves not only the interest on the amount borrowed, but also includes
interest on interest as it is earned over time.
SIMPLE INTEREST
Interest is rent paid for the use of money. As investor, people rent their money
for use by banks, corporations and other financial institution. As borrowers, people and
business firms rent money from these banks, credit unions, and the like to purchase
homes, cars and furniture’s or acquires goods and services on credit (use now, pay
later). The money paid for the use of money and credit is called interest. Computing
interest is similar to finding the percentage, with time as an additional factor, where
percentage is the interest, the base is the principal and rate is the rate of interest. This
leads to the simple interest formula.
I = Prt
where: I = Simple Interest is the fee charged for the use of money
P = Principal (in pesos) is the amount of money borrowed or
placed into a savings account.
r = interest rate per period of time, expressed as percent or a fraction
t = time (in years) between the date the loan is made and the date
it matures or becomes repayable to the lender.
The maturity value, F, the total amount the borrower would need to pay back,
is given by the formula: F = P + I.
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Also F = P + P r t, leading to F = P ( 1 + rt )
Interest is charged as a percent of the principal for a definite period of time.
Rates are stated in terms of one year unless otherwise specified. A stated rate of 15%
means 15% of the principal from one year.
Examples:
1. Find the interest on a loan of ₱ 1,000 for one year if the interest rate is 15%.
Given: P = ₱ 1,000 Solution:

r = 15% = .15 I = Prt
t = 1 year = (₱ 1,000) (.15 ) (1)
= ₱ 150
If the term is 2 years, then the interest is:
r = 15% = .15 I = Prt
t = 2 years = (₱ 1,000) (.15 ) (2)
= ₱ 300
2. GSIS has issued a 2 – year loan of ₱ 50,000 to a government employees at a

rate of 12%. What amount will be repaid at the end of the second year?

r = 12% = .12 I = Prt
t = 2 years = (₱ 50,000) (.12 ) (2)
= ₱ 12,000
The amount to be repaid is the principal plus the interest,
F = P + I
= ₱ 50,000 + ₱ 12,000
= ₱ 62,000
Or since the problem is asking for the amount, we can go immediately
to solving for F and not anymore solving for I.
Using P = ₱ 50,000, r = 12% = .12, t = 2 years, we have:
F = P ( 1 + rt )
= ₱ 50,000 [ 1 + .12 (2)]
= ₱ 50,000 [ 1 + .24]
= ₱ 50,000 (1.24)
= ₱ 62,000.
3. A ₱ 5,000 savings account earned ₱ 1,000 interest in 2 ½ years. What was the
rate on interest given?
Given: P = ₱ 5,000, I = ₱ 1,000, t = 2 ½ years
Solution: from I =Prt

I 1,000
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r= = = .08 = 8%
Pt (5,000)(2 ½ years)
4. At the end of 2 years, ₱ 36,000 in interest was paid on an 18% simple – interest
loan. How much was borrowed?
Given: P = ₱ 36,000, r = 18% = .18, t = 2 years
Solution: from I =Prt

I 36,000 36,000
P= = = = ₱ 100,000
rt (0.18)(2 years) 0.36
5. James needs ₱ 20,000 to buy office furniture in his new office in Paranaque.
He wants to limit the interest he will pay when he borrows the amount in a bank
to ₱ 3,900 only. If the bank charges 13% interest, how long must he pay his
obligation?
Given: P = ₱ 20,000, I = ₱ 3,900, r = 13% = .13

Solution: from I=Prt
I 3,900
r= = = 1.5 years or 1 year & 6 months
Pr (20,000)(.13)
6. Find the interest on a loan of ₱ 50,000 at 18% simple interest and which was
paid after 6 months.
r = 18% = .18 I = Prt
t = 6 months = 6/12 = ½ = (₱ 50,000) (.18 ) (1/2)
= ₱ 4,50
Ordinary and Exact Interest

There are times when money is borrowed for a certain number of days only. If
the number of months is placed over 12 (12 months in one year), the number of days
is placed over 360 or 365,(360 days in one year for ordinary interest, based on 12
months in one year, and 365 in one year for exact interest.)
Unless otherwise specified, ordinary interest is computed when the term of the
loan is given in days; that is why, it is termed as the commonly-used method and the
Bankers Rule.
To compute ordinary interest, we use the formula Io = Pr (D/360) while to
compute the exact interest, we use Ie = Pr (D/365).
Examples:
1. Find the ordinary and exact interest on ₱ 15,000 if it is invested at 15% for 60
days.
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a. Ordinary Interest
Given: P = ₱ 15,000 r = 15% = .15 D = 60 days
Solution:
Io = Pr (D/360) = (₱ 15,000)(.15)(60/360) = 15,000 (.15)(1/6) = ₱ 375.00
b. Exact Interest
Solution:
Ie = Pr (D/365) = (₱ 15,000)(.15)(60/365) = ₱ 369.86
2. Mrs. Lorenzo made a loan of ₱ 248,000 to renovate a portion of her house from
a bank that charges 16% interest. How much did she pay the bank after 120
days using the ordinary interest method?
Given: P = ₱ 248,000 r = 16% = .16 D = 120 days

Solution:
Io = Pr (D/360) =(₱ 248,000)(.16)(120/360)= 248,000 (.16)(1/3) = ₱ 13,226.67
The amount Mrs. Lorenzo needed to pay the bank consisted of the original
amount of loan plus interest. Therefore, she needed to pay the final amount, F.
Thus,
F = P + Io
= ₱ 248,000 + ₱ 13,226.67
= ₱ 261,226.67
3. Find the maturity value of ₱ 4,250 at 9% for 90 days using exact interest
method.
Given: P = ₱ 4,250 r = 9% = .09 D = 90 days
Solution:
F = P[ 1 + r (D/365)]
= 4,250[ 1 + .09(90/360)]
= 4,250 ( 1.02219178)
= ₱ 4,344.32
4. Find the interest on ₱ 8,000 if invested at 8 ¾% for 100 days.

Given: P = ₱ 8,000 r = 8 3/4% = .0875 t = 100 days
Solution:
Io = Pr (D/360) = (₱ 8,000)(.0875)(100/360) = ₱ 194.44
5. Find the time if the ordinary simple interest on ₱ 6,000 at 10% is ₱ 200.
Given: P = ₱ 6,000 r = 10% = .10 I = ₱ 200
Solution:
I 200
t= = = 1/3 year or 120 days (360-day year)
Pr 6,000(.10)
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6. What is the interest rate at which ₱ 4,260 is invested if it earned an exact simple
interest of ₱ 94.54 after 90 days?
Given: P = ₱ 4,260 D = 90 days I = ₱ 94.54
Solution:
I ₱ 94.54
r= = = 0.09 or 9%
P(D/360) ₱ 4,260 (90/360)
The Banker’s Rule

The Banker’s rule treats every month like it has 30 days, so it uses 360 days in a
year. They claim that the computations are easier to do. When a lending institution
uses 360 days instead of 365, how does that affect the amount of interest?
For example, on a Php 5,000 loan at 8% for 90 days, the interest would be
𝐼 = 𝑃𝑟𝑡
90
𝐼 = (5,000)(0.08) ( ) = 𝑃ℎ𝑝 98.63
365
Using the Banker’s rule, the interest is
𝐼 = 𝑃𝑟𝑡
90
𝐼 = (5,000)(0.08) ( ) = 𝑃ℎ𝑝 100.00
360
Examples:
1. Find the interest of a Php 1,800.00 loan at 6% for 120 days. Use the Banker’s
rule.
Solution:
120
𝑃 = 𝑃ℎ𝑝 1,800.00, 𝑟 = 6% = 0.06, 𝑡 =
360
𝐼 = 𝑃𝑟𝑡
120
𝐼 = (1,800)(0.06) ( ) = 𝑃ℎ𝑝 36.00
360
2. A student obtained a 2-year Php 4,000.00 loan for college tuition. The rate was
9% simple interest and the loan was discounted loan.
a. Find the discount.
b. Find the amount of money the student received.
c. Find the true interest rate.
Solution:
a. The discount is the total interest for the loan.
𝑃 = 4,000, 𝑟 = 9%, 𝑡 = 2 𝑦𝑒𝑎𝑟𝑠
𝐼 = 𝑃𝑟𝑡
𝐼 = 4,000)(0.09)(2) = 720
(
The discount is Php 720.00
b. The student received Php 4,000.00 – Php 720.00 = Php 3,280.00

c. The true interest rate is calculated by finding the rate on a Php 3,280.00 loan
with Php 720.00 interest.
𝐼 = 𝑃𝑟𝑡
720 = (3,280)(𝑟)(2)
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720 = 6,5560𝑟
720
𝑟= = 0.1098
6,560
The true interest rate is approximately 10.98%.
COMPOUND INTEREST
When interest is computed on the principal and any previously earned

interest, it is called compound interest.
When interest is calculated once each year, we ay that it is compounded
yearly. In many cases, interest is computed at more frequent intervals than that. It
can be compounded semiannually (twice a year), quarterly (4 times a year), monthly
(12 times a year), or even daily.
Formula for Computing Compound Interest

𝒓 𝒏𝒕
𝑨 = 𝑷 (𝟏 + )
𝒏
Where :
A is the future value
r is the yearly interest rate in decimal form
n is the number of times per year the interest is compounded
t is term of the investment in years
Example 1:
Find the interest on Php 7,000.00 compounded quarterly at 3% for 5 years.
Solution :
Quarterly means 4 times a year, so n = 4.
𝑃 = 𝑃ℎ𝑝 7,000.00, 𝑟 = 3% = 0.03, 𝑡 = 5

𝑟 𝑛𝑡
𝐴 = 𝑃 (1 + )
𝑛
0.03 4(5)
𝐴 = 7,000 (1 + )
4
𝐴 = 7,000(1.0075)20
𝐴 = 𝑃ℎ𝑝 8,128.29
To find the interest, subtract the principal from the future value.
𝐼 = 𝑃ℎ𝑝 8,128.29 − 𝑃ℎ𝑝 7,000.00
= 𝑃ℎ𝑝 1,128.29
The interest is Php 1,128.29.
Effective Rate
The effective rate (also known as the annual yield) is the simple interest rate which
would yield the same future value over 1 year as the compound interest rate.
Formula for Effective Interest Rate
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𝒓 𝒏
𝑬 = (𝟏 + ) − 𝟏
𝒏
where
E = effective rate
n = number of periods per year the interest is calculated
r = interest rate per year (i.e., stated rate)
Example 2.
Find the effective interest rate when the state rate is 4% and the interest is
compounded semiannually.
Solution:
Let r = 0.04 (rate is 4%) and n = 2 (compounded semiannually)
𝑟 𝑛
𝐸 = (1 + ) − 1
𝑛
0.04 2
𝐸 = (1 + ) −1
2
𝐸 = 0.0404 = 4.04%
The effective rate is 4.04%
Annuities
An annuity is a savings investment for which an individual or business makes the

same payment each period (i.e., annually, semiannually, or quarterly) into a
compound-interest account where the interest does not change during the term of the
investment.
Formula for Finding the Future Value of an Annuity

𝒓 𝒏𝒕
𝑹 [(𝟏 + 𝒏) − 𝟏]
𝑨= 𝒓
𝒏
Where :
A is the future value of the annuity
R is the regular periodic payment
r is the annual interest rate
n is the number of payments made per year
t is the term of the annuity in years
Example 3:
Find the future value of an annuity when the payment is Php 800.00
semiannually, the interest rate is 5% compounded semiannually, and the term is 4
years.
Solution
R = Php 800.00, r = 5% = 0.05, n = 2 (semiannual), t = 4
𝑟 𝑛𝑡
𝑅 [(1 + 𝑛) − 1]
𝐴= 𝑟
𝑛
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(2)(4)
0.05
800 [(1 + 2 ) − 1]
800[(1.025)8 − 1]
𝐴= = = 𝑃ℎ𝑝 6,988.89
0.05 0.025
2
The future value of the annuity at the end of 4 years is Php 6,988.89.
Formula for Finding Regular Annuity Payments Needed to Reach a Goal

𝒓
𝑨 ( 𝒏)
𝑹=
𝒓 𝒏𝒕
[(𝟏 + ) − 𝟏]
𝒏
Example 4:
Suppose you’ve always dreamed of opening your own tattoo parlor, and
decide it’s time to do something about it. A financial planner estimates that you
would need a Php 35,000.00 initial investment to start the business
Solution:
We know the following values:
A = 35,000, r = 7.5% = 0.075, t = 5 and n = 52
𝒓
𝑨 ( 𝒏)
𝑹=
𝒓 𝒏𝒕
[(𝟏 + ) − 𝟏]
𝒏
0.075
35,000 ( )
𝑅= 52
0.075 (52)(5)
[(1 +
52 ) − 1]
2,625
( )
𝑅= 52 = 111.04
0.075 (52)(5)
[(1 +
52 ) − 1]
2. CREDIT CARDS AND CONSUMER LOANS

Installment buying is when an item is purchased and the buyer pays for it by
making periodic partial payments, or installments.
A fixed installment loan is a loan that is repaid in equal payments.
Sometimes the buyer will pay part of the cost at the time of purchase. This is known
as a down payment.
The amount financed is the amount a borrower will pay interest on.
Amount financed = Price of item – Down payment
The total installment price is the total amount of money the buyer will ultimately
pay.
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Total installment price = Sum of all payments + Down payment

The finance charge is the interest charged for borrowing the amount financed.
Finance charge = Total installment price – Price of item
Example 1:
Cat bought a 2-year old Santa Fe for $12,260. Her down payment was $3,000,
and she will have to pay $231.50 for 48 months. Find the amount financed, the total
installment price, and the finance charge.
Solution:
Using the formulas previously shown:
Amount financed = Cash price – Down payment
= $12,260 – $3,000
= $9,260
Since she paid $231.50 for 48 months and her down payment was $3,000
Total installment price = Total of monthly payments + Down payment
= (48 x $231.50) + $3,000
= $14,112.00
Now we can find the finance charge:
Finance charge = Total installment price – Cash price
= $14,112.00 – $12,260.00
= $1,852.00
The amount financed was $9,260.00; the total installment price was
$14,112.00, and the finance charge was $1,852.00.
Example 2.
After a big promotion, a young couple bought $9,000 worth of furniture. The
down payment was $1,000. The balance was financed for 3 years at 8% simple
interest per year.
(a) Find the amount financed.
(b) Find the finance charge (interest).
(c) Find the total installment price.
(d) Find the monthly payment.
Solution :
(a) Amount financed = Price of item – Down payment
= $9,000 – $1,000 = $8,000
(b) To find the finance charge, we use the simple interest formula:
I = Prt
= $8,000 x 0.08 x 3
= $1,920
(c) In this case, the total installment price is simply the cost of the furniture plus the
finance charge:
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Total installment price = $9,000 + $1,920 = $10,920

(d) To calculate the monthly payment, divide the amount financed plus the finance
charge by the number of payments:
Monthly payment = ($8,000 + $1,920) ÷ 36 = $9,920 ÷ 36 = $275.56
In summary, the amount financed is $8,000, the finance charge is $1,920, the
total installment price is $10,920, and the monthly payment is $275.56.
Annual Percentage Rate (APR)

Lenders are required by law to disclose an annual percentage rate, or
APR, that reflects the true interest charged. This allows consumers to compare
loans with different terms.
This is a sample of APR table.

Using the APR Table
Step 1. Find the finance charge per $100 borrowed using the formula
𝑭𝒊𝒏𝒂𝒏𝒄𝒆 𝑪𝒉𝒂𝒓𝒈𝒆
𝒙$𝟏𝟎𝟎
𝑨𝒎𝒐𝒖𝒏𝒕 𝑭𝒊𝒏𝒂𝒏𝒄𝒆𝒅
Step 2 Find the row in the table marked with the number of payments and move to
the right until you find the amount closest to the number from Step 1.
Step 3 The APR (to the nearest half percent) is at the top of the corresponding
column.
Example 3
Burk Carter purchased a color laser printer for $600.00. He made a down
payment of $50.00 and financed the rest for 2 years with a monthly payment of
$24.75. Find the APR.
Solution:
Step 1. Find the finance charge per $100.00. The total amount he will pay is $24.75
per month x 24 payments, or $594.00. Since he financed $550.00, the finance
charge is $594.00 – $550.00 = $44.
𝑭𝒊𝒏𝒂𝒏𝒄𝒆 𝑪𝒉𝒂𝒓𝒈𝒆
𝑭𝒊𝒏𝒂𝒏𝒄𝒆 𝒄𝒉𝒂𝒓𝒈𝒆 𝒑𝒆𝒓 $𝟏𝟎𝟎 = 𝒙$𝟏𝟎𝟎
𝑨𝒎𝒐𝒖𝒏𝒕 𝑭𝒊𝒏𝒂𝒏𝒄𝒆𝒅
$𝟒𝟒
= 𝒙$𝟏𝟎𝟎 = $𝟖. 𝟎𝟎
$𝟓𝟓𝟎
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Step 2. Find the row for 24 payments and move across the row until you find the
number closest to $8.00. In this case, it is exactly $8.00.
Step 3. Move to the top of the column to get the APR.
It is 7.5%.
Unearned Interest
One way to save money on a fixed installment loan is to pay it off early.
This will allow a buyer to avoid paying the entire finance charge.
The amount of the finance charge that is saved when a loan is paid off early
is called unearned interest.
There are two methods for calculating unearned interest, the actuarial
method and the rule of 78.
Actuarial Method
kRh
u
10h
0
where :
u = unearned interest
k = number of payments remaining, excluding the current one
R = monthly payment
h = finance charge per $100 for a loan with the same APR and k monthly
payments
Example 4:
Our friend Burk from the previous example decides to use part of his tax
refund to pay off the full amount of his laser printer with his 12th payment. Find the
unearned interest and the payoff amount.
Solution:
To use the formula for the actuarial method, we’ll need values for k, R, and h.
Half of the original 24 payments will remain, so k = 12.
From Example 3, the monthly payment is $24.75 and the APR is 7.5%.
Using the APR Table, we find the row for 12 payments and the column for 7.5%;
the intersection shows $4.11, so h = $4.11.
Substituting k = 12, R = 24.75 and h = 4.11:
The unearned interest is $11.72.

The payoff amount is the amount remaining on the loan minus unearned interest.
At this point, Burk has made 11 payments, so there would be 13 remaining if he
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were not paying the loan off early.

Payoff amount = (13 x $24.75) – $11.72 = $310.03
With a payment of $310.03, Burk is the proud owner of a laser printer.
( 1
The Rule of 78
fkk )
u
( 1
nn )
where :
u = unearned interest
f = finance charge
k = number of remaining monthly payments
n = original number of payments
Example 5:
A $5,000 car loan is to be paid off in 36 monthly installments of $172. The
borrower decides to pay off the loan after 24 payments have been made. Find the
amount of interest saved by paying the loan off early. Use the rule of 78.
Solution:
Find the finance charge (i.e. total interest).
$172 x 36 = $6,192
$6,192 – $5,000 = $1,192
Substitute into the formula using f = $1,192, n = 36, and k = 36 – 24 = 12.
Open-Ended Credit
Open-ended credit has no fixed number of payments or payoff date. By far the
most common example of this is credit cards.
With the unpaid balance method, interest is charged only on the balance from the
previous month.
Example 6:
For the month of April, Elliot had an unpaid balance of $356.75 at the beginning of
the month and made purchases of $436.50. A payment of $200.00 was made during
the month. The interest on the unpaid balance is 1.8% per month. Find the finance
charge and the balance on May 1.
Solution
Step 1 Find the finance charge on the unpaid balance using the simple interest
formula with rate 1.8%. (r = 0.018)
I = Prt
= $356.75 x 0.018 x 1
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= $6.42 (rounded)
The finance charge is $6.42.
Step 2 To the unpaid balance, add the finance charge and the purchases for the
month; then subtract the payment to get the new balance.
New balance = $356.75 + $6.42 + $436.50 – $200
= $599.67
The new balance as of May 1 is $599.67.
Average Daily Balance Method

When using the average daily balance method, the balance for each day of the
month is used to compute an average daily balance, and interest is computed on that
average.
Procedure for the ADB Method
Step 1 Find the balance as of each transaction.
Step 2 Find the number of days for each balance.
Step 3 Multiply the balances by the number of days and find the sum.
Step 4 Divide the sum by the number of days in the month.
Step 5 Find the finance charge (multiply the average daily balance by the monthly
rate).
Step 6 Find the new balance (add the finance charge to the balance as of the last
transaction).
Example 7:
Betty’s credit card statement showed the following transactions during the month of
August.
August 1 Previous balance $165.50
August 7 Purchases 59.95
August 18 Payment 75.00
Find the average daily balance, the finance charge for the month, and the new
balance on September 1. The interest rate is 1.5% per month on the average daily
balance.
Solution
Step 1 Find the balance as of each transaction.
August 1 $165.50
August 7 $165.50 + $59.95 = $225.45
August 12 $225.45 + $23.75 = $249.20
August 18 $249.20 + $75.00 = $174.20
August 24 $174.20 + $107.43 = $281.63
Step 2 Find the number of days for each balance.
Date Balance Days Calculations
August 1 $165.50 6 (7 – 1 = 6)
August 7 $225.45 5 (12 – 7 = 5)
August 12 $249.20 6 (18 – 12 = 6)
August 18 $174.20 6 (24 – 18 = 6)
August 24 $281.63 8 (31 – 24 + 1 = 8)
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Step 3 Multiply each balance by the number of days, and add these products.
Date Balance Days Calculations
August 1 $165.50 6 $165.50(6) = $993.00
August 7 $225.45 5 $225.45(5) = $1,127.25
August 12 $249.20 6 $249.20(6) = $1,495.20
August 18 $174.20 6 $174.20(6) = $1,045.20
August 24 $281.63 8 $281.63(8) = $2,253.04
31 $6,913.69
Step 4 Divide the total by the number of days in the month to get the average daily
balance.
Average daily balance = $6,913.69/31 ≈ $223.02
Step 5 Find the finance charge. Multiply the average daily balance by the rate,
which is 1.5%, or 0.015.
Finance charge = $223.02 x 0.015 ≈ $3.35.
Step 6 Find the new balance. Add the finance charge to the balance as of the last
transaction.
New balance: $281.63 + $3.35 = $284.98
The average daily balance is $223.02. The finance charge is $3.35, and the new
balance is $284.98.
3. Stocks, Bonds and Mutual Funds

In order to get information about a certain stock, you can refer to a stock table. In
this case, a stock listing for a company called Computer Programming and Systems,
Inc. will be used as an example.
o The first two columns give the highest and lowest selling prices for one
share of stock in this company during the past 52 weeks.
o The column labeled STOCK contains the letters CPSI. This is the symbol
the company uses for trading.
o The column labeled DIV is the dividend per share that was paid to
shareholders last year.
o The column labeled YLD% is the annual percentage yield: It is the dividend
per share divided by the current price. This percent can be compared to other
stocks as a measure of performance.
o The P/E column is the price-to-earnings ratio. It is the ratio of yesterday’s
closing price of the stock (found in the CLOSE column) to its annual
earnings per share.
o The column labeled VOL (1,000s) means the number of shares in thousands
that were traded yesterday.
o The column labeled NET CHG is the change in the price of the stock
between the day before yesterday and yesterday at closing time.
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Example 1
The following is a stock listing for the Terex Corporation. Use the listing to
answer the questions.
(a) What was the highest price that the stock sold for during the past 52 weeks?
(b) What was the lowest price that the stock sold for during the past 52 weeks?
(c) What was the amount of the dividend per share that TEX paid last year?
(d) If you owned 250 shares of stock, how much did you make in dividends last
year?
(e) How many shares were traded yesterday?
(f) What was the closing price per share the day before yesterday?
Solution:
(a) $35.00 (Found in the “HI” column.)
(b) $20.97 (Found in the “LO” column.)
(c) $0.24 (Found in the DIV column.)
(d) (250) ($0.24) = $60 ($0.24 dividend per share x 250 shares)
(e) (7,143) (1,000) = 7,143,000 (Number in VOL column x 1,000)
(f) ($24.51) (0.06) = $24.57 (Closing price of $24.51 is 0.06 below previous day.)
P/E Ratio
The P/E ratio of a stock is a comparison of the current selling price to the company’s
earnings per share.
Yesterd
s
Closin
Pric

P/E
Ratio
Annual
Earnin
per
shar
Example 2:
If the annual earnings per share for Terex is $0.98, find the P/E ratio.
Solution:
Yesterd
s
Closi
Pric

P/E
Ratio
Annual
Earnin
per
shar
$24.51
 
25
(rounded)
$0.98
This means that the price of a share of stock is 25 times the company’s annual
earnings per share. In general, the lower the P/E ratio is, the better the investment.
Annual Earnings Per Share

Knowing the price per share of stock and the P/E ratio, you can find the annual
earnings per share for the last 12 months by using the following formula:
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Yest
s
Clo
P

Annual
Earnin
per
share
P/E
Ra
Example 3
If the closing price for Kellogg’s stock was $44.23 and the P/E ratio is 15, find the
annual earnings per share for last year.
Solution
Yest sClo
P
Annual
Earnin
per
share
P/E
Ra
$
44.23
 
$2.95
15
Current Yield for Stock
The current yield for a stock can be calculated by using the following formula:
Annua Divid per Sha
Current Stock d  Yi
Closin Price
ofStoc
Example 4:
For the CPSI stock, the annual percent yield is 6.5%. Verify the current yield by
using the preceding formula.
Solution:
The dividend per share is $1.44 and the closing price is $22.25:
Annua
Divid
per
Sha

Current
Stock
d Y
ClosinPrice
of
Stoc
$1.44
 
0. 
065
6.
5%
$22.25
Example 5. Finding the total cost of buying stock
Shares of Apple Computer (AAPL) closed at $12.89 on April 1, 2004. Suppose that
an investor bought 600 shares at that price using a broker that charged a 2%
commission. Find the amount of commission and the total cost to the investor.
Solution
Step 1 Find the purchase price.
600 shares x $12.89 = $7,734.00
Step 2 Find the broker’s commission.

2% of purchase price = 0.02 x $7,734.00
= $154.68
Step 3 Add the commission to the purchase price.

$7,734.00 + $154.68 = $7,888.68
The investor paid a total of $7,888.68 for the transaction.
Example 6. Finding amount made from selling stock
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On May 1, 2008, shares of Apple stock reached $192.24. If the investor in Example
5 sold all of his Apple stock at that point, and the broker also charges a 2%
commission on sales, find the commission, proceeds, and the amount of profit made
by the investor.
Solution:
Step 1 Find the total amount of the sale.
600 shares x $192.24 = $115,344.00
Step 2 Find the broker’s commission.

2% of purchase price = 0.02 x $115,344.00
= $2,306.88
Step 3 Subtract the commission amount from the total amount of the sale to get the
proceeds.
$115,344.00 – $2,306.88 = $113,037.12
Step 4 The profit is the proceeds minus the total cost from Example 5.
$113,037.12 – $7,888.68 = $105,148.44
Bonds
When an investor purchases bonds, the investor is lending money to the company
that issues the bonds. Bonds can also be issued by local, state, and federal
governments. Bonds have a face value, which is usually $1,000, and a fixed interest
rate. Bonds can be sold just like stocks and the prices vary with the market
conditions. Bonds also have a maturity date, which is the date that they come due.
Bonds are listed in tables that are similar to stock tables. Brokers also earn
commissions for buying and selling bonds. Investment procedures for bonds are
similar to those for stocks.
Mutual Funds
Many times, investors purchase a group of stocks and bonds called a mutual fund.
Mutual funds are managed by professional managers and include money from other
investors. The manager follows the markets and makes the decisions of when to buy
or sell the stocks and bonds. Mutual funds usually consist of a large number of small
investments in companies. This way, if a single stock does not perform well, only a
small amount of money is lost. Sometimes mutual funds can be high return but also
high risk.
Ratings for mutual funds can be found on most financial websites, and in business
publications like the Wall Street Journal. They are rated either from A to F, or from
5 to 1, with 5 being the best. Often, two separate ratings are given. An overall rating
compares the fund to all other stock funds. A category rating compares a fund to
other funds that have similar holdings. For example, there are funds that invest
strictly in smaller businesses, and it makes sense to compare those funds to others
like them, as well as to the market as a whole.
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1. HOME OWNERSHIP
Mortgage
A mortgage is a long-term loan where the lender has the right to seize the property
purchased if the payments are not made.
There are several types of mortgages.
A fixed-rate mortgage means that the rate of interest remains the same for the
entire term of the loan. The payments (usually monthly) stay the same.
An adjustable-rate mortgage means that the rate of interest may fluctuate (i.e.,
increase and decrease) during the period of the loan.
Monthly Payments & Interest
One way to find the monthly payments for a fixed-rate mortgage is to use a table.
The table displays the monthly payment required for each $1,000 of a mortgage,
which includes principal and interest.
Finding the Monthly Payment
Step 1 Find the down payment.

Step 2 Subtract the down payment from the cost of the home to find the principal of
the mortgage.
Step 3 Divide the principal by 1,000.
Step 4 Find the number in the table that corresponds to the interest rate and the term
of the mortgage.
Step 5 Multiply that number by the number obtained in step 3 to get the monthly
payment.
Example 1.
The Petteys family plans to buy a home for $174,900, and have been offered a 30-
year mortgage with a rate of 5.5% if they make a 20% down payment. What will
their monthly payment be with this loan?
Solution:
Step 1 Find the down payment.
20% of $174,900 = 0.20 x $174,900 = $34,980
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Step 2 Subtract the down payment from the cost of the home to get the principal.
$174,900 – $34,980 = $139,920
Step 3 Divide by 1,000.
Step 4 Find the value in the table for a 30-year mortgage at 5.5%. It is $5.68.
Step 5 Multiply the value from step 3 by $5.68.
139.92 x $5.68 ≈ $794.75 (Monthly payment with 30-year term.)
Example 2.
Find the total amount of interest the Petteys family would pay if they take the loan
in Example 1.
Solution:
On a 30-year mortgage, there are 30 x 12 = 360 payments. We found that the
monthly payment would be $794.75.
$794.75 x 360 = $286,110
This is the total of payments. We subtract the amount financed from Example 1:
$286,110 – $139,920 = $146,190 (Interest on the loan.)
The interest paid exceeds the principal of the loan by over $6,000!
Example 3.
Suppose that the Petteys family from Examples 1 and 2 is also offered a 15-year
mortgage with the same rate and down payment. Find the difference in monthly
payment and interest paid between the 15- and 30-year mortgages.
Solution:
We essentially need to rework Examples 1 and 2 with a 15-year mortgage, then
compare the results. Fortunately, some of the work we did carries over.
We know that the principal is $139,920, and the principal divided by 1,000 is
139.92.
This time we use the 15-year column and 5.5% row in the table to get $8.17.
Now we multiply that by 139.92:

139.92 x $8.17 ≈ $1,143.15 (Monthly payment with 15-year term.)
The difference in monthly payments is

$1,143.15 – $794.75 = $348.40
(Recall that $794.75 was payment for 30 years.)
With a monthly payment of $1,143.14 for 15 years (which is 180 months) the total
payments are
$1,143.15 x 180 = $205,767.00
and the interest paid is
$205,767 – $139,920 = $65,847
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The interest paid on the 30-year mortgage was $146,190:

$146,190 – $65,847 = $80,343
If the Petteys family can manage an extra $348.40 a month, they will save over
$80,000 in interest!
Computing Monthly Payments
r 
P 
R  n
nt
 r 
11 
 n
R = regular monthly payment

P = amount financed, or principal
r = rate written as a decimal
n = number of payments per year
t = number of years
Example 4.
After one hit single, a young singer unwisely decides that she needs a $2.2 million
dollar mansion. With some of the proceeds from her CD, she puts down $500,000,
leaving $1,700,000 to finance at 6% for 30 years.
Find her monthly payment.
Solution:
In the formula, use P = 1,700,000, r = 0.06, n = 12, and t = 30.
r  0.06
P  1,700,000
R  n  12
nt -1230
 r  0.06 
11  1 1 
 n  12 
8
,500

1 

360
1 .00
5

$
10
,
19
2.
36
Amortization Schedule
After securing a mortgage, the lending institution will prepare an amortization
schedule. This schedule shows what part of the monthly payment is paid on the
principal and what part of the monthly payment is paid in interest.
Procedure for Computing an Amortization Schedule

Step 1 Find the interest for the first month. Use I = Prt, where t = 1/12. Enter this
value in a column labeled Interest.
Step 2 Subtract the interest from the monthly payment to get the amount paid on the
principal. Enter this amount in a column labeled Payment on Principal.
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Step 3 Subtract the amount of the payment on principal found in step 2 from the
principal to get the balance of the loan. Enter this in a column labeled Balance of
Loan.
Step 4 Repeat the steps using the amount of the balance found in step 3 for the new
principal.
Example 5.
Compute the first two months of an amortization schedule for the loan in
Example 1.
Solution:
The value of the mortgage is $139,920, the interest rate is 5.5%, and the monthly
payment is $794.75.
Step 1 Find the interest for month 1.
Enter this in a column labeled Interest.

Payment of
Payment Number Interest Balance of Loan
Principal
1 $641.30 $153.45 $139,766.55
Step 2 Subtract the interest from the monthly payment.

$794.75 – $641.30 = $153.45
This goes into the Payment on Principal column.
Step 3 Subtract principal payment from principal.

$139,920 – $153.45 = $139,766.55
This goes into the Balance of Loan column. Now we repeat steps 1–3 using the
balance of $139,766.55.
Payment of
Payment Number Interest Balance of Loan
Principal
1 $641.30 $153.45 $139,766.55
2 $640.60 $154.15 $139,612.40
Step 4
Step 5 $794.75 – $640.60 = $154.15

Step 6 $139,766.55 – $154.15 = $139,612.40
You may now proceed to Module 5 Activities! Good Luck!
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QUIRINO STATE UNIVERSITY

COLLEGE OF TEACHER EDUCATION

ONLINE LEARNING MODULE

LEONIDA P. BARTOLOME, MAT

COLLEGE OF TEACHER EDUCATION

INSTRUCTION IN USING THIS ONLINE LEARNING

COLLEGE OF TEACHER EDUCATION

Module 5 MATHEMATICS OF FINANCE

COLLEGE OF TEACHER EDUCATION

Given: P = ₱ 1,000 Solution:

2. GSIS has issued a 2 – year loan of ₱ 50,000 to a government employees at a

Given: P = ₱ 50,000 Solution:

Solution: from I =Prt

COLLEGE OF TEACHER EDUCATION

Solution: from I =Prt

Given: P = ₱ 20,000, I = ₱ 3,900, r = 13% = .13

Ordinary and Exact Interest

COLLEGE OF TEACHER EDUCATION

Given: P = ₱ 248,000 r = 16% = .16 D = 120 days

4. Find the interest on ₱ 8,000 if invested at 8 ¾% for 100 days.

COLLEGE OF TEACHER EDUCATION

The Banker’s Rule

b. The student received Php 4,000.00 – Php 720.00 = Php 3,280.00

COLLEGE OF TEACHER EDUCATION

When interest is computed on the principal and any previously earned

Formula for Computing Compound Interest

𝑃 = 𝑃ℎ𝑝 7,000.00, 𝑟 = 3% = 0.03, 𝑡 = 5

Formula for Effective Interest Rate

COLLEGE OF TEACHER EDUCATION

An annuity is a savings investment for which an individual or business makes the

Formula for Finding the Future Value of an Annuity

COLLEGE OF TEACHER EDUCATION

Formula for Finding Regular Annuity Payments Needed to Reach a Goal

2. CREDIT CARDS AND CONSUMER LOANS

COLLEGE OF TEACHER EDUCATION

Total installment price = Sum of all payments + Down payment

COLLEGE OF TEACHER EDUCATION

Total installment price = $9,000 + $1,920 = $10,920

Annual Percentage Rate (APR)

This is a sample of APR table.

COLLEGE OF TEACHER EDUCATION

The unearned interest is $11.72.

COLLEGE OF TEACHER EDUCATION

were not paying the loan off early.

COLLEGE OF TEACHER EDUCATION

Average Daily Balance Method

COLLEGE OF TEACHER EDUCATION

3. Stocks, Bonds and Mutual Funds

COLLEGE OF TEACHER EDUCATION

Annual Earnings Per Share

COLLEGE OF TEACHER EDUCATION

Example 5. Finding the total cost of buying stock

Step 2 Find the broker’s commission.

Step 3 Add the commission to the purchase price.

Example 6. Finding amount made from selling stock

COLLEGE OF TEACHER EDUCATION

Step 2 Find the broker’s commission.

COLLEGE OF TEACHER EDUCATION

Monthly Payments & Interest