EQUATION OF VALUES

MATH 158
MODULE 2

Mapua University – Department of Mathematics

At the end of the lesson, the students are expected to
 Define the Equation of Values;
 Identify the comparison date ;
 Differentiate accumulating values and discounting
values;
 Draw the schematic diagram
 Write the mathematical expression of the equation
of values

Mapua University – Department of Mathematics

An equation of values is a mathematical statement
showing that the dated values on a common date of two
sets of payment are equal.
This common date is known as the comparison date,
or focal point. This is the identified date where
accumulation and discounting of values are done from
the last date these values are due.
Equation of values is used to find a single/set of
payment(s) replacing a set of different amounts due at
different times.

Mapua University – Department of Mathematics

1. Compute the corresponding values of the
obligations.
2. Prepare a diagram showing a comparison date and
the obligations.
3. Formulate the equation based on the diagram.

The alternate solution to this equation when the

comparison date is moved at the end of the term is
known as pure accumulation method.

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 Where:
a1, a2, a3 – are
accumulating values
a4, a5,a6 – are
discounting values

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1. If the money is worth 10% compounded semi-
annually, what single payment at the end of 5 years will
equitably replace the following set of obligations:
A. P6,000 due at the end of 3 years
B. P7,000 due at the end of 4 years and 6 months with
5% simple interest
C. P5,200 due at the end of 6 years with interest at 8%
converted quarterly
D. P3,900 due at the end of 9 years with interest at 9%
compounded quarterly.
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Step 1: Solve for the obligations
A. B.
P =Php6000 P = Php7000
t = 3 years 6
t = 4 + = 4.5 𝑦𝑒𝑎𝑟
12
F=P r = 5%
F = Php6000 F = P (1+rt)
= 7000[1+ ( 0.05)(4.5)]
F = Php8575

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C.
P = Php5200
t = 6 years
𝑟 0.08
r = 8% , 𝑖 = = = 0.02
𝑚 4
m = 4 , n = mt = (4)(6) = 24
𝐹 = 𝑃 1 + 𝑖 𝑛 = 5200 1 + 0.02 24

F = Php8363.87

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D.
P=Php3900
t = 9 years
𝑟 0.09
r = 9% , 𝑖 = =
𝑚 4
m = 4 , n = m(t)= (4)(9) = 36
36
𝑛
0.09
𝐹 = 𝑃 1 + 𝑖 = 3900 1 +
4
F = Php8688.48

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Step 2: Schematic Diagram

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Solving for n at m=2
n = m(t)
n1 = (2)(4) = 8
n2 = (2)(2.5) = 5
n3 = (2)(1)= 2
n4 =- (2)(2)=-4
nx = (2)(2) = 4

Mapua University – Department of Mathematics

STEP 3: Formulate the equation based on the diagram
Net of Payments = Set of Obligations
X = F1 +F2+F3+F4
𝑋 1+𝑖 𝑛𝑥 = 𝐹1 1 + 𝑖 𝑛1 + 𝐹2 1 + 𝑖 𝑛2 + 𝐹3 1 + 𝑖 𝑛3 + 𝐹4 1 + 𝑖 𝑛4

𝑋 1 + 0.05 4
= 6000 1 + 0.05 8 + 8575 1 + 0.05 5
+ 8363.87 1 + 0.05 2 + 8688.48 1 + 0.05 ;4

𝒓 𝟏𝟎%
𝒊= = = 𝟓%
𝒎 𝟐

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𝑋
8 5 2 ;4
6000 1 + 0.05 + 8575 1 + 0.05 + 8363.87 1 + 0.05 + 8688.48 1 + 0.05
=
1 + 0.05 4
X = Php29763.77

The single payment at the end of 5 years will equitably

replace the set of obligations is Php29,763.77

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Using Comparison date at the end of 9th year

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 Same Final Answer

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2. Richard owes P3,500 due in 3 years and P5,000 due in
6 years. To settle these obligations, he agrees to pay
P1,000 due in 1 year and another amount due in 4 years.
How much is the payment on the 4th year if money is
worth 12% compounded quarterly?

Mapua University – Department of Mathematics

Step 1. Find the obligations
F1 = P = Php3500
t = 3 years
F2= P =Php5000
t = 6 years
Payments:
X1 = Php1000 X2= 2nd payment
t = 1 year t= 4 years

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Step 2: Schematic Diagram

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Step 3: Formulate the Equation of Values
Net Payments = Set of Obligations
X1 + X2 = F1 + F2
X1(1+i)nX1 + X2(1+i)nX2 = F1(1+i)n1 + F2(1+i)n2
1000 1 + 0.03 20 + 𝑋2 1 + 0.03 8
= 3500 1 + 0.03 12 + 5000 1 + 0.03 0
3500 1.03 12 + 5000 1.03 0 − 1000 1.03 20
𝑋2 =
1.03 8
𝑿𝟐 = 𝑷𝒉𝒑𝟔𝟒𝟔𝟎. 𝟓𝟕
The second payment is Php6460.57
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3. Find the two equal payments at the end of 18 months
and 36 months that equitably replace the following
obligations, if money is worth 10% effective
a) Php25000 with 10% simple interest due in 24
months
b) Php18500 with 10% effective due in 12 months
c) Php12500 with 10% compounded monthly due in 30
months

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X1- the 1st payment
X2- the 2nd payment
X1=X2= X

Mapua University – Department of Mathematics

Step 1: Solve for obligations
a)P= Php25000 b)
r= 10% P = Php8500
𝑟 10%
t = 24 months= 2 years r = 10% , 𝑖 = = = 10%
𝑚 1
F1=P(1+ rt) m=1 , n = mt = (1)(1) = 1
= 25000[1+ (0.10)(2)] t = 12 months = 1 year
F2 = P (1+i)n
F1 = Php30000
= 8500(1+0.10)
F2 = Php9350

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c)P = Php12500
𝑟 10% 0.10
r = 10%, 𝑖 = = =
𝑚 12 12
m= 12 , n = mt = (12)(2.50)=30
t = 30 months= 2.50 years
F3 = P (1+i)n
0.10 30
= 12500( 1+ )
12
F3 =Php16033.70

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Step 2: Schematic Diagram

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Step 3: Formulate the Equation of Values
Net Payments = Set of Obligations
X1 + X2 = F1 + F2 + F3
X1(1+i)nX1 + X2(1+i)nX2 = F1(1+i)n1 + F2(1+i)n2 + F3(1+i)n2
𝑋 1 + 0.10 ;1.5 + 𝑋 1 + 0.10 ;3
= 30000 1 + 0.10 ;2 + 9350 1 + 0.10 ;1
+ 16033.70 1 + 0.10 ;2.5
𝑋[ 1 + 0.10 ;1.5 + 1 + 0.10 ;3 ]
= 30000 1 + 0.10 ;2 + 9350 1 + 0.10 ;1
+ 16033.70 1 + 0.10 ;2.5
Mapua University – Department of Mathematics
 30000 1 + 0.10 ;2 + 9350 1 + 0.10 ;1 + 16033.70 1 + 0.10 ;2.5
𝑋=
[ 1 + 0.10 ;1.5 + 1 + 0.10 ;3 ]
𝑿 = 𝑷𝒉𝒑𝟐𝟖𝟑𝟖𝟑. 𝟕𝟓

Therefore, the payments are:

𝑃ℎ𝑝28383.75 due at the end of 18 months
𝑃ℎ𝑝28383.75due at the end of 36 months

Mapua University – Department of Mathematics

4. Mel owes Php12000 at 5% simple interest due in 9
months;Php10000 at 10% simple interest due in 15
months; Php9000 with 12% effective due in 42 months.
Find the first payment due at the end of 18 months and
the second payment, which is twice the first payment,
due at the end of 21 months, if money is worth 6%
compounded every three months.
Given
r = 6%
m= 4
Mapua University – Department of Mathematics
Step 1: Solve for the obligations
a) P = Php12000 b) P= Php10000
r = 5% r= 10%
t =15 months= 1.25 year
t = 9 months= 0.75 year
F2= P(1+rt)
F1= P(1+rt) = 10000[1+(0.10)(1.25)]
= 12000[1+(0.05)(0.75)] F2= Php11250
F1 = Php12450

Mapua University – Department of Mathematics

c) P = 9000
r = 12%
t = 42 months = 3.5 years
m=1 , n =m(t)=(1)(3.5)
F3 = P(1+i)n
= 9000(1+0.12)3.5
F3 = Php13381.52

Mapua University – Department of Mathematics

Let:
X1- the first payment
X2- the second payment
X2=2X1
𝑟 6%
𝑖= = = 1.5%`
𝑚 4

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Step 2: Schematic Diagram

Mapua University – Department of Mathematics

Step 3: Formulate the Equation of Values
Net Payments = Set of Obligations
X1 + X2 = F1 + F2+ F3
X1(1+i)nX1 + X2(1+i)nX2 = F1(1+i)n1 + F2(1+i)n2 + F3(1+i)n2
𝑋1 1 + 0.015 ;6 + 2𝑋1 1 + 0.015 ;7
= 12450 1 + 0.015 ;3 + 11250 1 + 0.015 ;5
+ 13381.52 1 + 0.015 ;14

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𝑋1 1 + 0.015 ;6 + 2𝑋1 1 + 0.015 ;7
= 12450 1 + 0.015 ;3 + 112500 1 + 0.015 ;5

+ 13381.52 1 + 0.015 ;14

𝑋1[ 1 + 0.015 ;6 +2 1 + 0.015 ;7 ]
= 12450 1 + 0.015 ;3 + 112500 1 + 0.015 ;5

+ 13381.52 1 + 0.015 ;14

12450 1:0.015 −3 : 11250 1:0.015 −5 :13381.52 1:0.015 −14
𝑋1 =
[ 1:0.015 −6 :2 1:0.015 −7 ]
X1= Php12225.91 – the first payment
X2=Php24451.82 – the second payment

Mapua University – Department of Mathematics

 An equation of values is a mathematical statement
showing that the dated values on a common date of
two sets of payment are equal.
 Equation of values is used to find a single/set of
payment(s) replacing a set of different amounts due
at different times.
 This common date is known as the comparison
date, or focal point.

Mapua University – Department of Mathematics

 Accumulating values are values towards the end of
the transaction
 Discounting values are values towards the initial
period of transaction.

Mapua University – Department of Mathematics

 Wiley Pathways Business Math, by Slavin, 1st ed.
 Mathematics of Investment by William L. Hart, 5th
ed.
 Business Mathematics by Norma Lopez-Mariano,
2016 ed.
 Investment Mathematics by Win Ballada, 2016 ed.
 Mathematics of Investment Made Simple by Felina
C. Young
 Business Mathematics Comprehensive Approach by
Altares et al,
Mapua University – Department of Mathematics