Seminar

THE MATHEMATICS
OF FINANCE
GROUP 7
SHAIRAMIE P. QUIAPO
RHEA MAE REMULTA
DESIREE CLARY ROSAL
CHRISTIAN LUIS ENDRINA
MATHEMATICS OF FINANCE
- the application of mathematical methods to

financial problems.
SIMPLE AND COMPOUND INTEREST
Interest- percentage of some amount of money. It is the

payment for the use of borrowed money.
Principal- capital or the sum of the money invested.
Interest rate- fractional part of the principal that is paid

on the loan. It is usually expressed as percent.
Time or term of the loan- length of time which the money is

borrowed.
Final amount or Maturity Value- sum of the

Principal and Interest which is accumulated at a certain time.
SIMPLE INTEREST
Example: Find the interest paid to a loan of

I= Prt Php100,000 for 2 years at a simple interest
rate of13%.
I= Prt
Where:
I= 100, 000(13%) (2)
I: Interest earned
I= Php 26, 000
P: Principal
• Maturity value= P+I
r: rate of the interest
t: number of years Maturity value= 100, 000+ 26,000
Maturity value= Php 126, 000

Maturity value and Future Value
A= P+I A= P+ Prt
Where:
Example: Find the maturity value of a
A: Maturity value/ Future value 9-monthloan of Php 18,500. The rate of
the interest is9% per annum.
P: Principal
P= 18, 500
I: Interest earned r= 9%
t= 9/12 or 0.75 year
A= P+Prt
A= 18,500 [1+ (.09) (0.75)]
A= Php 19, 748.75

COMPOUND INTEREST
Final or Compound amount “A”
- the resulting value when interest is periodically added to the

principal and this new sum is used as the new principal for a
certain number of periods.
A= P(1+ r/n)nt I= A - P
Where:
A= Compound Amount
P= Present Value
I= Compound Interest
r= annual rate of interest
t= length of time in year
n= number of compounding period each year
Frequency Value of n
Annually 1
Semiannually 2
Quarterly 4
Monthly 12
Daily 365
Example: A company engaged in recycling scraps
obtained a loan of Php 650, 000 from a bank that charges an
annual interest of 13% yearly. The load must be repaid in 3
years. What is the maturity value of the loana the end of 3 years.
Solution:
Given: The Maturity Value is Php 937, 883.05

P= Php 650000
r= 13% or 0.13 Finding the interest earned:
n= 1
t= 3 years I= A- P
I= 937, 833.05 – 650, 000

Using the formula:
A= P (1+ r/n)^nt
I= 287, 833.05
A= 650, 000 (1.13)3
A= 650, 000 (1.442897)
The Interest earned is Php 287, 833.05
A= 937, 883.05
CREDIT CARDS AND CONSUMER LOANS
CREDIT CARDS
Finance Charge (based on PNB Credit Cards)
-Much of the interest paid as a result of usingcredit cards has

to do with finance charges.
TABLE FOR FINANCE CHARGE ON CREDIT

CARDPURCHASE FOR ONLINE BILLING PERIOD
1. Given monthly interest r, rd= r/ 30

find rd
2. Given a balance of x for a
day, find daily interest Id
Id= rd(x)
3. Find total interest I earned
for the billing period.
I= ∑ Id
Example: An unpaid bill of Php 2, 000 had a due date of April 10. A payment of Php
1, 000 was made to the credit card company on April 15.Another expense of Php 500,
000 was charged to the credit card on April 30. The credit card issued under a monthly
interest rate of 3. 25%find the finance charged on the May 10 bill.
Solution:
Date Payment or Purchases Daily Balance

10 April 2,000
15 April -1,000 1,000
30 April 500 1,500
Monthly interest rate of r= 3.25%
Credit card tips to avoid common problems:
1. Pay off balance every month.

2. Use the card for needs, not wants.
3. Never skip payment.
4. Use the credit card as a budgeting tool.
5. Use reward card.
6. Stay under 30 % of your total credit limit.
7. Protect yourself from credit fraud.
Due date
- this is usually 21 to 25 days after the billing date.
Billing date
- month, date and year when a periodic or monthly statement is

generated.
CONSUMER LOANS
Loan
- which in Filipino is utang, is a part of Filipino

culture. Most Filipinos rarely get without asking someone
or some institution to lend them money.
Informal Lending Culture
• Agreements are never set on paper

• Verbal agreement
• Example: five-six
Formal Lending Culture
• Takes place between consumers on one side and private

lenders and banks on the other.
PMT Formula for Consumer Loans
Payment for a loan with an annual rate interest r is given by
PMT= PV (i)/ 1- (1+i) ^-nt
Where:
PMT= amount of payment
PV= amount of loan
i= periodic rate of interest i= r/n
n= number of payments in a year
t= number of years
Example:
Mr. and Mrs. bought a laptop computer for Php 29, 000 for their son. They paid a 20% down
payment and agreed to pay the balance and finance charge in 12 equal monthly installments.
Finance charge on the balance is 18% simple interest. Find the a)Amount of down
payment; b) Balance; c)Finance charge and; d) Monthly installment.
Solution:
a.) For the down payment
Down payment = 29, 000(0.20)
= Php 5, 800
b) For the balance

Balance= 29, 000(0.80) = Php 23, 200 or
Balance= 29, 000 – 5, 800 = Php 23, 200
d) For the monthly installment
Monthly installment = (23, 200 + 4, 176)/ 12

= Php 2, 281.33
Example: Mr. Cruz promises to buy his daughter a sports utility vehicle if she graduates on time.
The car he has in mind has a sticker price of 2 million pesos and under the new tax scheme is subject to
20%excise tax. Down payment is 40% full contract price (2M+ excise tax) and annual interest rate is
5.9%. Ignoring other fees, what is his monthly payment for the car if he wishes to complete it in 60 months?
Item Particulars Computation

Sticker price Php 2, 000, 000 Php 2, 000,000
Excise tax 20% of tag price 2, 000, 000(0.20)=
Php400, 000
Full contract price Price+ taxes Php 2, 400,000
Annual interest 5.90% 0.059
Number of payments a 12 12
year “n”
Number of years “t” 5 5
Total number of monthly 12(5)= 60 2(5)= 60
payments
“n(t)”
Periodic rate of interest “i” i= r/n 0.00492
Down Payment 40% full contract price 2, 400, 000(0.40)
= Php960, 000
Loan(balance) 60% of full contract price 2, 400, 000(0.60)
= Php 1,440, 000
Monthly payment PMT= PV (i)/ 1-(1+i)^-nt Php 27, 775

Seminar

Uploaded by

Copyright:

Available Formats

Seminar

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Seminar

Uploaded by

Copyright:

Available Formats

THE MATHEMATICS

- the application of mathematical methods to

Interest- percentage of some amount of money. It is the

Principal- capital or the sum of the money invested.

Interest rate- fractional part of the principal that is paid

Time or term of the loan- length of time which the money is

Final amount or Maturity Value- sum of the

Example: Find the interest paid to a loan of

Maturity value= Php 126, 000

A= 18,500 [1+ (.09) (0.75)]

A= Php 19, 748.75

- the resulting value when interest is periodically added to the

Given: The Maturity Value is Php 937, 883.05

I= 937, 833.05 – 650, 000

-Much of the interest paid as a result of usingcredit cards has

TABLE FOR FINANCE CHARGE ON CREDIT

1. Given monthly interest r, rd= r/ 30

Date Payment or Purchases Daily Balance

1. Pay off balance every month.

- this is usually 21 to 25 days after the billing date.

- month, date and year when a periodic or monthly statement is

- which in Filipino is utang, is a part of Filipino

Informal Lending Culture

• Agreements are never set on paper

Formal Lending Culture

• Takes place between consumers on one side and private

Payment for a loan with an annual rate interest r is given by

PMT= PV (i)/ 1- (1+i) ^-nt

PMT= amount of payment

PV= amount of loan

i= periodic rate of interest i= r/n

n= number of payments in a year

b) For the balance

d) For the monthly installment

Monthly installment = (23, 200 + 4, 176)/ 12

Item Particulars Computation

You might also like