Mathematics in The Modern World Module 6

CONSUMER
MATHEMATICS
LESSON 1:
SIMPLE AND COMPOUND INTEREST
A. Simple Interest
When people need to secure funds for some
purposes, one of the was they usually resort to
borrowing. On the other hand, the person or institution
that lend the money would also wish to get something
in return for use of money.
Debtor or Maker. The person who borrows money for

any purpose.
Lender or Creditor. The person or institution that
loans the money.
Interest is the payment for the use of borrowed
money.
Principal is the sum of money invested.
Interest rate. The fractional part of the
principal that is paid on the loan and is usually
expressed as percent.
Time or term. The length of time for which the
money is borrowed.
Maturity Value or Final Amount. The sum of
the principal and the interest which is
accumulated at a certain time.
Two ways of interest
1. Ordinary
2. Exact
Two ways of finding time in between dates

3. Approximate
4. Actual
Accumulation. when interest is paid at the end of the
term.
Discount. the interest is paid at the beginning.
A simple discount is called interest in advanced.
Proceeds. The amount a borrower receives.
Formula for simple amount and simple
interest
I = p*r*t I = F-P P
P t (in yr) r
Where;
I = interest
p = principal amount
r = rate
t = time
F = Final amount
Example:
1. Find the interest and the amount of 10,000 at 5 ½ %
simple interest for 3 years.
Given: P = 10,000 t = 3 years
r = 5 ½ or 0.055
Solution:
I = Prt = (10,000)(0.055)(3) =1,650
F = P +I = 10,000 + 1,650 = 11,650
Alternative solution:
F= p(1+rt) = 10,000((1+(0.055)(3))
= 10,000(1.165) = 11,650
2. Lumnay borrowed 112,000 at 11% simple
interest for 5 years, find the final amount and
interest.
Given: P = 112,000r = 11% or 0.11 t = 5
Solution:
F = P(1+rt) = 112,000((1+(0.11)(5))
= 112,000(1.55) = 173,600
I = F-P = 173,600 – 112,00 = 61,600
B. Compound Interest
Compound Interest in the interest resulting from the periodic
addition of simple interest to the capital creating a new
capital every now and then. In transactions covering an
extended period of time, interest may be handled in different
ways. Whenever at stipulated interval known as
compounding or conversion period. During the term of an
investment or loan, the interest due is added to the principal

Two type of interest rate
1. Effective rate is the interest rate
when interest is compounded
once a year.
2. Nominal rate is the interest rate
when interest is compounded
more than a year.
Example:
1. Determine the final amount and the interest of 10,500
that is deposited at a savings account and is invested
at 10% compounded quarterly.
Given: P = 10,500 t = 3 year r = 10% or 0.10
i = 0.10/4 =0.025 m = 4 n = 3(4) = 12
Solution:
= 14,121.33 = 3,621.33
Alternative solution
I = F-P = 14,121.33 – 10,500 = 3,621.33
Lesson 2: Accumulating and Discounting
Accumulation is the process of determining

the amount F of a given principal P due at a
specified time t. to accumulate a principal P
for t years means to solve for thee final
amount by applying the formula.
Simple interest: F = P(I+rt)
Compound Interest:
Discounting is the process of determining the present
value (P) of any amount due in the future. To discount
the amount F for t years, means to solve P by applying
the formula.
Simple interest:
Compound interest: or
A discount is a deduction from the final amount(F) or
maturity value (MV) of a loan or obligation. A simple
discount is often called Bank discount or Interest in
Advance (Ia). The amount of money that the borrower
receives is called proceed.
Simple interest: Proceeds =
Compound interest: Proceeds or
To elucidate the above concept, let us consider the case
of Mr. Takoda, who wants to borrow 15,500 for six
months from a lender that charges 13 ¾ % simple
discount. The lender will deduct 12% at 15,500 or 1,860,
which is called amount of discount or interest in advance,
and Mr. Takoda will receive 13,640, which is called the
proceeds. Thus, the computation of bank discount is
based on the final amount or maturity value rather than
the present value.
In accumulation
principal F = P+I
P=15,500 F = 15,500 +1,860 = 17,360
In discounting
Proceeds = Principal –Ia Final amount = Principal
Proceeds = 15,500 – 1,860 F= 15,500

The discount ate for a given period of time is the
ratio of the discount for the period to the maturity value
or final amount. The principal is the same as the amount
paid.
Since principal is the same as the final amount paid,
discount or interest in advance can be computed by
means of the formula:
Ia = Fdt
Where:
Ia = amount of discount or interest in advance
F = final amount
d = discount rate
t = time or term of discount
Other formulas that can derived from the foregoing:
d= t= F=
Present Value or Proceed Formula:

Proceeds = F – Ia or Proceeds = F(1-dt)
Final amount formula: F =

Example:
1. A fruit vendor at the market borrows 9,000 for 6 months
at 10 ¼ % simple interest. What amount must he repay?
Given: F = 9,000 r = 10 ¼ % or 0.1025
t = 6 months or ½ year
Solution:
F = P (1+rt)
= 9,000 [1+(0.1025x0.5)]
= 9,000 (0.05125)
= 9,461.25
2. Rafael borrowed 18,500 for 24 months from Bernardo,
who charges 15 % simple discount. How much money
did Rafael receive?
Given: F= 18,500 d = 15 % t = 24 months
Solution:
Ia = Fdt Proceeds = F-Ia
= 18,500 (.15x2) = 15,800 – 5,550
= 18,500 x 0.3 = 10,250
= 5,550

Mathematics in The Modern World Module 6

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CONSUMER

Debtor or Maker. The person who borrows money for

Two ways of finding time in between dates

Compound Interest in the interest resulting from the periodic

addition of simple interest to the capital creating a new

capital every now and then. In transactions covering an

extended period of time, interest may be handled in different

ways. Whenever at stipulated interval known as

compounding or conversion period. During the term of an

investment or loan, the interest due is added to the principal

Accumulation is the process of determining

Proceeds = 15,500 – 1,860 F= 15,500

Present Value or Proceed Formula:

Final amount formula: F =

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