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THE MATURITY VALUE Handouts

The document defines maturity value as the total sum of principal and interest at the end of a loan period. It provides two methods for calculating maturity value: Method A uses the interest rate formula to first find interest, then adds it to principal; Method B uses a single formula of principal multiplied by 1 plus the interest rate times time. Two examples are shown using both methods to find the total amount owed at the end of a loan.

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792 views2 pages

THE MATURITY VALUE Handouts

The document defines maturity value as the total sum of principal and interest at the end of a loan period. It provides two methods for calculating maturity value: Method A uses the interest rate formula to first find interest, then adds it to principal; Method B uses a single formula of principal multiplied by 1 plus the interest rate times time. Two examples are shown using both methods to find the total amount owed at the end of a loan.

Uploaded by

Jamila Mesha Ordo�ez
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THE MATURITY VALUE

 When a certain amount of money is deposited or borrowed, the sum of money at the end of the period is
called maturity or accumulated value.
 Equal to the sum of the principal or face value and the interest earned.
 If we let the symbol M be the maturity or accumulated value, then we shall have:
 Maturity Value (M) = Principal (P) + Interest (I)
or M=P+I
Since I = PRT, then we have:
M = P + PRT and
M= P (1 + RT)
FINDING THE MATURITY VALUE
To determine the maturity value of a loan, observe the steps/procedures below.
Method A:
1. Using I = PRT to find I.
2. Find M using M = P + I
Method B:
1. Use the formula M = P (1 + RT).
2. Substitute the value in the formula and solve the maturity value.
EXAMPLES
1. Find the maturity value of a loan of ₱18,000.00 made for 2 years at 8% simple interest.
Given:
P = ₱18,000.00
R = 8% or 0.08
T = 2 years
Solutions:
Method A:
I = PRT
= ₱18,000.00 × 0.08 × 2
I = ₱2,880.00
Then,
M=P+I
= ₱18,000.00 + ₱2,880.00
M = ₱20, 880.00
Method B:
M = P (1 + RT)
= ₱18,000.00 [1 + (0.08 × 2)]
Solve by using a scientific calculator as follows:
= 18,000.00 × (1 + (0.08 × 2)) =
M = ₱20, 880.00
Miss J. Santos borrowed ₱25,800.00 from a credit union that charges 8 ¾% simple interest. If she will pay the
loan at the end of 3 ½ years, how much would she have to pay by then?
Given:
P = ₱25,800.00
R = 8 ¾% or 0.0875
T = 3 ½ years or 3.5 years
Miss J. Santos borrowed ₱25,800.00 from a credit union that charges 8 ¾% simple interest. If she will pay the
loan at the end of 3 ½ years, how much would she have to pay by then?
Given:
P = ₱25,800.00
R = 8 ¾% or 0.0875
T = 3 ½ years or 3.5 years
Solutions:
Method A:
I = PRT
= ₱25,800.00 × 0.0875 × 3.5
I = ₱7,901.25
Then,
M=P+I
= ₱25,800.00 + ₱7,901.25
M = ₱33, 701.25
Method B:
M = P (1+ RT)
= ₱25,800.00 [1 + (0.0875 × 3.5) ]
Solve by using a scientific calculator as follows:
= 25,800 × (1 + (0.0875 × 3.5))
M = ₱33,701.25

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