W6 Learning Area Business Finance Grade Level 12

Quarter 3 Date

I. LESSON TITLE Time Value of Money

II. MOST ESSENTIAL The learners calculate future and present value of money. ABM_BF12-IIIg-h-18 The
LEARNING COMPETENCIES learners compute loan amortization using mathematical concepts and the
(MELCs) present value tables. ABM_BF12-IIIg-h-20

III. CONTENT/CORE CONTENT The Basic Concepts of the Time Value of Money.
Reference: https://lrmds.deped.gov.ph/k_to_12 ( Business Finance, pages 222 –
245)

IV. LEARNING PHASES Suggest Learning Activities

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A. Introduction 20 mins. Money has a time value and that will be the lesson for this week. After
Panimula studying this lesson, you are expected to:
● distinguish the computation of simple and compound
interest, ● calculate the future and present value of money,
and
● solve problems about the time value of money using future and
present value tables.
You start by doing the activity below.
Let’s Review!
Directions: Read carefully the statements below, then write your insights
in your notebook.
1. Give the factors considered in selecting the source of your
financing. 2. Cite the differences between debt and equity
financing.
Have you ever experienced investing your money in the bank? Did
someone in your household borrow money from a bank or lending
institution before? What is the common factor for both transactions?
Let’s Review!
Directions: Carefully read the directions below and write your responses
in your notebook.
1.Discuss the factors considered in selecting the source of your
financing. 2. Create a scenario wherein the business will choose the type
of financing based on its needs.
3. Cite the differences between debt and equity financing.
Have you ever experienced investing your money in the bank? Did
someone in your household borrow money from a bank or lending
institution before? What then is the common factor for both
transactions?
B. Development 120 mins. Interest is the common and the primary factor when you invest or
Pagpapaunlad borrow money from any financial institution. The value of money as well
as its purchasing power can be influenced by economic factors such as
inflation, cost of goods, or national or global crisis like the Covid-19
pandemic. Due to such reasons, interest is computed using its present or
future time value.
The concepts of the Present and the Future Value consider the following
factors: 1) Principal (P), 2) Interest rate (r), and 3) Time period (t).
In exploring the money’s time value, let’s talk about Simple and
Compound Interest.
Simple Interest is the product of the principal amount multiplied by the
period’s interest rate (I= P x r x t) or (I = Prt).
Illustrative example 1.
 Dinalulugi Corporation deposits ₱100,000 in BCO Bank with 10% annual
interest. After one year, it became ₱110,000. ₱100,000 is the principal
and ₱10,000 is the earned interest. Thus, the value of peso today will
increase in the future because of the interest.
Principal (balance at the beginning of year 1) ₱100,000
Add: Interest(₱10,000 x 10% x 1) 10,000 Future Value (at the
end of year 1) ₱110,000
Activity 1. How Much Would Your Money Be? You have excess money
after the holiday seasons amounting to ₱5,000. You considered
depositing it in a bank. The bank offers you a simple interest rate of
12% per annum. If you deposit your money for 9 months what is its
future value? Show your computation.
Compound Interest is computed for both principal and interest
accumulated in prior periods. The process of determining future
value using compound interest is called compounding. Using
compound interest will yield a higher future value than using simple
interest.
Illustrative example 2.
ABC Corporation deposited ₱100,000 in BCO Bank for 2 years with
an annual interest rate of 10%. In its first year it will earn ₱10,000
from the principal, thus becoming ₱110,000. In its second year it will
earn 10% interest from ₱110,000 and will become ₱121,000.
Principal (balance at the end of year 1) ₱110,000 Add:
Interest(₱11,000 x 10% x 1) 11,000 Future Value (at the end
of year 2) ₱121,000
-Business Finance Principles and Applications by Ma. Elenita B. Cabrera

Activity 2. What If?

Given the principal amount of ₱5,000, how much is the future value if it
will be deposited in another bank with a compounded interest rate of
12% per annum for at least one and a half years?

Let’s go deeper on the concepts of the future and present value of

money. Future Value (FVn) is equal to the initial principal amount (P),
compounded at the interest rate (i) for periods (n). Formula: FVn = P(1 +
i)n Illustrative Example 3.
The future value of ₱1,000, compounded at 10 percent annual interest
rate for the period of five years is computed as follows:
FVn = P(1 + i)n, where: P is ₱1,000, i is 0.10 and n is 5 FV5 =
(₱1,000) +(1 + 0.10)5
= ₱1,000[(1.1)(1.1)(1.1)(1.1)(1.1)]
= ₱1,000(1.61051) = ₱1,610.51
For computation using the Future Value Table (refer to Table 1 on the
last page of your Learning Activity Sheet)
The value of (1 +i)n can be determined using the Future Value Table of
Time Periods. This value is called the future value interest factor (FVIFi,n).
Illustrative Example 4.
The future value of ₱1,000 compounded for 5 years at 10% interest rate
will be computed in this way: First using the future value table of 10% and
5n periods, 1.611 represents the calculation of (1.10)5 or (1.61051). Next,
to find the future value, substitute 1.61051 in FVIFi,n.
FVn = P(FVIFi,n) (refer to Future Value Table of Time Periods in the last
page of the Learning Activity Sheet, Table 1)
FV5 = (₱1,000)(1.611) = ₱1,611.00
 Do Activity 3 in the Learning Activity Sheet on page on page 1.
Present Value is the amount you need to invest today if you want to
have a certain amount of cash flow in the future.
A discount rate is the interest rate used to determine the present value of
money. The process of determining the present value of a future amount
is called discounting. - Business Finance Principles and Applications by Ma. Elenita

Cabrera Formula:
where: PV is the Present Value, n is the number of years FV is
the Future Value, and i is the interest rate Illustrative Example 5.
The Moderna Shop expects to receive ₱1,100 from a bank one year
from now. If the discount rate is 10%, what amount does the shop have
to invest today?

PV = ₱1,100
(1+ 0.10)1 = ₱1,000
Computation using Table of the Present Value

In computing the value of , the present value table

can also be used. Formula: PV = FVn(PVIFi,n) (refer to Table 2 for the
Present Value in the Learning Activity Sheet on last page.)
PVIFi,n is called the present value interest factor for discount rate i and
time period n. Using the table, find first the present value interest factor of
10% and 1 n periods. The tabular value in the table 0.090909 represents
the calculation of PVIFi,n. Next, to find the present value, substitute the
value in the (PVIFi,n formula. (PVIFi,n) = 0.090909, n = 1, and FV1= ₱1,100
PV1 = FVn(PVIFi,n)
PV1= (₱1,100)(0.090909)
= ₱999.99 or ₱1,000 (rounded-off) Do Activity 4 in the Learning
Activity Sheet on page 3..

A. Engagement 40 mins. Activity 5. Read, analyze and solve accurately each of the problems
Pakikipagpalihan below. Present the computations in your notebook.
1. You have a loan of ₱30,000 for 2 years. A simple interest amounting
to ₱3,600 was added to the principal at the end of the term. What
is the annual interest rate for this loan?
2. What is the accumulated amount of ₱50,000 at the end of 3rd year
if it earns a compounded yearly interest of 5%?
3. Two years from now a trust fund will be amounting to ₱250,000 if
you invested a certain amount today at 12% compounded
annually. What is the present value of the fund you invested?
4. Your sibling asks you to determine the future value of her ₱25,000
savings in 5 years which provides 7% interest per annum. How much
can she receive at the end of 5th year?
https://lrmds.deped.gov.ph/k_to_12
Answers:
1. 6% 2. ₱57,881.25 3. ₱199,297.50 4. ₱35,063.75
Do Activity 6 in the Learning Activity Sheet in page 4.

B. Assimilation 30 mins. Activity 7. Which is the Best Option?

Paglalapat Mr. Ewan Co Sayou won ₱10,000,000 in the Mega Lotto. He was
very excited to collect his winnings and had several plans for his
money. He would buy his dream house, car, and invest the excess.
However, he
 was very disappointed when the officers from PCSO said that he will
not get his ₱10 million upfront. He, however, has the following
options:
1. get 8.1 million upfront,
2. receive 1 million every year for 10 years, (PV factor
7.721) 3. receive 1.8 million every year for 5 years (PV
factor 4.329)
Which among the 3 options is the best for Mr. Sayou to choose?
-https://lrmds.deped.gov.ph/k_to_12

V. ASSESSMENT 20 mins. Check your understanding!

(Learning Activity Sheets for The lockdown due to the Covid 19 pandemic affected the public
Enrichment, Remediation or
Assessment to be given on
transportations. The eldest member in your household wants to buy a
Weeks 3 and 6) bicycle amounting to ₱10,500 which he could use in reporting to his
work. He has the option of paying it today for ₱10,500 or buying it in
installments where he has to pay a down payment of ₱4,000 today,
and the balance in two equal payments of ₱4,000 each, with an
interest rate of 10%. Knowing that you are studying business finance,
he asks you to determine which is the better option, to pay in cash
today or to buy it in installment? Show your solution.

VI. REFLECTION 10 mins. In your notebook, write your personal insights about the lesson using the
prompts below.
I understand that ___________________.
I realize that ________________________.
I need to learn more about __________.

Prepared by: Adelia P. Canillo, SDO Imus City Checked by: Dr. Josephine P. Canlas, Adora G. Del
Mundo, Alfredo G. Buhain, Jr.