General Mathematics Quarter 2-Module 1: Week 1 - Week 5: Department of Education - Republic of The Philippines
General Mathematics Quarter 2-Module 1: Week 1 - Week 5: Department of Education - Republic of The Philippines
General Mathematics
11
Quarter 2- Module 1:
1
Week 1- Week 5
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impose as a condition the payment of royalties.
2
Q2 Week 1 Simple
Day 1-4
and Compound
Interests
What’s In
3
• Compound Interest (Ic) - interest is computed on the principal and also on the
accumulated past interests. This means that the amount of interest to be paid
increases every period.
• Simple Interest Formula: I = Prt
Where I – Interest P – Principal r – rate t – time
• Compound interest formula 𝐀 = 𝐏(𝟏 + 𝐫)𝐭
Where r – Interest rate P – Initial Principal Balance A – Final amount
t – number of time period elapsed n – number of times interest
applied per time period
Simple Interest
Discussing simple interest is one among the most important and basic ideas
for mastering your finances. This could be the starting investment, or the
starting quantity of a loan. Interest, in its simplest form, is calculated as a
percent of the principal.
5
Whereas P is the principal, I is the nominal annual interest rate in percentage terms,
and n = number of compounding periods.
Example Problem:
1. Peter takes a three-year loan of $12,000 at an interest rate of 4% that
compounds annually. What would be the amount of interest?
Step 1: Identify the values given in the problem.
Number of compounding periods is 3 years: n=3
Initial amount is $12,000: P=$12,000
Compounding Periods
The higher number of compounding periods, the greater the amount of
compounding interest.
Return for Provides low returns Provides similarly high returns for
lender for the money lender the money lender
6
Principal The principal is The principal keeps on changing
constant due to addition of accrued interest
in the entire period
Growth Initial Value and the The Interest and the initial amount
Interest growth remain growth is rapid and increases at a
constant. fast pace
How do we find the principal amount when the rate, time and simple interest is given ?
Example 1: What amount of principal will earn an interest of 2,625 at 3% in 5 years?
𝐼 𝟐,𝟔𝟐𝟓 𝟐𝟔𝟐𝟓
Using the formula 𝑃= we have 𝑷= = = ₱𝟏𝟕, 𝟓𝟎𝟎
𝑟𝑡 𝟎.𝟎𝟑(𝟓) 𝟎.𝟏𝟓
17, 5OO is the initial investment you need to earn an interest of 2,625 at 3% in 5 years
Example 2: What annual interest rate is needed for your initial investment amounting
𝑰
to 50,000 to earn 3,125 in 15 months? Using the formula 𝒓= we have
𝑷𝒕
𝟑,𝟏𝟐𝟓 𝟑,𝟏𝟐𝟓 𝟑,𝟏𝟐𝟓
𝐫= 𝟏𝟓 = = = 𝟎. 𝟎𝟓 𝐨𝐫 𝟓%
𝟓𝟎,𝟎𝟎𝟎(𝟏𝟐) 𝟓𝟎,𝟎𝟎𝟎(𝟏.𝟐𝟓) 𝟔𝟐,𝟓𝟗𝟗
Example 3: In what time will 15,000 amounts to 24,450 if the simple interest is calculated at 7% per
annum?
𝐼 9,450 9,450
Using the formula 𝑡= we have 𝑡= = 1,050 = 9 𝑦𝑒𝑎𝑟𝑠
𝑃𝑟 15,000(0.07)
Example 4: What is the simple interest if you invest an amount of 12,500 at an interest rate
of 7.5% for 3 years. Using the formula, I = Prt we have I = 12,500 (0.075) (3) =₱ 2,812.5
7
Assessment
4. Mrs. Makabuhay invest ₱20,000 in her savings account. He earns an interest of 10% (or
₱2,000) every month. After five months, she earned ₱10,000 in interest. This is an example of
A. Simple Interest B. Interest Rate C. Compounded D.
Annuity
5. In simple interest formula which is I = Prt, P represents the principal amount. The principal is
A. The amount of money borrowed or deposited
B. The amount in your cooperative bank you buy as a customer
C. The amount taxed by the government
D. The amount you earned as an investor
6. Ces went to Yashano Mall and saw a massage chair that she could have to take a loan at
Manila Teachers for P6500 to purchase. Manila Teachers said that she could get a simple
interest rate of 8% for 10 years. This illustrates
A. Simple interest B. Compounded interest C. Annuities D. Interest
7. Suppose Myra borrows 500,000 for three years from her best friend, who agrees to charge
Myra an interest at 5% annually. Assume that the principal amount remains the same
throughout three years. What interest is reflected in the given scenario?
A. Simple interest B. Compounded interest C. Principal D. Rate
11. Gabriel deposited Php ₱5,000 at a bank with an annual simple interest rate of 3%. What is the
interest she will earn in 3 years?
A. ₱450 B. ₱45,000 C. ₱4,500 D. ₱45
12. How much interest is earned on a principal of ₱1,800.62 invested at an interest rate of 8% for
four years?
A. ₱57, 619.84 B. ₱5,619.84 C. ₱576.20 D. ₱1,944.67
13. Dennis borrow 50,220 from his brother for two years at an interest rate of 6%, how much
interest will he pay?
A. ₱6,026,4 B. ₱60,264 C. ₱602, 640 D. ₱602.64
14. Interest that is credited daily, monthly, quarterly, semi-annually, or annually on both principal
and previously credited interest.
A. Simple B. Compound C. General D. Final Amount
8
Q2
Week 2
Simple and Compound Interest in
Days 1-4
Depth
15. This is a thing that is borrowed, especially money, that is expected to be paid back with interest.
A. Debt B. Credit C. Debit D. Interest
What I Know :
Lets TRY
Directions: Chose the letter of the correct answer. Write the letter on the separate
sheet of paper
1. What will be the value after 4 years if the present value of your investment is 1,500 with
an interest rate of 5% compounded annually?
A. 1823.26 B. 1,500 C. 323. 26 D. 7,593.75
2. You wanted to have 150,000 after 20 years. The rate of interest is 7.5% compounded
annually, how much will be your initial investment?
A. 311.97 B. 35, 311. 97 C. 150,000 D.
225,000
3. You wanted to have 30,000 after 2 years. The rate of interest is 11.5% compounded
annually, how much will be your initial investment?
A. 24, 130.79 B. 6,900 C. 13,452.00 D.
36,900
For problem number 4 and 5
9
Mrs Merlita borrowed an amount of 200,000 with an interest rate of 3% compounded
annually for 5 years.
4. How much will she pay at the end of the term?
A. 231, 854. 81 B. 31, 854.81 C. 1,854.81 D.
854.81
5. What was the total interest gain after 5 years?
A. 854.81 B. 31, 854.81 C. 431,854.81 D.
285.81
What’s In
Ces invested 50,000 in a coffee shop at an interest rate of 12% compounded monthly.
How much will she receive at the end of one year?
Step 1: Identify the given data
r = 0.12 (in decimal form of 12%)
n = 12
effective annual rate =
Step 2: Identify what is asked
How much will she receive at the end of one year.
Step 3: Solve
𝑟 𝑛 0.12 12
Effective annual rate = (1 + 𝑛) − 1 = (1 + 12 ) − 1 = (1.01)12 − 1 =
0.1268 𝑜𝑟 12.68%
At the end of one-year Ces will have 50,000(1.1268) = 56, 341. 21
Example 2:
Gabriel deposited an amount of 100,000 at an interest rate of 5.5% compounded
semi-annually.
How much interest was added in the first year of what she deposited?
Step 1: Identify the given data
r = 0.055 (which is 5.5% as a decimal)
Step 2: Identify what is asked
How much interest was added in the first year of what she deposited?
Step 3: Solve
𝑟 𝑛 0.055 2
Effective Annual Rate = (1 + ) − 1 = (1 + ) − 1 = (1.0275)2 − 1 =
𝑛 2
1.05575625 − 1 = 0.5575625
The amount of interest will be 105575.625
Example 3: How much do you need to borrow now to get 15,000 in 15 years at 5% interest
rate?
Step 1: Identify the given data
FV = 15,000 r = 5% n = 15
Step 2: what is asked: PV
15,000 15,000
Step 3: Solve 𝑃𝑉 = (1+0.05)15 = 1.0515 = 7,215.26
What’s New
WHAT’S NEW
Example1: If you invested an amount of 35,000 at 5.8% interest compounded
monthly for 6 years, how much would you have after 6 years?
Use graphic organizer.
10
Step 1: Identify the given
𝑟 𝑛𝑡
Step 3: Formula FV = P(1 + )
𝑛
0.058 12(4)
Step 4: Solution FV = 35,000 (1 + ) = 35,000(1 + 0.005)48 = 35,000(1.2704891611) = 44,467.12
12
Example2: Gabriel invest 7,500 at 5.4% compounded continuously for 10 years. How
much will Gabriel have in her account after 10 years?
Step 1: Identify the given P= 7,500 r = 5.4% or 0.054 (in decimal) t = 10 years
Step 2: What is asked: How much will Gabriel have in her account after 10 years?
Step 3: Formula A = P𝑒 𝑟𝑡
Step 5: Conclusion Therefore, Gabriel’s money will be 12, 870.05 after 10 years
Annually 1
Semi-annually 2
Quarterly 4
Monthly 12
Weekly 52
Daily 365
Example1:
How much time will it take for an amount of 7,000 to yield 1,925 as interest at 5.5%
per annum of simple interest?
Step 1: Identify the given
11
Step 2: What is asked: time
𝐼
Step 3: Formula 𝑡 = 𝑃𝑟
1,925 1,925
Step 4: Solution 𝑡 = (7,000)(0.055) = =5
385
Example2:
Liza invest 11,500 at 4% compounded continuously for 5 years. How much will Liza have in her
account after 5 years?
Step 2: What is asked: How much will Liza have in her account after 5years?
Step 3: Formula A = P𝑒 𝑟𝑡
Step 5: Conclusion Therefore, Liza’s money will be 11, 732.32 after 5 years
What is It
𝑭𝑽 𝑟 𝑛𝑡
SI= Prt 𝐏𝐕 = (𝟏+𝒓)𝒏 𝑭𝑽 = 𝑷𝑽(𝟏 + 𝒓)𝒏 FV = P(1 + 𝑛) A = P𝑒 𝑟𝑡
What’s More
Compounding More than Once a Year
Definition of Terms
• Conversion or Interest Period - time between successive conversions of interest
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• Frequency of Conversion (m) - number of conversion periods in one year
• Nominal Rate (i(m)) - annual rate of interest
• Rate (j) of Interest for each Conversion Period
𝑖 (𝑚) 𝑎𝑛𝑛𝑢𝑎𝑙 𝑟𝑎𝑡𝑒 𝑜𝑓 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡
𝑗= =
𝑚 𝑓𝑟𝑒𝑞𝑢𝑒𝑛𝑐𝑦 𝑜𝑓 𝑐𝑜𝑛𝑣𝑒𝑟𝑠𝑖𝑜𝑛
• Total Number of Conversion periods n
n = tm = (frequency of conversion) × (time in years)
Note on rate notation: r, i(m), j
In earlier lessons, r was used to denote the interest rate. Now that an interest rate
can refer to two rates (either nominal or rate per conversion period), the symbols i(m)
and j will be used instead.
Example 1:
Given a principal of P8,000. Earn an annual interest rate of 4% in two portions 1%
after 6 months, and 1% after another 6 month, What would be the value after 3
years?
Given:
Principal Value = PhP 80,000
Annual Interest Rate =4%, compounded semi-annually
Conversion:
(We can find the Rate (j) using its formula)
𝑖 (𝑚) 𝑎𝑛𝑛𝑢𝑎𝑙 𝑟𝑎𝑡𝑒 𝑜𝑓 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡
𝑗= =
𝑚 𝑓𝑟𝑒𝑞𝑢𝑒𝑛𝑐𝑦 𝑜𝑓 𝑐𝑜𝑛𝑣𝑒𝑟𝑠𝑖𝑜𝑛
4
𝑗= =2
2
Formula:
𝐹𝑉 = 𝑃𝑉(1 + 𝑗)
Solution Table:
Time (n) in years Solution and Amount
1/2 8,000 x 1.02 =8160
1 1/2 8160 x 1.02 =8323.5
2 8323.5 x 1.02 =8489.67
2 1/2 8489.67 x 1.02 =8659.46
3 8659.46x 1.02 =8832.65
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Maturity Value, Compounding m times a Year
𝐹𝑉 = 𝑃𝑉(1 + 𝑗)𝑚𝑛
where FV = Maturity/Future Value
PV = Principal Value
j = Rate of Interest
m= Frequency of Conversion
n = term or time in years
Example 2:
Find the maturity value an interest if P5,000 is deposited in a bank at 2%
compounded monthly for 3 years.
Given:
PV= P5,000
i(12)=0.02
n=3 years
m=12 (12 months per year)
Solution:
Compute for the interest Rate in a conversion period by
𝑖 (12) 0.02
𝑗= =
12 12
Compute for the total number of conversion period by
𝑚𝑛 = (12)(3) = 36 𝑐𝑜𝑛𝑣𝑒𝑟𝑠𝑖𝑜𝑛 𝑝𝑒𝑟𝑖𝑜𝑑𝑠
Compute for the maturity value using
𝐹𝑉 = 𝑃𝑉(1 + 𝑗)𝑚𝑛
0.02 36
𝐹𝑉 = 5000 (1 + )
12
𝑭𝑽 = 𝑷𝒉𝒑 𝟓𝟑𝟎𝟖. 𝟗𝟕
The compound interest is given by
Ic = FV – PV = P5308.97 - P5000 = Php 5308.97
Given:
FV= P10,000 i(2)=0.12 n=4
Solution:
Compute for the interest Rate in a conversion period by
𝑖 (2) 0.12
𝑗= = = 0.06
𝑚 2
Compute for the total number of conversion period by
𝑚𝑛 = (4)(2) = 8 𝑐𝑜𝑛𝑣𝑒𝑟𝑠𝑖𝑜𝑛 𝑝𝑒𝑟𝑖𝑜𝑑𝑠
Compute for the maturity value using
𝐹𝑉
𝑃𝑉 =
(1 + 𝑗)𝑚𝑛
10,000
𝑃𝑉 =
(1 + 0.06)8
𝑷𝑽 = 𝑷𝒉𝒑 𝟔𝟐𝟕𝟒. 𝟏𝟐
Example 1:. How long will it take P2,000 to accumulate to P4,000 in a bank savings
account at 8% compounded quarterly?
Given:
P= P2,000
V= P4,000
m= 4
Substitute the given to the formula, V = P (1 + r)n, then solve for n by taking logarithm
of both sides.
4,000= 2,000(1 +0.2)n log(2)= log(1.2)n
4,000
=(1.2) n log(2)= nlog(1.2)
2,000
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The Interest rate in each conversion period is 3.37%
The nominal rate can be computed by
𝐢(𝒎)
r= 𝐦
𝐢(𝟐)
0.0373 = 𝟐
(2)
i = (0.0373)(2) = 0.0746 or 7.46%
Therefore, the nominal rate that will triple an amount of money semi-annually in 15
years is 7.46%
ASSESSMENTS ( EXTRA MILE )
I. Do what is asked:
1. Zoe invested 50% of his heir at 27.5% interest compounded continuously. If after 2
years he received an amount of 866,626.51, what was the initial investment?
2. You invested 35,000 at 13.5% compounded annually for 3 years. What is your 35,000
worth after 3 years?
3. If Perez invested 115,000 at 6.5% per year compounded quarterly, what was the total
amount after 4 years?
4. Nancy received the maturity value of her earnings amounting to 45,000 after giving her
initial savings of 27,900, how much is the earned interest?
II. Directions: Chose the letter of the correct answer. Write the letter on the separate sheet
of paper
1. Starting money = 15,900; interest rate = 5.5%, time = 5 years, how much interest do you pay?
A. 4,372,5 B. 16,774.50 C. 874.50 D. 11,527.50
2. You invested 150,000 at 2.5% compounded continuously for 10 years. What is your 150,000
worth after 10 years?
A. 37, 500 B. 212, 860.13 C. 112, 500 D. 149,500
3. You borrow 14,500 to your cousin which charges you 5% compounded semi annually for 3
years. What total amount will you pay after 3 years?
A. 2,471.12 B. 2,175 C. 16, 971.12 D. 12, 325
4. Find the present value of 71,624.31 due in 3 years if money is invested at 9% compounded
semi-annually.
A. 16,623 B. 65,000 C. 37,900 D. 55,000
For question number 5 and 6
You deposited an amount of 25,000 for two years at 3% compounded semi-annually
5. What is the future value?
A. 26, 534.09 B. 1,500 C. 103,000 D. 25, 375
6. What is the compound interest?
A. 375 B. 78.000 C. 23, 500 D. 1,534.09
7. The maturity value of the amount Myra borrowed in 108 months at 7% compounded monthly
is 37, 483.54. Find the present value.
A. 20,000 B.17, 483.54 C, 23,614.63 D. 13, 868.91
8. Gabriel will receive an amount of 68, 783. 31 from her investment after 4 years at 8%
compounded monthly. Find his initial investment.
A. 22, 010.66 B. 50,000 C. 70, 495.39 D. none of
the choices
9. It is the sum of principal and interest and their value becomes the principal for the next period.
A. Annuity
B. Present value
C. Compound amount
D. Compound interest
17
Q2
Week 3 Simple and General Annuities
Days 1-4
What I Know
Directions: Read each item carefully. Write the letter of the correct answer on
your notebook.
1. It is a sequence of paymets made at equal (fixed intervals or period
of time.
A. Annuity B. Payment Interval C. Term of Annuity
D. Periodic Payment
2. It is the amount of each payment.
A. Payment Interval B. Present value C. Term of Annuity
D. Periodic Payment
3. Which of the following is an example of general annuity.
A. Your salary
B. Paying a car in cash
C. Installment Payment for an appliance at the end of each month
with interest compounded annually
D. Instalment payment for an appliance at the end of each month
with interest compounded monthly.
4. Which is an example of a simple annuity
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A. House rental
B. A residential mortgage loan
C. A money borrowed by your parent without interest
D. None of the above
5. Which of the following is not an exaple of contingent annuity?
A. Life insurance C. Your monthly salary
B. Pension payment D. None of the above
What’s In
Definition of Terms:
Annuity - Annuity is a sequence or series of payments made at equal periods of time.
Periodic payments – Amount of each payment
Simple Annuity - Simple annuities are a type of annuity where the interest is compounded at
the same time as the annuity payment. (To be discussed in I.)
General Annuity - A general annuity is an annuity where the payments do not coincide with
the interest periods. (To be discussed in II.)
Deferred Annuity – A deferred annuity is an annuity which commences only after a lapse of
some specified time after the final purchase premium has been paid. (To be discussed in III.)
Ordinary Annuity - Also known as Annuity Immediate, this is a type of annuity where the
payment are made at the end of each period or payment interval.
Annuities
According to Simple annuity General annuity
payment -An annuity where the - An annuity where the payment interval
interval and payment interval is the same is not the same as the interest period
interest period as the interest period
According to Ordinary Annuity Annuity Due
the time of - (or annuity - a type of annuity in which the payments
payment immediate) are made at beginning of each payment
A type of annuity in which the interval
payments are made at the
end of each payment interval
According to Annuity Certain Contingent Annuity
duration - An annuity in which - an annuity in which the payments
payments begin and end at extends over an indefinite (or
definite times indeterminate) length of time
What’s New
19
Objective(s): At the end of this lesson, the learner will be able to graph and illustrate simple
annuities, compute the future and present values of simple annuities, and compute the periodic
payment of simple annuities.
One of the annuities under simple annuity is ordinary annuity. The image below is an example
of a time diagram of an ordinary annuity:
Time Diagram of an
Ordinary Annuity
R R R R R … R
0 1 2 3 4 5 … n
The image below is an example of a time diagram of the future value of an ordinary annuity:
(𝟏 + 𝒋)𝒏 − 𝟏
𝐅= 𝐑
𝒋
𝒊
𝒋= 𝒏 = 𝒕𝒎
𝒎
20
Example: Suppose you invested $1000 per quarter over a 15 year period. If money earns an
annual rate of 6.5% compounded quarterly, how much would be available at the end of the
time period?
Given: Find:
R = $1000 n = tm
t = 15 years = (15)(4) = 60
𝑖
m=4 j=𝑚
0.065
i = 6.5% = 0.065 = = 0.01625
4
Solution:
(1 + 𝑗)𝑛 − 1
F= R
𝑗
(1 + 0.01625)60 − 1
F = 1000
0.01625
F = $100,336.68
The image below is an example of a time diagram of the present value of an ordinary annuity:
21
n is the number of payments; m is number of conversions per year
j is the interest rate per period; t is the term
𝒊
𝒋= 𝒏 = 𝒕𝒎
𝒎
Example: How much money must you deposit now at 6% interest compounded quarterly in
order to be able to withdraw $3,000 at the end of each quarter year for two years?
Given: Find:
R = $3,000 n = tm
t = 2 years = (2)(4) = 8
𝑖
m=4 j=𝑚
0.06
i = 6% = 0.06 = = 0.015
4
Solution:
1 − (1 + 𝑗)−𝑛
P= R
𝑗
1 − (1 + 0.015)−8
P = 3,000
0.015
P = $22457.78
What’s More
Exercises:
A. Find the future value (F) of the ff. ordinary annuities.
1. Suppose on your 21st birthday you begin making monthly payments of $500 into an
account that pays 8% compounded monthly. If you continue the payments until your 51st
birthday (30 years), how much money will be in the account?
2. Calculate the future value of 12 monthly deposits of $1,000 if each payment is made on
the first day of the month and the interest rate per month is 1.1%?
B. Find the present value (P) of the ff. ordinary annuities.
1. Suppose your parents decide to give you $10,000 to be put in a college trust fund that
will be paid in equally quarterly installments over a 5 year period. If you deposit the
money into an account paying 1.5% per quarter, how much are the quarterly payments
(Assume the account will have a zero balance at the end of the period.)?
2. Suppose you have selected a new car to purchase for $19,500. If the car can be financed
over a period of 4 years at an annual rate of 6.9% compounded monthly, how much will
your monthly payments be?
22
What I Need to Know
PERFORMANCE STANDARDS:
Learning Outcome(s): investigate, analyze and solve problems involving simple and
general annuities using appropriate business and financial instruments.
Learning Competencies
1. finds the future value and present value of both simple annuities and general annuities.
M11GM-IIc-d-1
2. calculates the fair market value of a cash flow stream that includes an annuity. M11GM-
IId-2
3. calculates the present value and period of deferral of a deferred annuity. M11GM-IId-
3
What’s In
Cash Flow
A cash flow is a term that refers to payments received (cash inflows) or payments or deposits
made (cash outflows). Cash inflows can be represented by positive numbers and cash
outflows can be represented by negative numbers.
23
A Fair Market Value or Economic Value of a cash flow (payment stream) on a particular
date refers to a single amount that is equivalent to the value of the payment stream at that
date. This particular date is called the focal date.
What is It
Calculating present value (discounting) is simply the inverse of calculating future value
(compounding):
How much would you be willing to pay today for the right to receive $1,000 five years
from now, given you wish to earn 6% on your investment ?
1
PV = $1000 5
(1.06)
= $1000(.747 )
= $747
Ordinary Annuity:
Example: Suppose you invest $100 at the end of each year for the next 3 years and earn 8%
per year on your investments. How much would you be worth at the end of the 3rd year?
24
FV3 = $100(1.08)2 + $100(1.08)1 +$100(1.08)0
= $100[(1.08)2 + (1.08)1 + (1.08)0]
= $100[Future value of an annuity of $1
factor for i = 8% and n = 3.]
= $100(3.246)
= $324.60
Future Value of an Annuity
Solved Problems
Suppose you can invest in a project that will return $100 at the end of each year
for the next 3 years. How much should you be willing to invest today, given you
wish to earn an 8% annual rate of return on your investment?
25
Suppose you won a state lottery in the amount of $10,000,000 to be paid in 20
equal annual payments commencing at the end of next year. What is the present
value (ignoring taxes) of this annuity if the discount rate is 9%?
Annuity Due
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FVn = FV of an ordinary annuity (1 + i)
PV = PV of an ordinary annuity (1 + i)
Perpetuities
An annuity that continues forever. Letting PP equal the constant dollar amount
per period of a perpetuity:
PP
PV =
i
Non-annual Periods:
Annually
FV4 = $1000(1 + .08/1)(1)(4) = $1000(1.08)4 = $1360
Semi-Annually
FV4 = $1000(1 + .08/2)(2)(4) = $1000(1.04)8 = $1369
Quarterly
FV4 = $1000(1 + .08/4)(4)(4) = $1000(1.02)16 = $1373
Daily
FV4 = $1000(1 + .08/365)(365)(4)
= $1000(1.000219)1460 = $137
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What I have Learned
Find the future value F of the following general annuities.
1. Monthly payments of ₱2,000 for 5 years with interest rate of 12% compounded
quarterly.
2. Quarterly payment of ₱15,000 for 10 years with interest rate of 8% compounded
annually.
3. Annual payments of ₱20,500 with interest rate of 8.5% compounded semi-annually
for 3 4. years.
4. Semi-annual payments of ₱150,000 with interest rate of 8% compounded annually for
10 years.
5. Daily payments of ₱54 for 30 days with interest rate of 15% compounded annually.
What I Can Do
Find the periodic payments of the following general annuities.
1. Monthly payment of the future value of ₱50,000 for 1 year with an interest rate of
10% compounded quarterly.
2. Quarterly payment of an accumulated amount of ₱80,000 for 2 years with interest rate
of 8% compounded annually.
3. Annual payment for the present value of ₱100,000 for 2 years with an interest rate of
12% compounded semi-annually.
4. Semi-annual payment of the loan ₱800,000 for 5 years with an interest rate of 9%
compounded annually.
5. Monthly installment of an appliance cash prize of ₱20,000 for 6 months with an
interest rate of 6% compounded semi-annually.
1. Teacher Kate is saving ₱2,000 every month by depositing it in a bank that gives an
interest of 1% compounded quarterly. How much will she save in 5 years?
2. Milo purchased a new car for ₱99,000 down payment and ₱15,000 every month for 5
years. If the payments are based on 7% compounded quarterly, what is the total cash
price of his car?
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3. In order to have a fund of ₱1,000,000 at the end of 12 years, equal deposits every six
months must be made. Find the semi-annual payment if interest is at 6% compounded
annually.
4. Which investment is preferable? (Compute for the fair market values). Investment in
AB company offering ₱100,000 at the end of 5 years plus ₱24,000 annually for 4
years afterwards. Investment in XY company offering ₱50,000 semi-annually plus
₱15,000 every 6 months after 6 years. Assumed that money is worth 9% compounded
annually.
A motorcycle is for sale for ₱60,500 cash or monthly installment of ₱3,000 for 2 years at 12 %
compounded annually. If you are the buyer, what would you prefer, cash or installment?
Q2
Week 5 STOCKS AND BONDS
Day 1 -4
CONTENT STANDARDS:
and bonds.
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What I Know
Activity #1: Read each statement carefully. Identify the following whether it
is a “STOCKS” or “BOND”.
Use ½ crosswise of yellow paper and do not forget to write your complete
name. Fold lengthwise and use the left side. Answers only.
_______________1. Issues of a stake of ownership in a company.
_______________2. Typically traded over the counter (OTC).
_______________3. Generally lower risk, lower reward.
_______________4. A claim to a company’s assets and earnings that often
gives the investor voting rights and pays dividends.
_______________5. Can be made as corporate, municipal or treasury bonds
What’s New
When a person buys a stock, he is buying a share of the company which makes him a
partial owner. That is the reason it is also referred to as equity. In short, when a company issues a
stock, it is selling a piece of itself in exchange for cash.
On the other hand, bonds represent debt. When a company issues a bond, it is issuing debt
with an agreement to pay back the money with interest.
The table below summarizes the many differences between stocks and bonds.
Stocks Bonds
A form of equity financing or A form of debt financing, or raising money by
raising money by allowing borrowing from investors.
investors to be part owners of the
company.
Stock prices vary every day. Investors are guaranteed interest payments and a
These prices are reported in return of their money at the maturity date.
various media (newspaper, TV,
internet, etc.).
Investing in stock involves some Uncertainty comes from the ability of the bond issuer
uncertainty. Investors can earn if to pay the bondholders. Bonds issued by the
the stock prices increase, but government pose less risk than those by companies
they can lose money if the prices because the government has guaranteed funding
decrease or worse, if the (taxes) from which it can pay its loans.
company goes bankrupt.
Higher risk but with possibility of Lower risk but lower yield
higher returns
Can be appropriate if the Can be appropriate for retirees (because of the
investment is for the long term guaranteed fixed income) or for those who need the
(10 years or more). This can money soon (because they cannot afford to take a
allow investors to wait for stock chance at the stock market)
30
prices to increase if ever they go
low.
Examples
If a company has 1,000 shares If current interest rates are 2% lower than your rate
of stock outstanding and one on a mortgage on which you have 3 years left to
person owns 100 shares, that pay, it’s going to matter much less than it would for
person would own and have someone who has 25 years of mortgage payments
claim to 10% of the company’s left.
assets and earnings.
As we further our discussion, it is important that we are familiar with the following terms
related to stocks:
Stocks refer to the share in the ownership of a company.
Dividend refers to the share in the company’s profit.
Dividend Per Share refers to the ratio of the dividends to the number of shares.
Stock Market refers to a place where stocks can be bought or sold. The stock market in the
Philippines is governed by the Philippine Stock Exchange (PSE).
Market Value refers to the current price of a stock at which it can be sold.
Stock Yield Ratio refers to the ratio of the annual dividend per share and market value per
share. It is also called current stock yield.
Par Value refers to the share amount as stated on the company certificate. Unlike market
value, it is determined by the company and remain stable over time.
What if a certain financial institution declared a ₱ 50,000,000 dividend for the common
stocks, how much is the dividend per share if there are a total of 800,000 shares of common
stock?
Take note that the total dividend is ₱ 50,000,000 and the total share is 800,000.
So, we are asked to find the dividend per share. Dividend per share is total dividend over
total share.
To compute,
𝑇𝑜𝑡𝑎𝑙 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 50,000,000
𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑝𝑒𝑟 𝑆ℎ𝑎𝑟𝑒 = = = 62.50
𝑇𝑜𝑡𝑎𝑙 𝑆ℎ𝑎𝑟𝑒 800,000
Let us level up. Corporation ABC has a current market value of ₱47 and give a dividend of ₱
9 per share for its common stock. Corporation XYZ’s current market value is ₱93 and give a
dividend of ₱14 per share. How much dividends shareholders will be getting in relation to the
amount invested?
Given:
Corporation ABC Corporation XYZ
Dividend per Share = ₱ 8 Dividend per Share = ₱ 14
Market Value = ₱ 47 Market Value = ₱ 93
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Find the shareholders’ dividends base on the amount they invested.
Base on the computed stock yield ratio of both companies, it shows that Corporation ABC has a
higher stock yield ratio than Corporation XYZ. Therefore, if you are the investor, each of your peso
will earn more if you invest in Corporation ABC. Then, you may say that It is wiser to invest in
Corporation ABC if other factors are equal.
When we speak about bonds, the following terms must be clear to us:
Bond refers to interest-bearing security which promises to pay
a. a stated amount of money on the maturity date, and
b. regular interest payments called coupons.
Coupon refers to the periodic interest payment that the bondholder receives during the time between
purchase date and maturity date; usually received semi-annually.
Coupon Rate refers to the rate per coupon payment period. It is denoted by r.
Price of a Bond refers to the price of the bond at purchase time. It is denoted by P.
Par Value or Face Value refers to the amount payable on the maturity date. It is denoted by F.
If P = F, the bond is purchased at par.
If P < F, the bond is purchased at a discount.
If P > F, the bond is purchased at premium.
Term of a Bond or Tenor of a Bond refers to the fixed period of time, usually in years, at which the
bond is redeemable as stated in the bond certificate. It is the number of years from time of purchase
to maturity date.
Fair Price of a Bond refers to the present value of all cash inflows to the bondholder.
To have a clearer understanding these terms, let us have a simple problem related to bonds. Find
the amount of the semi-annual coupon for a bond with a face value of ₱ 250,000 that pays 7%,
payable semi-annually for its coupon.
Given are the Face Value (F) = ₱ 250,000, and Coupon Rate (r) = 7%.
To get the annual coupon amount, multiply face value by coupon rate. 250,000 (0.07) = 17,500
Then, divide by 2 since we are asked to get the semi-annual coupon amount. 17,500 (½) = 8,750
Thus, the amount of the semi-annual coupon is ₱ 8,750.
Let us always remember that the coupon rate is used only for computing the coupon amount and it
is not the rate at which money grows.
Suppose that a bond has a face value of ₱ 100,000 and its maturity date is 10 years from now. The
coupon rate is 5% payable semi-annually. Assuming that the annual market rate is 4%, what is the
fair price of this bond?
Given are F = ₱ 100,000, r = 5%, Time of Maturity = 10 years, Number of periods = 2 (10) = 20
-This is semi-annually (2) multiplied by the number of years (10), and Market Rate = 4%
0.05
Amount of semi-annual coupon = 100,000 ( ) = 2,500
2
It means that the bondholder receives 20 payments of ₱ 2,500 and ₱100,000 at t = 10. To compute
the present value of ₱ 100,000,
𝐹
𝑃= (1+𝑗)𝑛
, where j is the interest rate per period and n is the number of payment.
100,000 100,000
𝑃= (1+0.04)10
= = 67,556.42
1.0410
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2
𝑖 (2)
Convert 4% to equivalent semi-annual rate: (1 + 0.04)1 = (1 + )
2
𝑖(2)
= 0.019804
2
1−(1+𝑗)−𝑛 1− (1+0.019804)−20
𝑃=𝑅 = 2,500 = 40,956.01
𝑗 0.019804
and, Price = 67,556.42 + 40,956.01 = 108,512.43. Thus, a price of ₱ 108,512.43 is
equivalent to all future payments, assuming an annual market rate of 4%.
Activity #1: The table below shows the data on 5 stockholders given the par
value, the dividend percentage and the number of shares of stock they have
with a certain corporation. Find the dividend of the 5 stockholders. Use 1 sheet
of yellow paper.
Stockholder Par Value (in Dividend (%) Number of Shares
Pesos)
A 50 3% 100
B 48 2.75% 150
C 35 2.5% 300
D 42 3.12% 400
E 58 3.5% 500
Assessment
33
I. Analyze the given table and answer the following questions.
52 weeks
HI LO STOCK DIV YLD% VOL(100s) CLOSE NETCHG
85 41 ABC 0.70 1.60 1 500 66 -2
70 22 DEF 0.40 3.10 5600 33 5
1. What was the dividend per share last year for stock ABC?
2. What was the closing price of DEF in the last trading day?
3. For stock ABC, what was the lowest price of stock for the last 52 weeks?
4. For stock DEF, what was the closing price in the last trading day?
5. For stock DEF, what was the highest price of stock for the last 52 weeks?
II. Analyze the given table and answer the following questions.
52 weeks
HI LO STOCK DIV YLD% VOL(100s) CLOSE NETCHG
80 38 GHI 0.80 1.10 1 300 68 -5
75 20 JKL 0.60 2.40 8600 30 3
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