GE 14

( MODULE )

MATHEMATICS IN THE MODERN WORLD

for

ACCOUNTANCY STUDENTS

ENGR. EDGAR C. VILLACORTA

1
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CHAPTER 1. Special Topics in Algebra/Number Patterns

1.1. Mathematical Induction

Suppose there is a claim that

n
∑ i = 1+2+3+4+5+…+n = n (n+1) for n = 1, 2, 3, …
i=1 2

To verify whether the sum is indeed true, we check for

n = 1, 2, 3, … k, (k+4)

Hence, for n = 1
1
∑ i = 1 (1+1) 1=(2) =1
i=1 2 2

for n = 2
2
∑ i = 2 (2+1) 2=(3) = 3 = 1+2
i=1 2 2

for n = 3
3
∑ i = 3 (3+1) 3=(4) = 6 = 1+2+3
i=1 2 2

By applying the same process

for n = k
k
∑ i = k (k+1)
n=1 2

for n = k + 1
k+1
∑ i = (k+1) (k+1+1) (k+1) (k+2)
=
i=1 2 2
2
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We would like to show that the last statement is true. And according to the basic definition

of summation

k+i
∑ i = 1+2+3+4+5+…+k + (k + 1)
i=1
k
= ∑ i + (k+1)
i=1

k
but ∑ i = k (k+1)
i=1 2

k+i
∑ i = k (k+1) + k+1
i=1 2

=k (k+1) + 2 (k+1) (k+1)

= (k+2)
2 2

The principle that we used here consisted of two steps. First, we verified that the

claim is true by assigning a value to n to the summation (eg. n=1, 2, 3 …). Second, we assumed

that for n=k, the summation is true and then proved that for n=k+1, the summation still holds

true. This is the process of the mathematical induction.

Inductive reasoning utilizes the truthfulness or the fallacy of a statement from the

specific (we used n=1) to the generalization (we used n=k+1).

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Exercise 1.1. a. Use the principle of mathematical induction to show that the

statements are true for all natural numbers.

1. 2 + 4 + 6 + . . . + 2n = n (n + 1)

2. 5 + 9 + 13 + . . . + (4n + 1) = n (2n + 3)

3. 4 + 8 + 12 + . . . +4n = 2n (n + 1)
1
4. 12 + 32 + 52 + . . . + (2n – 1)² = 3 n (2n – 1) (2n + 1)

1
5. 1.2 + 3.4 + 5.6 + . . . + (2n – 1) (2n) = 3 n (n + 1) (4n – 1)

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Exercise 1.1.b.

1. 1 + 3 + 5 + . . . + (2n-1) = n2

2. 3 + 5 + 7 + . . . + (2n+1) = n(n + 2)

3. 1 + 3 + 6 + . . . + n (n+1) = n (n+1) (n+2)

2 6

4. 1 + 4 + 7 + . . . + (3n-2) = n (3n-1)
2
5. 13 + 23 + 32 + . . . + n³ = n² (n+1)²
4

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1.2 Sequence and Series
Definition of a Sequence

An infinite sequence is an ordered list of real numbers.

a1, a2, a3, a4, a5 . . . , an . . .

the sum of the terms

a1+ a2+ a3+ a4+ a5+ . . . + an +…

B called an infinite series. A partial sum of the first n terms

a1+ a2+ a3+ a4+ a5+ . . . + an.

This partial sum is also called finite series and is denoted by Sn.

Definition of Sigma Notation

The sum of the first n terms of the sequence having an nth term of an B..
n
∑ a1 = a1 + a2 + . . . + an.
i=1

where: į = index of summation, n= upper limit of summation and 1 is the lower limit of

summation
3
Example: Evaluate (-2į+9)
∑
į=0
3
Solution: ³(-2į + 9) = [−2(0) + 9]+[−2(1) + 9] + [−2(2) + 9] + [−2(3) + 9]
∑

= 9+7+5+3
= 24
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Exercise 1.2.a. Find the sum of the following

7
1. ∑ k-1
k=1

15
1
2. ∑
n+1
n=2

7
3. ∑ √2j − 1
j=4

10
4. ∑ 2n
n=1 2n+1

10
p-2
5. ∑
p+3
p=1

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Exercise 1.2.b. Find the sum of the following

15
1. ∑ (1 – 2i)
i=2

10
1 1
2. ∑ ( m − m+1)
m=1

5
3. ∑ (m2 − 3m + 4)
m=0

7
4. ∑ (−1)k 4k+1 )
k=1

6
5. ∑ πk
k=0

8
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1.3. Arithmetic Sequence11

Definition of an Arithmetic Sequence

A sequence is called arithmetic if the differences between consecutive terms

are the same. Thus, the sequence a1, a2, a3, a4, . . . , an, . . . is arithmetic if there is a number d

such that, a2 – a1 = d, a3 – a2 = d, a4 – a3 = d, and so on. The number d is called the common

difference of the arithmetic sequence.

Example:

1. 1, 2, 3, 4, . . . d=1

2. 2, 4, 6, 6, . . . d=2

3. 3, 6, 9, 12, . . . d=3

The nth term of an Arithmetic Sequence

The nth term of an arithmetic sequence has the form an = a, + (n – 1) d

Where: d = common difference

a1 = first term

Example: Find a formula for the nth term of the arithmetic sequence with a first term

of 3 and a common difference of –s.

Given: a1, = 3, d = 5

Req’d: an = ?

an = a1 + (n-1) d

= 3 + (n-1) (-5)

= 3 – 5n + 5

An = 8 – 5n
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 Example: Find the 20th term of an arithmetic sequence with

a1 = 3 and d = 6

Given: a1 = 3, d=6, n=20

Req’d: a20 = a1 + (n-1) d

= 3 + (20-1) 6

= 3 + (19) (6)

= 3 + 114

a20 = 117

Partial Sum of an Arithmetic Sequence

The nth partial sum of the arithmetic sequence having an nth term of an is

n
Sn = a1 + a2 + . . . + an = 2 (a1 + an) (1)

in other words, to find the sum of the first n terms of an arithmetic sequence, find the average

of the first term and the nth term, and multiply by n.

Another way of solving for the nth partial sum if the nth term is unknown is given by
n
Sn = 2 [2a + (n-1) d] (2)

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Example: Find the sum of 5 + 13 + 21 + 29 + 37 + 45 + 61 + 69 + 77 + 85

Solution: check if the sequence is arithmetic

13 – 5 = 8, 21 – 13 = 8, 29 – 21 = 8

Given: a1 = 5, d = 8, an = 61, n = 11

Req’d: Sn = ?
n
Sn = 2 (a1 + an)

11
= (5 + 85)
2

11
= (90)
2

= 11 (45)

= 495

Example: Find the sum of the first 82 terms of an arithmetic sequence

with a1 = 103, and d = - 6.

Solution: Given: a1 = 103, d = - 6, n = 82

Req’d: Sn = ?
n
Sn = 2 [2a1 + (n - 1) d]

82
= [2 (103) + (82 – 1) (-6)]
2

= 41 [206 + (81) (-6)]

= 41 [206 - 486]

= 41 [- 280]

= - 11, 480
11
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Exercise 1.3a.

1. Find the 12th term of the arithmetic sequence 2, 6, 10, . . .

2. Find the 17th term of the arithmetic sequence 7, 4, 1, . . .

3. Find the sum of all the multiples of 7 from 7 to 98, inclusive

4. Find the sum of all the multiples of 4 between 14 and 523.

7 5
5. Given the arithmetic sequence 3, , , . . . .
3 3

Find: a. the 14th term

b. sum of the first 14th term

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Exercise 1.3.b.

1. An auditorium has 20 seats in the 1st row, 24 seats on the second row, 28

seats on the third row, and so on, up to the 20th row. How many seats are

there in the last row? How many seats are there in the auditorium?

2. How many poles will be in a pile if there are 50 in the first layer, 49 in the

second, and so on..., until there are 6 poles in the last layer.

3. A man started to work in 1985 at an annual salary of ₱185,000. He received

a ₱15, 000 raise each year through 2000. What were his total earnings for

the given period?

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1.4 Geometric Sequence and Series

❖ Definition of a Geometric Sequence

A sequence is called geometric if the ratios of the consecutive term are the same, thus, the
𝑎2 𝑎3
sequence a1 a2, a3, a4, . . . an, . . . is geometric if there is a number r, r ≠ o such that 𝑎1 = r 𝑎2 =r,

𝑎4
=r and so on. The number r is called the common ratio of the geometric sequence
𝑎3

Example: 1) 5, 25, 125, 625 … r = 5

2) 3, 6, 12, 24 … r=2
1 1 1 1
3) 2 , 8, 32 . . . r=4

❖ The nth Term of a Geometric sequence

The nth term of a geometric sequence has the form

an = a, rn-1

where r is the common ratio of the consecutive terms of the sequence.

Example: Find the formula for the nth term of a geometric sequence with a 1 = 1024 and a2 =

512. What is the fifth term of the sequence?

Given: a1= 1024 Req`d: a. an

a2= 512 b. a5

Solution:

a. an = a, rn-1

a2 512 1
but r = a1 = 1024 = 2

1
∴ an = 1024 (2)n-1

1 1 1
b. a5 = 1024 ( )5-1 =1024 ( 2 )4 =1024 ( 16 )
14

2
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a5=64
 ❖ The nth Partial Sum of a Geometric Sequence

The nth partial sum of a geometric sequence having an nth term of an= a, rn-1 is

1 − rn
S n = a1 [ ]
1−r

Example: Find the sum of 1, 4, 16, 64 and 256

Given: a1 = 1, r = 4, n = 5

Req’d: Sn = ?

1 − rn 5
] = 1 [ 1 − 4 ] = −3 = −3 = 341
1−1024 −1023
S n = a1 [
1−r 1−4

❖ The sum of an Infinite Geometric Series

Suppose that /r/ < 1, then the sum of an infinite geometric series is given by
a
S = 1−r
1

2
Example: Find the sum of an infinite geometric sequence with a1 = 3 and r = 5

2
Given: a1 = 3, r = 5

Req’d: S = ?
𝑎 3 3 3 5
S = 1−𝑟
1
= 2 = 5−2 = 3 =3(3)=5
1−
5 5 5

❖ Applications Geometric Sequence

Example: Suppose that Zita accepts a job that pays a salary of

₱150, 000 the first year with a yearly increase of 5%

a) How much will her total salary be after 10 years?

15

b) What would be her total salary over the 10-year period?

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Given: a1 = 150, 000, n = 10

Req’d: a. a10

b. S10

Solution:

a) a10 = a1 r n-1

Solve for r:
a2
r=
a1

but a2 = a1 + a1 (5%)

= 150, 000 + 150, 000 (0.05)

a2 = 157, 500

a 157,000
∴ r = a2 = 150,000 = 1.05
1

∴ a10 = 150, 000 [1.05] 10 – 1

= 150, 000 (1.05)

= ₱ 232, 699.23 ≈ ₱ 232, 699

1 − rn
b. S10 = a1 [ ]
1−r
10
= 150, 000 [ 1 − (1.05) ]
1 − 1.05

= ₱1, 886, 683.88 ≈ ₱1, 886, 68

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Exercise 1.4.a.

1. Find the 16th term of the geometric sequence 2, 4, 8, . . .

2. Find the 22nd term of the geometric sequence 2, -10, 50. -250, . . .

3. Find the 18th term of the geometric sequence 2, 2√3 , 6, . . .

1 1 1
4. Find the sum of the first 7 terms of the geometric sequence 18 , -6 , 2

8 16
5. Find the sum of the first 20 terms of the geometric sequence 9, 6, 4, 3 , ,...
9

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Exercise 1.4.b.

1. A tank contains 16, 000 liters of water. Each day one-half of the water in the tank

is removed and not replaced. How much water remains in the tank at the end of

the 5th day?

2. A fungus growing under controlled conditions doubles in size each day. How many

units will the culture contain after 7 days if it originally contained 5 units?

3. A city of 500, 000 people is growing at the rate of 1% per year. Estimate the

population 20 years from now.

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1.5. The Binomial Theorem

Consider the following expansion of (a+b)n.

(a + b)0 = 1

(a + b)1 = a+b

(a + b)2 = a2 + 2ab + b2

(a + b)3 = a3 + 3a2b + 3ab2 + b3

(a + b)4 = a4 + 4a3b + 6a2b2 + 4ab3 + b4

(a + b)5 = a5 + 5a4b + 10a3b2 + 10a2b3 + 5ab4 + b5

The following observation should be noted.

1. There is one more term than the power of the binomial n. Thus there are n + 1

terms in the expression of (a + b)n.

2. The sum of the exponents in each term of the expansion is the power to which the

binomial is raised.

3. The exponents of a is n, the power of the binomial, and the decrease by I on the

next term until it reaches 0 on the last term. Thus, the last term has no factor of a.

The first term has no factor of b, so the powers of b starts from o and increases by

1 on the next term until it reaches n on the last term.

4. The coefficients starts at 1 and increases through certain values about half-way
19

then decreases through these same values back to 1.

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Example: Find the binomial expansion of (x + y)9

Solution:

(x + y)9 = x9 + 9 x8y1 + 36x7y2 + 84x6y3 + 126x5y4 + 126x4y5 + 84x3y6 + 36x2y7 + 9xy8 + ‗y9

❖ The rth Term of a Binomial Expansion

n
rth Term = [ ] a n-(r-1) b r-1 were r < n
r−1
n n!
where [(r − 1) ] = n C (r-1) = [n−(r−1)]!
(r–1)!
Example: Find the 6th term of the expansion of (x + y)9

Let a = x, b = y, r = 6, n = 9

9
6th term = [ ] x 9 – (6-1) y 6 – 1
6−1
9
= [ ]x 9–5 y 6–1
5
9!
= (9−5) ! x4 y5
(5)!
= 126 x4 y5 refer to the previous problem
for checking

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Exercise 1.5a. Expand the following binomials

1. ( x + 3y )7

2. ( 3x + y )7

3. ( 2x + 3 )8

4. ( 2s – 3t )4

5. ( 3x + 2y )6

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Exercise 1.5.b. Find the rth terms of the following

1. ( x + y )15 ; r=8

2. ( x - 3 )12 ; r=7

3. ( 2x + y )17 ; r = 10

4. ( 4x – 9y )8 ; r=5

5. ( a – 2b )20 ; r = 12

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Review Exercises:

A. Use the principle of mathematical induction to show that the statements are true for all

natural numbers

1 1 1 1 n (3n+5)
1. 1𝑥3 + 2𝑥4 + 3𝑥5 + . . . + n (n+2) = 4 (n+1)(n+2)

n2 (n+1)2 (2n2 + 2n−1)

2. 15 + 25 + 35 + . . . + n5 = 12

B. Evaluate the sum

12
k
3. ∑ k+1
k=1

8
4. ∑ (−2)𝑛 (𝑛)
n=0

C. Find the nth term and sum of the first nth term.

5. Find the 28th term and the sum of the first 28 terms of the A.S. 5, 8, 11, 14, . . .
1
6. Find the 15th term and the sum of the first 15 term of the G.S. with a1 = 16 and r = - 2

D. Problem Solving

7. A man started to work in 1985 at an annual salary of ₱185, 000. He received a ₱15, 000

raise each year through 2000. What were his total earnings for the entire period?

8. Suppose that you accept a job that pays a salary of ₱300, 000 the first year. Assuming that

you started last year and was given a 5% raise every year after. What would your total salary

be after 15 years?

E. Expand the following

9. (3a – b)6
23

1
10. ( x + y )
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CHAPTER II. Correlation and Testing of Hypothesis
2.1 Correlation – deals with association (relationship) of two quantitative variables
The quantity “r”, called the linear correlation coefficient, measures the strength and
the direction of a linear relationship between two variables. The linear correlation
coefficient is sometimes referred to as the Pearson Product-Moment Correlation coefficient
in honor of its developer Karl Pearson
The mathematical formula for computing r is:
𝒏 ∑ 𝒙𝒚 − (∑ 𝒙) (∑ 𝒚)
𝒓 =
√[𝒏 ∑ 𝒙𝟐 − (∑ 𝒙)𝟐 ] [𝒏 ∑ 𝒚𝟐 − (∑ 𝒚)𝟐 ]
where n = the number of pairs of data
x and y = the variables

The value of r is such that −1 < r < +1. The + and – signs are used for the positive linear
correlation and negative linear correlations, respectively.
Positive correlation. If x and y have a strong positive linear correlation, r is close to the +1
An r value of exactly +1 indicates a perfect positive fit. Positive values indicate a
relationship between x and y variables such that at values for x increases values for y also
increases.
Negative correlation. If x and y have a strong linear correlation, r is close to −1. An r value
of exactly −1 indicates a perfect negative fit. Negative values indicate a relationship
between x and y such that as the values of x increases, values for y decreases.
No correlation: If there is no linear correlation or a weak linear correlation, r is close to 0. A
value near zero means that there is a random, non-linear relationship between the two
variables.
A perfect correlation of ±1 occurs only when the data points all lie exactly on a straight line.
If r = +1, the slope is positive. If r = −1, the slope of this line is negative.
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2.2 Spearman’s Rank – Order Correlation coefficient or Spearman’s rho
Another formula for correlation coefficient is the Spearman’s Rank – Order Correlation
named after Charles Spearman and often denoted by the Greek letter ρ (rho), or as rs , is a
non-parametric measure of statistical dependence between two variables. It assesses how
well the relationship between two variables can be described using a monotonic function. A
perfect Spearman correlation of +1 or −1 occurs when each of the variables is a perfect
monotone function of the other. x
𝟔 ∑ 𝑫𝟐
𝝆 (𝒓𝒉𝒐) = 𝟏 −
𝑵 (𝑵𝟐 − 𝟏)
where: 1 & 6 are empirical constant
D = difference in ranks of X and Y variables
N = number of pairs of X and Y

Positive Correlation
If variable x increases, y also increases. If x decreases, y decreases
Negative Correlation
If variable x increases, y decreases; If x decreases, y increases

2.3. Table of Values of r and ρ coefficient

Values of r or ρ Interpretation
±1 Perfect positive/negative correlation
± 0.91 − ± 0.99 Very high positive/negative correlation
± 0.71− ± 0.90 High positive/negative correlation
± 0.51 − ± 0.70 Moderately positive/negative correlation
± 0.31 − ± 0.50 Low positive/negative correlation
± 0.01 − ± 0.30 Negligible positive/negative correlation
0 No Correlation

Note: For r or ρ values with moderate, low or negligible correlations, Testing of

Hypothesis is required to determine if correlation really exist.
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2.4 Testing of Hypothesis

T-test is commonly used in testing correlation coefficient for significance since the usual
number of N is less than 30.

Procedure:
1. State the null and alternative hypothesis.
2. Locate the tabular values of t by the assigned level of confidence and degree of
freedom in the T-table.

3. Compute for the actual value of t.

Formula:

𝑵 −𝟐 𝑵 −𝟐
𝒕 = 𝒓 √𝟏 −𝒓𝟐 or 𝒕 = 𝝆 √𝟏 −𝝆𝟐

4. Decision:
If Ttab < Tc - reject HO
If Ttab > Tc - accept HO

5. Conclusion: It should finally answer if there is really a correlation or no correlation at

all between the two variables.

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2.5 Application: Problems on Correlation

2.5.1 Determine the correlation between the grade in Math and English. Interpret the
results by using Pearson’s product moment correlation

Student Math Grades English Grade

1 90 82
2 92 79
3 88 81
4 87 78
5 90 88
6 93 86
7 97 82

Solution:
Student x y xy x2 y2
1 90 82 7380 8100 6724
2 92 79 7268 8464 6241
3 88 81 7128 7744 6561
4 87 78 6786 7569 6084
5 90 88 7920 8100 7744
6 93 86 7998 8649 7396
7 97 82 7954 9409 6724
∑x = 637 ∑y = 576 ∑xy =52, ∑x2= 58, ∑y2= 47,474
434 035

𝑛 ∑ 𝑥𝑦 − (∑ 𝑥) (∑ 𝑦)
𝑟 =
√[𝑛 ∑ 𝑥 2 − (∑ 𝑥)2 ] [𝑛 ∑ 𝑦 2 − (∑ 𝑦)2 ]

7(52, 434) − (637) (576)

𝑟 =
√[7(58,035) − (637)2 ] [7 (47,474) − (576)2 ]
27

r = +0.25 – negligible positive correlation

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Test for Significance:

Ho: there is no correlation between the grades in Math and English

Ha: there is a correlation between the grades in Math and English

α = 5% - level of significance (Standard)

df = N−2 = 7−2 = 5
Ttab = 2.571 (refer to the table of t-test)

𝑁 −2
𝑇𝐶 = 𝑟 √
1 − 𝑟2

7 −2
𝑇𝐶 = 0.25 √
1 − (0.25)2

𝑇𝐶 = 0.58
TC < Ttab – accept HO

Conclusion: There is no correlation between the grades in Math and the grades in
English

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 2.5. 2 Consider the intelligence test scores and statistics scores of fifteen freshmen who
were randomly chosen at University of Luzon, College of Liberal Arts. The data is given
below.
Student Intelligence Test Score Statistics Score
1 61 55
2 89 81
3 61 80
4 55 60
5 70 85
6 72 79
7 52 62
8 79 89
9 85 63
10 60 55
11 69 59
12 75 70
13 90 92
14 87 64
15 67 64

Determine if there is correlation between the student’s scores in Intelligence Test and
Statistics.
Solution:
Student x y xy x2 y2
1 61 55 3355 3721 3025
2 89 81 7209 7921 6561
3 61 80 4880 3721 6400
4 55 60 3300 3025 3600
5 70 85 5950 4900 7225
6 72 79 5688 5184 6241
7 52 62 3224 2704 3844
8 79 89 7031 6241 7921
9 85 63 5355 7225 3969
10 60 55 3300 3600 3025
11 69 59 4071 4761 3481
12 75 70 5250 5625 4900
13 90 92 8280 8100 8464
14 87 64 5568 7569 4096
15 67 64 4288 4489 4096
29

∑x = 1,072 ∑y = 1,058 ∑xy ∑x2= 78, ∑y = 76,848

2

=76,749 786
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 𝑛 ∑ 𝑥𝑦 − (∑ 𝑥) (∑ 𝑦)
𝑟 =
√[𝑛 ∑ 𝑥 2 − (∑ 𝑥)2 ] [𝑛 ∑ 𝑦 2 − (∑ 𝑦)2 ]

15(76, 749) − (1,072) (1,058)

𝑟 =
√[15(78,786) − (1,072)2 ] [15 (76,848) − (1,058)2 ]
17,059
𝑟 =
√(32, 606)(33, 356)

r = +0.52 – moderately positive correlation

Test for Significance:

Ho: there is no correlation between the scores in x and y

Ha: there is a correlation between the scores in x and y

α = 5% - level of significance (Standard)

df = N−2 = 15−2 = 13
Ttab = 2.160 (refer to the table of t-test)

𝑁 −2
𝑇𝐶 = 𝑟 √
1 − 𝑟2

15 − 2
𝑇𝐶 = 0.52 √
1 − (0.52)2

𝑇𝐶 = 2.19
TC > Ttab – reject HO

Conclusion: There is a correlation between the scores in the Intelligence Test and
Statistics Test.
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2.5.3 Refer to problem 2.5.1. Solve using Spearman’s Rank – Order Correlation
Solution:
Student x y Rx Ry D D2
1 90 82 4.5 3.5 1 1
2 92 79 3 6 -3 9
3 88 81 6 5 1 1
4 87 78 7 7 0 0
5 90 88 4.5 1 3.5 12.25
6 93 86 2 2 0 0
7 87 82 1 3.5 -2.5 6.25
∑D2= 29.5

6 ∑ 𝐷2
𝜌 (𝑟ℎ𝑜) = 1 −
𝑁 (𝑁 2 − 1)
6 (29.5)
𝜌 = 1 −
7 (49 − 1)
177
𝜌 = 1 −
7 (48)
177
𝜌 = 1 −
336
𝜌 = +0.47 − 𝑙𝑜𝑤 𝑝𝑜𝑠𝑖𝑡𝑖𝑣𝑒 𝑐𝑜𝑟𝑟𝑒𝑙𝑎𝑡𝑖𝑜𝑛

Test for Significance:

Ho: there is no correlation between the grades in Math and English

Ha: there is a correlation between the grades in Math and English

α = 5% - level of significance (Standard)

df = N−2 = 7−2 = 5
Ttab = 2.571(refer to the table of t-test)
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 𝑁 −2
𝑇𝐶 = 𝜌 √
1 − 𝜌2

7 −2
𝑇𝐶 = 𝜌 √
1 − 0.472

𝑇𝐶 = 1.19
Decision:
TC < Ttab – accept HO

Conclusion: There is no correlation between the grades in Math and English

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2.5.4 Refer to the problem on 2.5.2. Solve using the Spearman’s Rank – Order
Correlation.
Solution:
Student x y Rx Ry D D2
1 61 55 11.5 14.5 −3 9
2 89 81 2 4 −2 4
3 61 80 11.5 5 6.5 42.25
4 55 60 14 12 2 4
5 70 85 8 3 5 25
6 72 79 7 6 1 1
7 52 62 15 11 4 16
8 79 89 5 2 3 9
9 85 63 4 10 −6 36
10 60 55 13 14.5 −1.5 2.25
11 69 59 9 13 −4 16
12 75 70 6 7 −1 1
13 90 92 1 1 0 0
14 87 64 3 8.5 −5.5 30.25
15 67 64 10 8.5 1.5 2.25
∑D2= 198

6 ∑ 𝐷2
𝜌 (𝑟ℎ𝑜) = 1 −
𝑁 (𝑁 2 − 1)
6 (198)
𝜌 = 1 −
15 (152 − 1)
𝜌 = 0.65 − 𝑚𝑜𝑑𝑒𝑟𝑎𝑡𝑒𝑙𝑦 𝑝𝑜𝑠𝑖𝑡𝑖𝑣𝑒 𝑐𝑜𝑟𝑟𝑒𝑙𝑎𝑡𝑖𝑜𝑛
Test for Significance:
Ho: there is no correlation between the scores in x and y
Ha: there is a correlation between the scores in x and y

α = 5% - level of significance (Standard)

df = N−2 = 15−2 = 13
Ttab = 2.160 (refer to the table of t-test)
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 𝑁 −2
𝑇𝐶 = 𝜌 √
1 − 𝜌2

15 − 2
𝑇𝐶 = 0.65 √
1 − (0.65)2

𝑇𝐶 = 3.08
Decision:
TC > Ttab – reject HO

Conclusion: There is a correlation between the scores in the Intelligence Test and
Statistics Test.

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2.5.5 Practice Exercises

1. Determine if there is a correlation between the daily allowance of students and their
GWA in all subjects taken during the first semester 2018-2019. Use Pearson’s
Product moment correlation. α = 5%

Student Allowance (₱) GWA

1 120 88
2 150 90
3 100 85
4 120 87
5 80 92
6 100 85
7 150 89

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2. Determine the correlation between the number of minutes in TV ads per month and
the sales of the products in millions. Use Spearman’s Rank – Order Correlation
coefficient. α = 5%

Months No. of min in TV ads/ Sales in Millions

month
Jan 95 110
Feb 82 90
Mar 75 82
Apr 79 65
May 65 80
Jun 75 50
Jul 80 70
Aug 40 35

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3. Determine the correlation between the no. of hours in TV ads/month and the
popularity rating of a particular program. Use any of the correlation formulas. α =
5%
Months No. of hrs in TV ads/ Popularity Ranking
month
Jan 5 7
Feb 9 9
Mar 7 8
Apr 6 7
May 4 6
Jun 2 4
Jul 10 8
Aug 3 5
Sep 13 6

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4. Lougi’s garment factory is engaged in the production of men’s wear. Lately, there has
been a continuous decline in the production and the manager suspects that the
problem might be attributed to the salary being given to the workers. So he
conducted a research to find out if the level of production of the workers is related
to their hourly pay. The following data are collected on eight randomly selected
workers.
Worker Hourly Pay (₱) Production (pcs/wk)
1 13.75 50
2 14.56 20
3 15.10 62
4 14.00 30
5 16.35 75
6 16.00 66
7 14.75 40
8 15.65 60

Use any correlation method. Interpret the result. Use α = 1%

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2.6 Phi Coefficient (Φ)
|𝒂𝒅 − 𝒃𝒄|
𝝓 =
√(𝒂 + 𝒃)(𝒄 + 𝒅)(𝒂 + 𝒄)(𝒃 + 𝒅)

Where:
0 1 TOTAL
0 a b a+b
1 c d c+d
TOTAL a+c b+d

2.6 Requirements for using the Phi Coefficient

When both the independent (x) and predictor (y) variables can be dichotomized,
another technique is used which gives rise to the so-called phi-coefficient (Φ). This
correlation coefficient is just a special case of the Pearson product-moment
correlation coefficient.
To employ the phi coefficient as a measure of association between the independent
(x) and predictor (y) variables, we must consider the following requirements:
1. Nominal data. Only frequency (count) data are required;
2. A 2x2 contingency table. The data must be capable of being cast in the form of a 2x2
table. It is inappropriate to apply the phi coefficient to tables larger than 2x2, in
which several groups or categories are being compared (i.e. 2x3, 3x3, 3x4)
3. Random Sampling. To test the significance of the phi coefficient, sample members
must have been drawn randomly from a larger specified population.

2.6.2 Application:
The data below represent the responses of 137,143 respondents to two questions.
Question No.1 “Do you find it a habit to exercise daily?”. Question No.2 “Have you ever
tried smoking?”

Question No.1
Question No.2 Yes No Total
Yes 68,758 67,865 136,623
No 203 317 520
Total 68,961 68,182 137,143
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a. Is there a correlation between the responses of the respondents to the two
questions?
b. Compute the phi coefficient for the data.
c. Is the phi coefficient significant at 5% level?

Solution:
Step 1. Transform the given table into a 2x2 contingency table.
0 1 Total
0 a=68,758 b=67,856 a+b=136,623
1 c=203 d=317 c+d=520
Total a+c=68,961 b+d=68,182 a+b+c+d=137,143

Step 2. Substitute the values into the formula. Thus,

|𝑎𝑑 − 𝑏𝑐|
𝜙 =
√(𝑎 + 𝑏)(𝑐 + 𝑑)(𝑎 + 𝑐)(𝑏 + 𝑑)

|(68,758)(317) − (67,865)(203)|
𝜙 =
√(136,623)(520)(68,961)(68,182)
8,019,691
=
577,963,249.3

𝜙 = 0.014 negligible positive correlation

A value of Φ = 1 can only be obtained if a+b = c+d, in which case the subjects are equally
distributed between the two categories. A zero value of Φ is obtained when ad=bc.
The similarity of the phi coefficient and chi-square can be observed when the data are
set up into a 2x2 contingency table. The relationship between x2 and Φ is given by:
𝑥 2 = 𝑛𝜙 2
In view of this relationship, the Φ coefficient may be tested for the significance by using
the chi-square.
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Test for significance:

HO: There is no significant difference between the responses of the respondents

HA: There is a significant difference between the responses of the respondents.

Level of significance: 5%
Degree of Freedom: n – 1 = 2 -1 = 1
Value of x2 = 3.84
From :
𝑥 2 = 𝑛𝜙 2

2
𝑥2
𝜙 =
𝑛

𝑥2
𝜙 =√
𝑛

3.84
𝜙 =√
137,143

𝜙 = 0.0053 < 0.014

∴ There is no significant difference between the responses of the respondents.

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2.6.3 Practice Exercises

1. Find the correlation of the following contingency table for a college staff. Test the
significance at α =5%

GENDER Male Female Total

STAFF
Faculty 10 5 15
Official 5 10 15
Total 15 15 30

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2. Find the correlation between the choice of male and female regarding capital
punishment as seen in the contingency table. Test the level of significance at 5%
CAPITAL Yes No Total
PUNISHMENT
GENDER
Male 6 14 20
Female 10 13 23
Total 16 27 43

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3. Measure the degree of association of the contingency table between gender and
attendance in a particular class in statistics. Test the level of significance at 5%.
ATTENDANCE Present Absent Total
GENDER
Male 15 6 21
Female 11 3 14
Total 26 9 35

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2.7 Point-Biserial Correlation Coefficient

∑𝒇 (∑𝒇 𝒂 𝒙) − ∑ 𝒇 𝒂 (∑𝒇 𝒙)
𝒓𝒑𝒃 =
√∑𝒇𝒂 ∙ ∑𝒇𝒃 [∑𝒇 (∑𝒇𝒙𝟐 − (∑𝒇𝒙)𝟐 )]

Where: x = interval variable

f a = frequency of one of the dichotomous nominal variable
f b = frequency of the other dichotomous nominal variable
f = total frequency of the dichotomous nominal variable
note: Point Biserial is used when the data involve interval data and nominal dichotomous
data.

2.7.1 Application:

1. Measure the degree of the relationship between gender and intelligence of the given data
IQ Scores No. of Males No, of Females
95 8 3
90 3 2
85 1 4
80 2 0
75 4 3

Solution:
x fa fb f fx x2 f x2 f ax
95 8 3 11 1045 9025 99275 760
90 3 2 5 450 8100 40500 270
85 1 4 5 425 7225 36125 85
80 2 0 2 160 6400 12800 160
75 4 3 7 525 5625 39375 300
18 12 30 2605 228,075 1575
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 ∑ 𝑓 (∑ 𝑓 𝑎𝑥) − ∑ 𝑓 𝑎(∑ 𝑓 𝑥)
𝑟𝑝𝑏 =
√∑ 𝑓𝑎 ∙ ∑𝑓𝑏 [∑𝑓 (∑𝑓𝑥 2 ) − (∑𝑓𝑥)2 )]
30 (1575) − 18 (2605)
𝑟𝑝𝑏 =
√(18)(12) ∙ [30 (228,075) − (2,605)2 ]
𝑟𝑝𝑏 = 0.10 𝑛𝑒𝑔𝑙𝑖𝑔𝑖𝑏𝑙𝑒 𝑝𝑜𝑠𝑖𝑡𝑖𝑣𝑒 𝑐𝑜𝑟𝑟𝑒𝑙𝑎𝑡𝑖𝑜𝑛

Test of significance is left to the students. Use T test.

∴ Intelligence is not dependent on gender

2.7.2 Practice Exercise

1. Four girls and five boys of Grade 12 took a 20-item Mathematics Achievement Test. The
results are given below. Determine if there is a correlation between the test results in MAT
and gender.
Student Gender MAT Result
1 F 10
2 M 9
3 M 10
4 F 17
5 M 18
6 F 8
7 F 10
8 M 12
9 M 19

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T-TEST TABLE

47
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CHI-SQUARE TABLE

48
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CHAPTER III – Linear Programming
3.1 Review of graphical procedures in Algebra.
3.1.a Graphing Linear Equations – Intercept Method
Example
Graph: 3𝑥 + 2𝑦 = 6
Solution:
𝑥 − 𝑖𝑛𝑡𝑒𝑟𝑐𝑒𝑝𝑡: 𝑙𝑒𝑡 𝑦 = 0
3𝑥 + 2 (0) = 6
3𝑥 = 6
𝑥 = 2 (2,0)

𝑦 − 𝑖𝑛𝑡𝑒𝑟𝑐𝑒𝑝𝑡: 𝑙𝑒𝑡 𝑥 = 0
3(0) + 2𝑦 = 6
2𝑦 = 6
𝑦 = 3 (0,3)

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3.1.b Graphing Linear Inequality – Intercept Method

Example
Graph: 4𝑥 − 5𝑦 > 10
Solution:
Convert the inequality into an equation: 4𝑥 − 5𝑦 = 10
𝑥 − 𝑖𝑛𝑡𝑒𝑟𝑐𝑒𝑝𝑡: 𝑙𝑒𝑡 𝑦 = 0
4𝑥 − 5(0) = 10
4𝑥 = 10
𝑥 = 2.5 (2.5,0)

𝑦 − 𝑖𝑛𝑡𝑒𝑟𝑐𝑒𝑝𝑡: 𝑙𝑒𝑡 𝑥 = 0
4(0) − 5𝑦 = 6
−5𝑦 = 10
𝑦 = −2 (0, −2)

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3.2 Solutions of Systems of Linear Equations – Cramer’s Rule

Example: 5𝑥 + 𝑦 = −40
2𝑥 − 5𝑦 = 11

Solution:
Step 1: Find the determinant D.

5 1
𝐷=| | = 5(−5) − 2(1) = −25 − 2 = −27
2 −5

Step 2:

−40 1
| | −40(−5) −1(11) 200−11
11 −5
𝑋= = = = −7
𝐷 −27 −27

Step 3:

5 −40
| | 5(11) −2(−40) 55+80
2 11
𝑌= = = = −5
𝐷 −27 −27

Step 4: (−7, −5) 𝑠𝑜𝑙𝑢𝑡𝑖𝑜𝑛 𝑠𝑒𝑡

Step 5: Checking

5 (−7) + (−5) = −40 2 (−7) − 5(−5) = 11

−35 − 5 = −40 −14 + 25 = 11
−40 = −40 11 = 11 51
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 3.2.a EXERCISES
A. Graph the following linear 4. 2𝑥 + 5𝑦 ≥ 24
equations 5. 4𝑥 + 2𝑦 ≥ 14
1. 𝑥 + 2𝑦 = 7 C. Solve the following systems of
2. 2𝑥 − 𝑦 = 4 linear equations
3. 𝑥 + 3𝑦 = 9 1. 𝑥 − 𝑦 = 4
4. 5𝑥 + 𝑦 = 6 𝑥+𝑦 =2
5. 𝑥 + 2𝑦 = 21 2. 2𝑥 + 3𝑦 = 6
𝑥+𝑦 =2
B. Graph the following linear 3. 3𝑥 − 5𝑦 = 11
inequalities 2𝑥 + 5𝑦 = 24
1. 2𝑥 + 3𝑦 ≥ 0 4. 4𝑥 − 2𝑦 = 14
2. 3𝑥 + 2𝑦 > 6 −2𝑥 + 𝑦 = −7
3. 3𝑥 − 5𝑦 ≤ 11 5. 4𝑥 − 2𝑦 = 14
2𝑥 − 2𝑦 = 1

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3.3 Introduction
One of the major applications of linear algebra involving systems of linear
equations is in finding the maximum or minimum of some quantity, such as profit or
cost. In mathematics, the process of finding an extreme value (i.e. the maximum or
minimum) of a quantity (normally called a function) is known as optimization.
Linear Programming (LP) is a branch of mathematics which deals with
modeling a decision problem and subsequently solving it by mathematical
techniques. The problem is presented in a form of linear function which is to be
optimized while subjected to a set of linear constraints. The function to be optimized
is known as the objective function.
Linear programming finds many uses in the business and industry, where a
decision maker may want to utilize limited available resources in the best possible
manner. This limited resources may include the material, money, manpower, space
and time. Linear programming provides various methods of solving such problems.
In this unit, we present the basic concepts of linear programming problems, their
formulation and methods of solution.

3.3.a Linear Programming: Graphical Solution Procedure

Step 1: Formulate the linear program.

a. State the objective function
b. Identify the constraints
➢ Explicit constraints
➢ Implicit constraints
Step 2: Graph the constraints (use Desmos approach)
Step 3: Identify the feasible region.
Step 4: Identify the critical points in the feasible region (use Cramer’s rule if
possible).
Step 5: Substitute the critical points in the objective function of the LP.
Step 6:
For maximation problems: The critical point(s) that gives the highest value is the
optimum solution
For minimization problems: The critical point(s) that gives the lowest value is the
optimum solution
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 3.3.b EXAMPLE of Maximation prob:
Graphic Art Inc., a manufacturer of photographic products, prepares two types of
film developers each day: fine and extra-fine, using Solutions A and B as the raw
materials. Suppose that each quart of fine contains 2 oz. of Solution A and 1 oz. of
Solution B, while each quart of extra-fine contains 1 oz. of Solution A and 2 oz. of
Solution B. Suppose also that profit is 80 pesos for each quart of fine and 100 pesos
for each quart of extra-fine. If the firm has 50 oz. of solution A and 70 oz. of solution
B available each day, how many quarts of fine and how many quarts of extra-fine
should be made daily to maximize the profit?

Solution:
Let x = no. of quarts of fine to be made daily
y = no. of quarts of extra-fine to be made daily
For a quart of fine For a quart of extra-fine
2 oz. of Solution A 1 oz of solution A
1 oz. of Solution B 2 oz of solution B
Available oz. of solution per day
50 oz. of solution A
70 oz. of solution B
Profits for each quart of film developers
₱80 for each quart of fine
₱100 for each quart of extra-fine

Formulate the Linear Program:

Objective Function:
Maximize: 𝑃 = 100𝑥 + 100𝑦
2𝑥 + 𝑦 ≤ 50
Subject to: > 𝑒𝑥𝑝𝑙𝑖𝑐𝑖𝑡
𝑥 + 2𝑦 ≤ 70
𝑥≥0
> 𝑖𝑚𝑝𝑙𝑖𝑐𝑡
𝑦≥0
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Graph the constraints (use the DESMOS App.)

Critical points: (0,35) , (10,30) , (25,0)

CP Objective Value
Function
(0,35) 80(0)+100(35) 3500
(10,30) 80(10)+100(30) 3800 → Highest Value
(25,0) 80(25)+100(0) 2000

Decision:
x = 10 quarts of fine
y = 30 quarts pf extra-fine
P = ₱ 3,800

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3.3.c EXAMPLE of Minimization Problem:

The purchasing managers of a food company wants to determine the supply mix
with the least cost. He collects the date necessary for him to make a decision. A gallon
of milk A can produce 5 cases of cheese, 7 cases of batter and 9 cases of cream. In
contrast, a gallon of milk B can make 10 cases of cheese, 8 cases of batter and 4 cases
of cream. He must produce at least 100 cases of cheese, 112 cases of butter and 72
cases of cream per day. Milk A cost $5 per gallon while Milk B cost $6 per gallon.
How many gallons of Milk A and Milk B should he purchase per day to minimize the
cost?

Solution:
Let x = no. of gallons of Milk A to be purchased per day
y = no. of gallons of Milk B to be purchased per day
Product Milk A (x) Milk B (y) No. of cases/day
Cheese 5 10 100
Butter 7 8 112
Cream 9 4 72
Cost/gallon $5 $6

Formulate the Linear Program:

Objective Function:
Minimize: 𝐶 = 5𝑥 + 6𝑦
Subject to: 5𝑥 + 10𝑦 ≥ 100
explicit
7𝑥 + 8𝑦 ≥ 112
9𝑥 + 4𝑦 ≥ 72
𝑥 ≥ 0 implicit
𝑦≥0
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 Graph the constraints (use the DEMOS App.)

2 2
Critical points: (0,18) , (2.909,11.455) , (10 3, 4 3) , (20,0)

CP Objective Value
Function
(0,18) 5(0) + 6(18) $108
(2.909, 5(2.909) + $83.28
11.455) 6(11.455)
2 2
(10 3, 4 3)
2 2
5(10 3) + 6(4 3) $81.34
(20,0) 5(20) + 6(0) $100

Decision:
2
x = 10 3 gallons of Milk A
2
y = 4 3 gallons of Milk B
C=$ 81.34
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3.3.d EXERCISE A
1. Maximize: 𝑃 = 25𝑥 + 30𝑦 2. Maximize: 𝑃 = 1250𝑥 + 3500𝑦
Subject to: 3𝑥 − 2𝑦 ≤ 0 Subject to: 5𝑥 + 4𝑦 ≤ 60
𝑦≤3 𝑥+𝑦 ≥ 9
𝑥+𝑦 ≥ 5 𝑦 − 3𝑥 ≤ 9
𝑥−𝑦 ≤ 5 𝑥≥0
𝑥≥0 𝑦≥0
𝑦≥0

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3.3.e EXERCISE B
1. Minimize: 𝐶 = 500𝑥 + 750𝑦 2. Minimize: 𝐶 = 20𝑥 − 4𝑦
Subject to: 6𝑥 + 2𝑦 ≥ 12 Subject to: 2𝑥 + 𝑦 ≥ 8
4𝑥 + 2𝑦 ≥ 10 4𝑥 + 𝑦 ≥ 12
𝑥 + 2𝑦 ≥ 4 2𝑥 + 3𝑦 ≥ 12
𝑥≥0 𝑥≥0
𝑦≥0 𝑦≥0
3. Minimize: 𝐶 = 2𝑥 + 5𝑦
Subject to: 𝑥 + 𝑦 ≥ 3
𝑥 ≤ 2𝑦
2𝑥 + 3𝑦 ≤ 12
𝑥≥1
𝑥≥0
𝑦≥0

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3.3.f EXERCISE C
1. XYZ Company, in one of its minor manufacturing plants, produces speakers and
headsets. The company earns ₱6,500 for each speaker produced and ₱1,800 per
headset. Each of these products has to go through Machines A and B. Each speaker
requires 5 hours in Machine A and 2 hours in Machine B, while each headset
requires 1 hour in Machine A and 1 hour in Machine B. Per production cycle,
Machine A can only operate for 20 hours nonstop, while Machine B can operate
nonstop for 26 hours. How many speakers and headsets should be produced per
production cycle to maximize the company’s profit? How much is the maximum
profit?

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2. Mr. Sanchez has just received his patronage refund amounting to ₱50,000. He is
planning to invest the money that would earn him interest at the end of the month.
His friend advised him to invest at least 60% of the money to their credit union that
provides a monthly interest of 3.5% on investment and at most 20% of the money
to a lending institution that provides a 4.5% monthly interest on investment. How
much must he invest to the credit union and to the lending institution to maximize
his monthly earnings? How much will his monthly income be?

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3.4 Linear Programming: Simplex Method

It is a repetitive optimizing technique developed by George B. Dantzig of

Stanford University. It can be used to maximize or minimize the value of problems,
especially when a large number of variables or constraints are present.

The simplex method is a procedure that starts with an initial basic feasible
solution tableau. It then proceeds step by step to subsequent solutions, each of which
is a basic feasible solution and has greater profit (or lesser cost) than the previous
solution. It is an iterative process which means that in working toward an optimal
solution, the computational process is repeated over and over following a standard
pattern until the best solution is obtained.

Procedure:
1. Formulate the Linear Program.
- State the objective function
- Identify the constraints
2. Introduce a slack variable in the constraint s to take the form of an equation
• Slack variable – a non-negative variable representing the difference
between the left and the right side of the inequality
3. Rewrite the objective function making the right side equal to zero.
4. Construct the Initial Basic Feasible Table.
5. Apply pivoting process until:
a. All entries in the objective function row are non-negative. It means
an optimum solution is obtained.
b. The section of the pivot column is a column whose entries are
negative or zero. If that is the case, it is unbounded and the linear
program has no optimum solution.
*Pivoting - the process of going from one simplex tableau to the next tableau.
Steps in the Pivoting Process:
1. Identify the pivot column. It is the column that contains the most negative
value in the objective function row.
2. Identify the pivot row. It is the row corresponding to the basic variable that
will leave the solution. It is determined by the test ratio, that is dividing the
RHS by the intersectional elements.
3. Determine the pivot element or point. It is the element which has the least
value in the test ratio.
4. Compute for the Replacing Row (RR)
62

𝑅𝑅 = 𝑃𝑖𝑣𝑜𝑡 𝑅𝑜𝑤 ÷ 𝑃𝑖𝑣𝑜𝑡 𝐸𝑙𝑒𝑚𝑒𝑛𝑡

Page
 5. Compute for the Remaining Rows = Previous Row minus intersectional
element times the replacing row.
6.Record your new entry in the next simplex tableau.

3.4.a EXAMPLE 1: MAXIMIZATION PROBLEM

The LPO Furniture make two products – tables and chairs, which must be
processed through this assembly and finishing departments. The assembly
department is available for 60 hours in every production period while finishing
department is available for 48 hours of work. Manufacturing 1 table required 4
hours in the assembly and 2 hours in the finishing department. A chair takes 2
hours to assemble and 4 hours to finish. A table is worth ₱80 while a chair is
₱60. Determine the number of tables and chairs to maximize the profit per
production process.
Solution:
Let x1 = no. of tables per production period
x2 = no. of chair per production period
Per table: Per chair:
4 hours in assembly 2 hours in assembly
2 hours in finishing 4 hours in finishing
Available hours for processing
60 hours → assembly
48 hours → finishing
Profit:
₱80 per table
₱60 per chair
Formulate the Linear Program:
Objective Function:
Maximize: 𝑃 = 60𝑥1 + 80𝑥2
Subject to: 4𝑥1 + 2𝑥2 ≤ 60
2𝑥1 + 4𝑥2 ≤ 48
𝑥1 ≥ 0
63

𝑥2 ≥ 0
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Solution:
4𝑥1 + 2𝑥2 + 𝑆1 = 60
2𝑥1 + 4𝑥2 + 𝑆2 = 48
𝑃 − 80𝑥1 − 60𝑥2 = 0
Tableau 1:
EV

BV X1 X2 S1 S2 RHS
LV S1 4 2 1 0 60
S2 2 4 0 1 48
P -80 -60 0 0 0
PC

4 2 1 0 60
𝑅𝑅 =
4
1 1
𝑅𝑅 = 1 0 15
2 4
𝑅2 = 2 4 0 1 48
-2RR = 2 1 ½ 0 30
RR2 = 0 3 -½ 1 18
𝑂𝐹𝑅 = −80 − 60 0 0 0
-(-80RR ) = 80 40 20 0 1200
0 -20 20 0 1200

Tableau 2:
EV
BV X1 X2 S1 S2 RHS
X1 1 ½ ¼ 0 15
LV S2 0 3 -½ 1 18
P 0 -20 20 0 1200
PC

1
0 3 −2 1 18
𝑅𝑅 =
3
1 1
𝑅𝑅 = 0 1 − 6
64

6 3
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 RR1 = 1 ½ ¼ 0 15
-½RR = 0 -½ 1/12 -1/6 - 3
RR1 = 1 0 1/3 -1/6 12
𝑂𝐹𝑅 = 0 − 20 20 0 1200
-(-20RR ) = 0 20 10/3 20/3 120
0 0 70/3 20/3 1320

Tableau 3:
BV X1 X2 S1 S2 RHS
X1 1 0 1/3 -1/6 12
X2 0 1 -1/6 0 6
Optimum Table
P 0 0 70/3 0 1320

Decision:
x1 = 12 tables/production period
x2 = 6 chairs/production period
P = ₱ 1320/production period

3.4.b EXAMPLE 2: Find the optimal solution for the given Linear Program Model
Maximize: 𝑃
= 100𝑥1 + 80𝑥2
Subject to: 𝑥1 ≤ 20
𝑥2 ≤ 40
𝑥1 + 𝑥2 ≤ 60
𝑥1 ≥ 0
𝑥2 ≥ 0
Solution:
𝑥1 + 𝑆1 = 20
𝑥2 + 𝑆2 = 40
𝑥1 + 𝑥2 + 𝑆 = 60
𝑃 − 100𝑥1 − 80𝑥2 = 0
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 Tableau 1:
EV

BV X1 X2 S1 S2 S3 RHS
LV S1 1 0 1 0 0 20
S2 0 1 0 1 0 40
S3 1 1 0 0 1 60
P -100 -80 0 0 0 0
PC

1 0 1 0 0 20
𝑅𝑅 =
1
𝑅𝑅 = 1 0 1 0 0 20
𝑅2 = 0 1 0 1 0 40
-0RR = 0 0 0 0 0 0
RR2 = 0 1 0 1 0 40
𝑅3 = 1 1 0 0 1 60
-1RR = 1 0 1 0 0 20
RR3 = 0 1 -1 1 0 40
𝑂𝐹𝑅 = −100 − 80 0 0 0 0
+100RR = 100 0 100 0 0 2000
0 -80 100 0 0 2000

Tableau 2:
EV

BV X1 X2 S1 S2 S3 RHS
X1 1 0 1 0 0 20
LV P
S2 0 1 0 1 0 40
S3 0 1 -1 0 0 40
P 0 -80 100 0 0 2000
PC

Note: Computation for entries in Tableau 3 is left to the students.

66
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Tableau 3:
BV X1 X2 S1 S2 S3 RHS
X1 1 0 1 0 0 20
X2 0 1 0 1 0 40
S3 0 0 -1 -1 1 0
P 0 0 100 80 0 5200

Decision: Checking:
x1 = 20 P = 100(20) + 80 (40)
x2 = 40 = 2000 + 3200
P = 5200 P = 5200

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3.4.c EXERCISE A. Use Simplex Method to find the optimal solution of the following
linear program.
1. Maximize: 𝑃 = 6𝑥1 + 8𝑥2 2. Maximize: 𝑃 = 20𝑥1 + 15𝑥2
Subject to: 9𝑥1 + 6𝑥2 ≤ 18 Subject to: 4𝑥1 + 3𝑥2 ≤ 24
𝑥1 + 2𝑥2 ≤ 4 𝑥1 + 𝑥2 ≤ 10
𝑥1 ≥ 0 𝑥1 ≥ 0
𝑥2 ≥ 0 𝑥2 ≥ 0

3. Maximize: 𝑃 = 25𝑥1 + 30𝑥2

Subject to: 3𝑥1 + 2𝑥2 ≤ 6 4. Maximize: 𝑃 = 70𝑥1 + 50𝑥2 +
𝑥1 − 𝑥2 ≤ 5 35𝑥3
𝑥2 ≤ 3 Subject to: 4𝑥1 + 3𝑥2 + 𝑥3 ≤
𝑥1 ≥ 0 240
𝑥2 ≥ 0 2𝑥1 + 𝑥2 + 𝑥3 ≤ 100
𝑥1 , 𝑥2 , 𝑥3 ≥ 0

5. Maximize: 𝑃 = 30𝑥1 + 40𝑥2

Subject to: 2𝑥1 + 𝑥2 ≤ 10
𝑥1 + 𝑥2 ≤ 7
𝑥1 + 2𝑥2 ≤ 12

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3.4.d EXERCISE B.
1. Tess provides food in two locations, Tala and Buhanginan. She is earning
₱6000 per delivery in Tala and ₱2000 per delivery in Buhanginan. Her food
orders in Tala need 6kg of beef and 12kg of pork per delivery, while her orders
in Buhanginan need 3kg of beef and 3kg of pork per delivery. She has 48kg of
beef and 60kgs of pork in her restaurant. How many deliveries must she make
in Tala and Buhanginan if she wants to maximize her profit? How much is her
maximum earning per delivery?

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Minimization Problems (Dual Analysis Method)
3.5.a Steps in solving Minimization Problem
1. Formulate first the standard linear program of the given.
2. Convert the formulated linear programming problem in matrix form; determine
then the transpose of the matrix.
3. Construct a maximization problem which is the dual problem with non-negative
variables whose matrix transpose and all whose constraints are of the “less than
or equal to” variety.
4. Convert the dual problems into its standard forms and solve using Simple
Method (refer to the procedure in solving maximization problems).

3.5.b Application
A drug company produces a drug from two ingredients. Each ingredient
contains the same three antibiotics in different proportions. Each ingredient A results
₱80 in cost; each ingredient B results ₱50 in cost. The production of the antibiotic is
dependent on the availability of limited resources. The resource requirements for the
production are as follows.

Antibiotics Resources Requirements Minimum

Ingredient A Ingredient B Requirements

1 3 units 1 unit 6

2 1 unit 1 unit 4

3 2 unit 6 units 12

The company wants to determine the quantity of each ingredient A and B

that must go in orders to meet the antibiotics minimum requirement at the minimum
cost.

Solution:
1. Formulate the linear program
Let x1 = the quantity of ingredient A
70

x2 = the quantity of ingredient B

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 Based on the given data:
Linear Program:
Objective Function:
Minimize: 𝐶 = 80𝑥1 + 50𝑥2
Subject to: 3𝑥1 + 𝑥2 ≥ 6
𝑥1 + 𝑥2 ≥ 4
2𝑥1 + 6𝑥2 ≥ 12
𝑥 ≥ 0, 𝑦 ≥ 0
2. Convert the linear program in matrix form; determine then the transpose of the
matrix

3 1 6
3 1 2 80
𝑀=[1 1 | 4] 𝑀′ = [1 1 6 | 50]
2 6 12
6 4 12
80 50

3. Formulate the dual problems

Maximize: 𝑃 = 6𝑦1 + 4𝑦2 + 12𝑦3
Subject to: 3𝑦1 + 𝑦2 + 2𝑦3 ≤ 80
𝑦1 + 𝑦2 + 6𝑦3 ≤ 50
𝑦1 ≥ 0, 𝑦2 ≥ 0, 𝑦3 ≥ 0

4. Solve using simplex method

a. Standard form: Introduce slack variables
3𝑦1 + 𝑦2 + 2𝑦3 + 𝑆1 = 80
𝑦1 + 𝑦2 + 6𝑦3 + 𝑆2 = 50
𝑃 − 6𝑦1 − 4𝑦2 − 12𝑦3 = 0

b. Initial Table EV
BV Y1 Y2 Y3 S1 S2 RHS
S1 3 1 2 1 0 80 R11
LV S2 1 1 6 0 1 50 R21
P -6 -4 -12 0 0 0 R31
PC

1 1 6 0 1 50
𝑅𝑅 =
6
1 1 1 25
71

𝑅𝑅 = 1 0
6 6 6 3
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 𝑅1 2 = 𝑅1 ′ − 2𝑅𝑅
=3 1 2 1 0 80
2 2 2 50
− 2 0
6 6 6 3

8 2 1 190
− 0 1 −3
3 3 3

𝑅3 2 = 𝑅3 ′ + 12𝑅𝑅
= − 6 − 4 − 12 0 0 0
+ 2 2 12 0 2 100

−4 −2 0 0 2 100
c. Table 2
EV

BV Y1 Y2 Y3 S1 S2 RHS
LV S1 8/3 2/3 0 1 -1/3 190/3 R11
Y3 1/6 1/6 1 0 1/6 25/3 R21
P -4 -2 0 0 2 100 R31
PC

8 2 1 190
0 1 −3
𝑅𝑅 = 3 3 3
8
3
1 3 1
𝑅𝑅 = 1 0 − 95/4
4 8 8

1
𝑅2 3 = 𝑅2 2 − 𝑅𝑅
6
1 1 1 25
= 1 0
6 6 6 3
1 1 1 1 95
− 6 24 0 16 − 48 24

1 1 3 35
0 1 − 16 −
8 16 8

𝑅3 3 = 𝑅3 2 + 4𝑅𝑅
=−4 −2 0 0 2 100
3 1
+ 4 1 0 − 2 95
72

2
Page
 3 3
0 −1 0
2 2
195

d. Table 3

BV Y1 Y2 Y3 S1 S2 RHS
Y1 1 1/4 0 3/8 -1/8 95/4 R11
Y3 0 1/8 1 -1/16 3/16 35/8 R21
P 0 -1 0 3/2 3/2 195 R31
PC

1 1 3 35
0 8 1 − 16 − 16
𝑅𝑅 = 8
1
8
1 3
𝑅𝑅 = 0 1 8 − 35
2 2

1
𝑅1 4 = 𝑅1 3 − 𝑅𝑅
4
1 3 1 95
=1 0 −
4 8 8 4
1 1 3 35
−0 4 2 −8 −8 4

1
1 0 −2 1/4 15
2

𝑅3 4 = 𝑅3 3 + 𝑅𝑅
3 3
=0 −1 0 195
2 2
1 3
+ 0 1 8 −2 35
2

0 0 8 1 3 230
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 e. Table 4
BV Y1 Y2 Y3 S1 S2 RHS
Y1 1 0 -2 1/2 1/4 15
Y3 0 1 8 ½ 3/2 35
P 0 0 8 1 3 230

Since Table 4 has no more negative values in the last row, then we have already
an optimum column.

Decisions
X1 = 1 no. of units of Ingredients 1
X2 = 3 no. of units of Ingredients 2
C = 230 cost

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3.5.c Enrichment Exercise

Solve the following LP model using dual analysis

1. Minimize: 𝐶 = 5𝑥1 + 9𝑥2

Subject to: 𝑥1 + 2𝑥2 ≥ 80
𝑥1 + 𝑥2 ≥ 10
𝑥1 ≥ 0, 𝑥2 ≥ 0

2. Minimize: 𝐶 = 4𝑥1 + 2𝑥2

Subject to: 5𝑥1 + 𝑥2 ≥ 5
5𝑥1 + 3𝑥2 ≥ 10
𝑥1 ≥ 0, 𝑥2 ≥ 0

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Page
CHAPTER 4 MATHEMATICS OF INVESTMENT
Introduction
Why do you need to know investments, bonds, stocks, interest? Why is there a need
to invest your hard- earned money?
Whether you just want to save for that phone or tablet that you wanted to buy; or
you’re saving for a gift you wanted to give to your parents’ birthday; or you as a parent
plans on using your credit card in paying your child’s tuition fee payable in 6 months with
0% interest; all these reasons why you plan to invest or save your money, entails knowing
some things about interest rates and ideas in investment or finance.
Having knowledge in basic concepts of business mathematics or mathematics of
investment may help you decide whether to use that credit card for a 5% interest
compounded monthly or a simple interest for a period of 6 months. Some topics might shed
light on which banks would give a higher interest rate for your savings. As a young couple
starting a family, one might plan for their children’s future by understanding stock, bonds
or funds accumulations. These are but a few reasons for investing your hard -earned
money.
We will tackle the concepts of simple and compound interest as well as annuities
and amortization.

Interest
Refers to the fee or payment for the use of money. When you deposit money in a bank, it
will earn interest but when you borrow money from the bank, you will pay interest.

Concepts of Simple Interest

The amount of simple interest is determined using (3) factors. These factors are the
principal or debt, the rate of interest and duration (length of time).
The principal (P) refers to the amount deposited or borrowed.
The rate of interest (R) refers to the percentage of the principal per year. It is
generally expressed in percent(%) per year.
The time (T) refers to the length of time or period from the date of loan/deposit is
made to the date the loan/deposit becomes due or payable/withdrawable.
76

A simple interest (I) is the interest charged on the principal for duration or period
Page

of the loan/deposit.
Formula:
Simple Interest I = PRT
𝐼
Principal P = 𝑅𝑇
𝐼
Rate of Interest R = 𝑃𝑇 x100%
𝐼
Time T = 𝑃𝑅

Applications:
1. A man borrowed ₱ 25,000 for 2 ¼ years at 8% per year. Find the amount of simple
interest.
Given: P = ₱ 25,000
R = 8% = 0.08
T = 2 ¼ year =2.25
Req’d.: I = ?
Solution:
I = PRT

I = 25,000 x 0.08 x 2.25

I = ₱4,500 Ans.

2. A loan of ₱ 28,900 is obtained for 5 months at 8 3/5 % . How much is the simple
interest?
Given: P = ₱ 28,900
R = 8 3/5% = 0.086
T = 5 months = 5/12 years
Req’d: I = ?
Solution:
I = PRT

I = 28,900 x 0.086 x 5/12

I = ₱1,035.58 (rounded to the nearest centavo) Ans.

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3. A man borrowed ₱37,500 at 8 ½% simple interest for 120 days. Find the amount of
interest he has to pay? (Note: in calculating time, we apply the Banker’s Rule,i.e. 360
days in a year)
Given: P = ₱ 37,500
R = 8 ½% = 0.085
T = 120 days = 120/360 = 1/3 year
Req’d: I = ?
Solution:
I = PRT

I = 37,500 x 0.085 x 1/3

I = ₱ 1,062.50 Ans.

4. A vendor borrows a certain amount of money at 8% simple interest for 3 months.

Determine the principal that results in interest amounting to
₱ 600.
Given: I = ₱ 600
R = 8% = 0.08
T = 3 months =3/12 =1/4 year
Req’d: P = ?
Solution:
𝐼
P = 𝑅𝑇

600
P =0.08 𝑥 1/4

P = ₱ 30,000 Ans.

5. If ₱ 60,000 was deposited in a bank and became ₱ 61,625 at the end of 150 days,
find the interest rate.
Given: P = ₱ 60,000
I = ₱ 61,625 - ₱ 60,000 = ₱ 1,625
T = 150 days = 150/360 = 5/12years
Req’d: R =?
Solution:
𝐼
R = 𝑃𝑇 x 100%
78

1,625
R = 60,000 𝑥 5/12 x 100% R = 6.50% Ans
Page
 6. How many days did it take Romy to place ₱ 120,000 in an investment house that
pays 8% simple interest before he obtained an interest of ₱ 4,000.
Given: P = ₱ 120,000
I = ₱ 4,000
R = 8% = 0.08
Req’d: T = ?
Solution:
𝐼
T = 𝑃𝑅 x 360 days Banker’s Rule

4,000
T = 120,000 𝑥 0.08 x 360

T = 150 days Ans

Maturity Value:(M)
When a certain amount of money is deposited or borrowed, the sum of money at the
end of the period is called the maturity or accumulated value. The maturity value or
accumulated value is therefore equal to the sum of the principal and the interest earned.

Formula:
Maturity value M=P+I → 1

M = P + PRT → 2

M = P ( 1 + RT ) → 3

Application:
1. A sum of ₱ 43,200 is borrowed for 11 months at 7 1/5% simple interest. Determine
the maturity value,
Given: P = ₱ 43,200
R = 7 1/5% = 7.2% = 0.072
T = 11 months = 11/12 year
Req’d: M = ?
79

Solution:
Page

M = P ( 1 + RT )
 M = 43,200 ( 1 + 0.072 x 11/12 )

M = ₱ 46,051.20 Ans.

Present Value ( P’ )
When applying for a loan in a bank, interest on the loan maybe deducted in advance.
The amount after interest was deducted is called the present value of the loan.

Formula:
Present Value: P’ = P – I → 1

P’ = P – PRT → 2

P’ = P ( 1- RT ) → 3

Application:
1. Mr. Santos needs ₱ 150,000 now to buy a service jeep for his business. He
decided to borrow from a bank that charges 8% simple interest deducted in
advance. How much loan should he apply for if he pays it in 2 years?
Given: P’ = ₱ 150,000
R = 8% = 0.08
T = 2 years
Req’d: P = ?

Solution:
From P’ = P ( 1- RT)

𝑃′
P = ( 1−𝑅𝑇)

150,000
P = ( 1−0.08 𝑥2)

P = ₱ 178,571.43 Ans.
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Practice Exercises
A. Solve the following problems.
1. A man borrowed ₱ 28,500 from a credit union that charges 8% interest for 1
year and 7 months. Find the amount of interest charged.
2. A man invested ₱ 50,000 in an entity that pays 5 3/8% simple interest for 3
years and 7 months. How much interest did he earned?
3. Mr. Santos deposited ₱ 95,000 in a savings bank. Jf the bank pays 8
2/5%simple interest, determine the following;
a. Amount of interest earned per year
b. Total interest earned after 3 year and 5 months
4. A man borrowed ₱ 18,000 at 8 ¾% simple interest for 9 months to buy an
appliance. Find the maturity value of the loan.
5. Mr. Delos Reyes got a loan of ₱ 52,000 from a credit union payable at the end of 1
year and 8 months to put up a small business. If the the credit union charges 9
3/5% simple interest, how much will he pay the credit union?
6. Mrs. Sanchez signed a loan of ₱ 58,000 for 1220 days at 7.35% ordinary interest.
Find the amount of interest and the maturity value of the loan.
7. J. Santos paid the bank ₱ 6,370.50 interest at 8.5% simple interest for 90 days.
How much did J. Santos borrow?
8. A man borrowed ₱ 21,000 from a credit union. If the interest is
₱ 795.25 for 7 months, what rate of interest did the man pay?
9. A man got a loan of ₱ 25,000 at 6 ¾% based on the banker’s rule. If he paid an
interest of ₱ 750 , how many days was his loan?
10. It will cost Mr. Salcedo ₱ 52,000 to buy a computer. How much rate of interest
will be charged, if the interest is ₱ 1755 for 180 days based on the banker’s rule?

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 B. Complete the table. Round amounts to the nearest centavo, rates to the nearest
hundredths place, and timeas indicated in the problem.

No Principal Interest Rate Time Maturity Value

1 ₱ 41,000 6% 185 days

2 ₱ 24,600 ₱ 1,600 5 ½% ____years

3 ₱ 2,300 252 days ₱ 39,000

4 ₱ 43,700 4.8% 7 months

5 ₱ 1,700 164 days ₱ 69,200

6 ₱ 9,650 ₱ 890 7.31%

7 ₱ 92,320 5 ¾% 2 years
and 5
months
8 ₱ 51,800 3.5 years ₱ 65,000

9 ₱ 12,600 295 days ₱ 180,000

10 ₱ 18,400 ₱ 2,750 8 1/5% ------year

11 ₱ 29,000 ₱2,100 300 days

12 ₱ 3,300 6 4/5% 2 years

13 ₱ 63,600 1 ½ years ₱ 68,131.50

14 ₱ 47,500 5 2/5% 11
months
15 ₱ 11,250 8.45% years and ₱ 99,800.00
months
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Compound Interest:
The interest on the principal and interest of the previous periods. It is the difference
between the compound amount (A) and the principal (P).

Formula:

Compound Interest I=A–P

Compound Amount ( A )
It is the accumulated value/future value of the investment or loan at the end of the
term or last period.

Formula:

𝑗
Compound amount A = P ( 1 + 𝑚 )n → 1

Where: j = nominal rate

m = mode of conversion
n = conversion period
i = rate of conversion = j/m

A = P ( 1 + i )n → 2

Present Value (P)

It is the original principal invested before it earns interest. It is the amount invested
today and will have a specific value in the future.

Formula:

𝐴
Present value P = ( 1+𝑖 )^𝑛 → 1

P = A ( 1+ i )-n → 2
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Application:
1. What is the compound amount and interest if ₱ 6,000 is invested at 2%
compounded monthly for 2 years ?
Given: P = ₱ 6,000
j = 2% = 0.02
m = 12
t = 2 years
Req’d: A = ? ,I=?
Solution:
A = P ( 1 + i )n
i = j/m = 0.02/12
n = Tm = 2 x 12 =24
A = 6,000 ( 1 + 0.02/12 )24
A = ₱ 6,244.66 Ans.

I=A–P
I = 6244.66 – 6,000
I = ₱ 244.66 Ans.

2. Find the compound amount and interest if ₱ 30,220 is invested at 7 2/5%

compounded quarterly for 2 years and 9 months.
Given: P = ₱ 30,220
j = 7 2/5% =7.4% =0.074
m=4
T = 2 years 9 months = 2 9/12= 2.75 years
Req’d: A =? I=?
Solution:
A = P ( 1 + I )n
i = j/m = 0.074/4
n = Tm =2.75 x 4 = 11
A = 30,220 ( 1 + 0.074/4)11
A = ₱ 36,971.39 Ans.

I=A–P
I = 36,971.39 – 30,220
I = ₱ 6,751.39 Ans.
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3. How much money should you invest at interest rate of 6% compounded monthly, to
have ₱ 400,000 in 5 years?
Given : A = ₱ 400,000
T = 5 years
j = 6% = 0.06
m = 12
Req’d: P =?
Solution:
P = A (1 + I ) -n
i = j/m =0.06/12= 0.005
n = Tm = 5 x 12 = 60
P = 400,000 ( 1 + 0.005 ) – 60
P = ₱ 296,548.88 Ans.

4. A man will need ₱ 600,000 to buy a vehicle at the end of 5 years and 6 months. How
much should he place in a savings account now that pays 7.6% interest compounded
quarterly to be able to buy the vehicle?
Given: A = ₱ 600,000
T = 5 years 6 months = 5.5 years
m=4
j = 7.6% = 0.076
Req’d: P = ?
Solution:
P = A ( 1 + I ) –n
i = j/m =0.076/4 = 0.019
n = Tm = 5.5 x 4 = 22
P = 600,000 ( 1 + 0.019 ) – 22
P = ₱ 396,569.40 Ans

5. At what rate of interest compounded annually will ₱ 60,000 accumulate to

₱ 70,000 in 2 years.
Given: P = ₱ 60,000
A = ₱ 70,000
n = 2 years
m =1
85

Req’d: j = ?
Page

Solution:
 From A = P ( 1 + i )n

( 1 + i ) n = A/P

[ ( 1 + i ) n]1/n = ( A/P) 1/n

1 + i = ( A/P) 1/n

i = (A/P) 1/n - 1

But, i = j/m
j/m = (A/P) 1/n – 1

therefore: j = m [ (A/P)1/n – 1] 100%

j = I [ (70,000/60,000) ½ - 1 ] 100%

j = 8.01% Ans. ( rounded to hundredths place value)

6. How many years will it take for ₱ 13,000 to become ₱ 20,000 if it is invested at 8%
compounded quarterly?
Given: P = ₱ 13,000
A = ₱ 20,000
J = 8% = 0.08
M=4

Req’d: T = ?
Solution:
From A=P(1+I)n

( 1 + I ) n = A/P

Apply logarithm to both sides;

log ( 1+ I ) n = log (A/P)

86

n log (1 + I ) = log (A/P)

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 𝐴
log( )
n = log (1+𝑖 )
𝑃

but , n = Tm

𝐴
log ( )
Tm =log(1+𝑖)
𝑃

𝐴
log( )
Therefore: T = log(1+𝑖) ÷ m
𝑃

13,000
log ( )
T= 20,000
0.08
log( 1+ )
4

T = 5.44 years (rounded to the hundredths place) Ans.

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Practice Exercises

A. Solve the following problems.

1. ₱ 28,275 is deposited in a savings account at 6 2/5% compounded quarterly. How
much is the interest earned at the end of 3 ¼ years?
2. Accumulate ₱ 7,800 for 3 years and 7 months at 6 7/8% compounded monthly.
3. A man borrowed ₱ 29,889 and promised to pay the principal and interest at 6 2/5%
compounded monthly. How much did he pay after 3 years and 4 months?
4. Find the interest earned if ₱ 10,700 is invested at 7 5/8% compounded monthly for
3 5/12 years.
5. Find the present value of ₱ 20,000 due at the end of 2 years at 5% compounded
annually.
6. ₱ 28,700 is payable at the end of 3 years and 5 months. If the interest rate charged
is 7 1/5% compounded monthly, how much is the value today?
7. How much must be invested today in a savings to accumulate ₱ 80,000 after 5 years
if money is worth 7.5% compounded monthly?
8. If ₱ 95,000 is due on Nov 1, 20XX, find its present value in Feb 1, 20XX if money is
worth 6 ¾% compounded monthly.
9. On the birth of a son, a father wished to invest money to accumulate
₱ 1,000,000 by the time his son turns 20 years old. If the interest rate of his
investment is 7 3/5% compounded quarterly, how much should he invest now?
10. Find the compound amount and interest if ₱ 24,000 is invested for 1 year at 8%
compounded:
a. Annually
b. Semi-annually
c. Quarterly
d. Monthly
e. Bi-monthly

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B. Solve the following problems.
1. Find the maturity value of an investment of ₱ 350,000 that is placed in a savings
fund that pays 7 3/5% compounded semi-annually for 3 years and 6 months.
2. Sonia deposited ₱ 150,000 in a savings bank that pays 5 1/8% compounded
quarterly foe 3 years and 9 months. Find the maturity value.
3. Find the maturity value of ₱ 487,000 at the end of 3/3/4 years if the interest rate is
5.35% compounded quarterly.
4. On March 1, 20XX, Robert borrowed ₱ 180,000 and promised to pay the principal
and interest earned at 6.73% compounded monthly. How much did he pay at the
end of Dec 20XX?
5. If ₱ 154,000 is due after 3 ½ years at 6.5% compounded quarterly, find its present
value.
6. Discount ₱ 296,500 for 3 years and 9 months at 6 ¼% compounded quarterly.
7. What sum of money is needed to have ₱ 500,000 after 10 years if money is worth
8% compounded quarterly?
8. A man will need ₱ 600,000 to buy a vehicle at the end of 5 years and 6 months. How
much should he place in a savings account now that pays 7.6% compounded
quarterly to be able to buy the vehicle?
9. How much must a person deposit in a bank now that gives 8.2% compounded
monthly so that after 8 years, he will have ₱ 450,000?
10. Find the maturity value if ₱ 400,500 is invested at 6 ½% compounded quarterly for
3 years and 6 months.

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C. Solve the following problems.
1. At what nominal rate compounded quarterly will ₱ 23,000 accumulate to
₱ 24,595.47 in 3 years?
2. If ₱ 45,648 becomes ₱ 67,830.53 in 5 years, how much is the rate of interest
compounded quarterly?
3. Find the nominal rate of interest converted monthly at which ₱ 60,825
accumulates to ₱ 87,104.09 at the end of 6 years.
4. Mr. Torres plans to invest ₱ 100,000 in a savings account at the time of his son’s
birth and have ₱ 387,755.95 after 16 years. At what interest rate compounded
monthly should he invest his money?
5. At what rate converted every 3months will a sum of money triple itself in 18 years
and 6 months?
6. How many years will it take for ₱ 25,000 to accumulate to ₱ 37,148.69 at 8%
compounded quarterly?
7. How long will it take for a sum of money to double itself at 7% compounded
monthly?
8. How many years will it take ₱ 50,000 to earn ₱ 42,537.54 if the interest rate is 6%
compounded monthly?
9. Mon invested ₱ 125,000 in a savings account that pays 7 2/5% interest compounded
quarterly. If decides to withdraw once it accumulates to
₱ 250,000, after how many years will that be?
10. Mr. Vidal invested ₱ 300,000 in a bank that pays 8 3/5% interest compounded
monthly. How long will it take for his money to become
₱ 500,000?

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ANNUITIES

An annuity is a series of equal payments made at equal intervals of time either at the
beginning or at the end of the paying period.

Two common type of annuity (Preferred by Banks)

1. Ordinary Annuity – payment made at the end of payment period.

2. Annuity Due – payment made at the beginning of payment period

ORDINARY ANNUITY
Amount of an Ordinary Annuity (So)
The sum of all the payments and the accumulated interest. It is known also as the
cash value.

( 1+𝑖 )𝑛 −1
Formula: So = R [ ]
𝑖

Where: So = amount of ordinary annuity

R = amount of periodic payment
i = rate of interest per conversion
n = number of payment

Present Value of an Ordinary Annuity ( Ao )

The sum of money today which if invested at a specified rate will amount to all the
payments and the compound interest at the end of the term of annuity.

1−(1+𝑖)−𝑛
Formula: Ao = R [ ]
𝑖

Where: Ao = present value of an ordinary annuity

R = amount of periodic payment
i= rate of interest per conversion period
91

n = number of payment period

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Application:
1. A man will deposit ₱ 25,000 each year for the next 5 years on an ordinary annuity
that pays 8% interest compounded annually. Find the amount of annuity at the ends
of 5 years.

Given: R = ₱ 25,000
T= 5 years
j = 8% = 0.08
Req’d: So =?

Solution:

( 1+𝑖 )𝑛 −1
So = R [ ]
𝑖

n = mT = 1x5 =5

i = j/m = 0.08/1=0.08

(1+0.08)5 −1
So = 25,000 [ ]
0.08

So = ₱ 146,665.02 Ans

2. Find the amount of an ordinary annuity whose payment of ₱ 16,000 is payable at the
end of each quarter for 10 years and 6 months, if money is worth 5.8%
compounded quarterly.

Given; R = ₱ 16,000
T = 10 years and 6 months = 10.5 years
j = 5.8% = 0.058
m=4
Req’d: So =?

Solution:
92

(1+𝑖)𝑛 −1
So =R [ ]
Page

𝑖
 i = j/m =0.058/4= 0.0145

n = Tm = 10.5x 4= 42

(1+0.0145)42 −1
So = 16,000 [ ]
0.0145

So = ₱ 916,490.18 Ans.

3. Find the present value of an ordinary annuity whose periodic payment of ₱ 15.000
is payable at the end of each 6 months for 10 years at 8% compounded semi-
annually.

Given: R = ₱ 15,000
T = 10 years
j = 8% = 0.08
m=2
Req’d: Ao =?

Solution:
1−(1=𝑖)−𝑛
Ao = R [ ]
𝑖
N= Tm=10x2 =20
I = j/m =0.08/2 = 0.04

1−( 1+0.04)−20
Ao = 15,000 [ ]
0.04

Ao = ₱ 203,854.90 Ans.

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4. Mr. Romero wants to deposit a sum of money today that will give an ordinary
annuity paying ₱ 12,000 quarterly for the next 6 years. If the interest is 8.8%
compounded quarterly and withdrawals will be done at the end of each quarter, find
the present value of the ordinary annuity.

Given: R = ₱ 12,000
T = 6 years
j = 8.8% = 0.088
m=4
Req’d: Ao =?

Solution:
1−(1+𝑖)−𝑛
Ao = R [ ]
𝑖

i = j/m = 0.088/4 = 0.022

n = Tm = 6x4 = 24

1−(1+0.022)−24
Ao = 12,000 [ ]
0.022

Ao = ₱ 221,907.78 Ans.

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Practice Exercises

A. Solve the following problems.

1. Calculate the future value of an ordinary annuity of which periodic deposit of ₱
7,000 at 8% compounded semi-annually for 6 compounding periods.
2. Find the yearly compound interest and the balance at the end of each year of an
ordinary annuity with an annual payment of ₱25,000,
Interest rate of 8 ½% compounded annually and term of 3 years.
3. Mrs. Santos wishes to sell her house and lot. Mr, Rivera is offering her ₱
1,400,000 cash. Mr. Reyes is offering a downpayment of ₱ 250,000 and monthly
periodic payments of ₱ 25,000 at the end of each month for 5 years. Which of the
offers should Mrs. Santos accept if money can be invested at 9% compounded
monthly and find the difference between the offers in terms of their equivalent
cash values.
4. How much is the amount of an ordinary annuity of which yearly payment of ₱
30,000 for 25 years earns 9 ½% interest compounded yearly.
5. Find the present value of an annuity of ₱ 10,200 payable at the end of each 3
months at 7.5% compounded quarterly.
6. Roman deposited a sum of money today in an ordinary annuity account that will
pay ₱ 5000 monthly for the next 10 years. If interest is 6 ½% compounded
monthly and withdrawals will be done at the end of each month, find the amount
he deposited.
7. A man wants to sell his used vehicle. Mr. X is offering a downpayment of ₱
50,000 and a monthly periodic payment of ₱ 6,000 payable at the end of each
month for 4 years. Mr. Y is offering ₱ 300,000 cash. Which offer should the man
accept if money ca be invested at 8 ½% compounded monthly? Find the
difference between the offers.
8. Find the present value of an annuity whose periodic payment of ₱ 5,400 is
payable at the end of each month for 8 years at 8 ½% compounded monthly.
9. How much is the periodic payment at the end of every quarter for 15 years of an
annuity whose value today is ₱ 200,000 if money is worth 7.45%compounded
quarterly.

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ANNUITY DUE

Amount of an Annuity Due ( Sd)

The sum of all the payments from the beginning of the payment period plus all the
accumulated interest where the number of compounding periods is increased by 1.

(1+𝑖)𝑛+1 −1
Formula: Sd = R [ −1]
𝑖

Where: Sd = amount of annuity due

R = periodic payment
i = rate of interest per conversion
n = number of payment period

Present value of an Annuity Due (Ad)

The sum of money today which if invested at a specified rate will amount to all the
payments and the compound interest at the end of the term of annuity.

1−(1+𝑖)−(𝑛−1)
Formula: Ad = R [ +1]
𝑖

Where: Ad = present value of annuity due

R = amount of periodic payment
i = rate of conversion per conversion
n = number of payment periods

Applications:

Note: Refer to the problems on ordinary annuity and replace it with annuity due .i.e.
from end of paying period to beginning of the paying period.
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