MAT 152: Mathematics in the Modern World

Module #20 Student Activity Sheet

Name: ________________________________ __ Class number: _______

Section: ____________ Schedule: _______________ Date: ________________

Lesson title: Solving Problems involving Business and Materials:

Consumer Loans SAS, Calculator

Learning Targets: References:

At the end of the module, students will be able to: Basic Mathematics for Economist by Mike
1. Define business and consumers loans. Rosser (2003)
2. Calculate periodic payment. http://mathworld.wolfram.com
3. Construct amortization table. http://www.basic-mathematics.com
1.

A. LESSON PREVIEW/ REVIEW

Introduction

We borrow money because we want to buy something. It may be as large as a property or a car, or
something smaller like furniture or a computer. We may borrow money to spend it on experiences. It may be
something as large as a loan to travel the world, to something smaller, like using a credit card for a meal out.
We borrow money to start a business or to upgrade a business. Everyone needs help at one point or another.
The same is true for financial help! But the most important part is before we borrow money, we also need to
have a good plan on how to pay it, in lightest interest as possible. In this module, you will be able to define
business and consumers loans and construct amortization table for payment scheme.

B. MAIN LESSON

Content Notes

Directions: In this activity, you need to read and underline or highlight keywords for you to keep in mind some
essential terms/ words used in the content notes.

Definition of Terms

• A loan is a written or oral agreement for a temporary transfer of a property (usually cash) from its owner
(the lender) to a borrower who promises to return it according to the terms of the agreement, usually with
interest for its use.
• A business loan is a loan specifically intended for business purposes. Business loans offer access to
credit which can be paid back over an agreed period of time plus interest.
• Consumer loans include personal, home equity and automobile. Personal loans are known as
“unsecured” debt because they are not backed by collateral, such as your home or car, as is the case
with a mortgage or auto loan, respectively.
• An annuity is a financial product used to grow money in order to give the owner a constant stream of
payments in the future, such as when they retire or a structured settlement.
• Amortization is paying off debt in regular instalments over a period of time such as with a mortgage or
loan. Amortization measures the consumption of the value of intangible assets, such as a patent or a

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 MAT 152: Mathematics in the Modern World
Module #20 Student Activity Sheet

Name: ________________________________ __ Class number: _______

Section: ____________ Schedule: _______________ Date: ________________

copyright. It is similar to depreciation except that depreciation is used when referring to tangible assets
like a building, or equipment and amortization is used solely for intangible assets.
• A mortgage is a debt instrument, secured by the collateral of specified real estate property that the
borrower is obliged to pay back with a predetermined set of payments.
• Both business loans and consumer loans usually require collateral, (but not always for a consumer
loan) otherwise known as assets, to secure the loan. For both types of loans, collateral may include real
estate or investments. In addition, a business loan may be collateralized by equipment, furniture and
fixtures, or inventory. In addition to securing the assets of the business, a business loan may also require
that the business owners make personal assets available as well.

Business Loan versus Consumer Loan

Term of Reference Business Loan Consumer Loan

May require collateral (real
estate, other investment,
Collateral May also require a collateral
equipment, fixtures or
furniture)
Require the business owner to Does not usually require a
Guarantor
sign as guarantor guarantor
The lendee may require a
credit report, bank statements,
The lendee has to submit a
and income tax return. If
credit report, income tax
Documents he/she is employed, a
returns and the company's
certificate of employment and
financial statement.
employee pay slips will be
submitted.
Term of the Loan Shorter-term Longer-Term
Interest rate Higher interest Lower interest rate

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 MAT 152: Mathematics in the Modern World
Module #20 Student Activity Sheet

Name: ________________________________ __ Class number: _______

Section: ____________ Schedule: _______________ Date: ________________

Example:

1. Stephanie wishes to purchase a second-hand car worth ₱312,500.00 and the seller requires a 20%
downpayment. What is the amount of her mortgage loan?

Solution:
To compute downpayment:
Downpayment = Purchase Price × downpayment %
Downpayment = 312,500 × 0.20
Downpayment = 62,500

To compute mortgage loan:

Mortgage loan = Purchase Price – downpayment
Mortgage loan = 312,500 – 62,500
Mortgage loan = 250,000

2. Assume that Stephanie has to make one payment per month for
The instalment payment on the
3 years. loan is termed amortization. It is a
process for repaying a loan
Solution: through equal payments at a
Three years is the term of the loan. specified rate for a specific length
n = 3 years × 12 months per year of time. The schedule prepared
n = 36 months showing the instalment payments
for the period of payment is called
amortization table.

Constructing Amortization Table:

Amortization schedule – is a table or chart showing each monthly payment on an amortizing loan
indicating how much of each payment goes to interest and how much goes to principal.

Example:
How is the yearly payment of a ₱660,000 loan which is to be repaid annually for 10 years with an interest of
4.8% compounded annually?

Solution:
Step 1: Compute the monthly rate.

𝑎𝑛𝑛𝑢𝑎𝑙 𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑟𝑎𝑡𝑒

𝑖= 12
0.048
𝑖= 12
𝒊 = 𝟎. 𝟎𝟒𝟖

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 MAT 152: Mathematics in the Modern World
Module #20 Student Activity Sheet

Name: ________________________________ __ Class number: _______

Section: ____________ Schedule: _______________ Date: ________________

Step 2: Solve the monthly payment using the given formula.

𝑖 ×𝑃 ×(1+𝑖)𝑛 𝑃×𝑖
𝐴= or 𝐴=
(1+𝑖)𝑛 −1 1− (1+𝑖)−𝑛

where: A is the monthly payment

P is the loan’s initial amount
𝒊 is the monthly interest rate
𝒏 is the total number of payments

Given:
𝑖 = 0.048 (Step 1) P = 660,000 𝑛 = 10 years

𝑖 ×𝑃 ×(1+𝑖)𝑛
𝐴= (1+𝑖)𝑛 −1
0.048 ×660,000 ×(1+0.048)10
𝐴= (1+0.048)10 −1
0.048 ×660,000 ×(1.048)10
= (1.048)10 −1
0.048 ×660,000 ×1.5981…
= 1.5981…−1
50,628.8426…
= 0.5981…
𝑨 = 𝟖𝟒, 𝟔𝟒𝟒. 𝟖𝟒 (round-off to two decimals)

or you may use the second formula;

𝑃×𝑖
𝐴= 1− (1+𝑖)−𝑛
660,000 × 0.048
= 1− (1+0.048)−10
31,680
= 1− (1.048)−10
31,680
= 1− 0.6257…
31,680
= 0.3742…
𝑨 = 𝟖𝟒, 𝟔𝟒𝟒. 𝟖𝟒 (round-off to two decimals)

Step 3: Starting in month one, multiply the principal balance by the monthly interest to get the interest amount
of the first month’s balance.

Interest Payment = Principal Balance × Monthly Rate

= 660,000 × 0.048
Interest Payment = 31,680.00

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 MAT 152: Mathematics in the Modern World
Module #20 Student Activity Sheet

Name: ________________________________ __ Class number: _______

Section: ____________ Schedule: _______________ Date: ________________

Step 4: Subtract the amount of periodic payment to interest payment to get the principal repayment.

Principal Repayment = Monthly Rate – Interest Payment

= 84,644.84 – 31,680
Principal Repayment = 52,964.84

Step 5: To calculate the next month’s interest and principal repayment, subtract the principal repayment made
in one month from the load balance to get the new loan balance, and then repeat the steps above.

Outstanding Balance = Principal Balance – Principal Repayment

= 660,000 – 52,964.84
Outstanding Balance = 607,035.16

Period Periodic Payment Interest Payment Principal Outstanding Principal

Repayment
1 84,644.84 31,680.00 52,964.84 607,035.16
2 84,644.84 29,137.69 55,507.15 551,528.01
3 84,644.84 26,473.34 58,171.50 493,356.51
4 84,644.84 23,681.11 60,963.73 432,392.78
5 84,644.84 20,754.85 63,889.99 368,502.80
6 84,644.84 17,688.13 66,956.71 301,546.09
7 84,644.84 14,474.21 70,170.63 231,375.47
8 84,644.84 11,106.02 73,538.82 157,836.65
9 84,644.84 7,576.16 77,068.68 80,767.97
10 84,644.84 3,876.86 80,767.98 -0.01
Total 846,448.40 186,448.39 660,000.01

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 MAT 152: Mathematics in the Modern World
Module #20 Student Activity Sheet

Name: ________________________________ __ Class number: _______

Section: ____________ Schedule: _______________ Date: ________________

Check for Understanding

PART A: Solve the problem by completing the amortization table.

A ₱45,000 loan at 10% compounded monthly is to be amortized every month a year. Find the monthly
payment and construct an amortization table.

Period Periodic Payment Interest Payment Principal Repayment Outstanding Principal

1
2
3
4
5
6
7
8
9
10

PART B. Periodic Payment / Outstanding Principal

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 MAT 152: Mathematics in the Modern World
Module #20 Student Activity Sheet

Name: ________________________________ __ Class number: _______

Section: ____________ Schedule: _______________ Date: ________________

Instructions: Solve the following problems.

1. Alan wants to deposit P300 into a dollar fund at the beginning of each month. If he can earn 10% compounded
interest monthly, how much amount will be there in the fund at the end of 6 years?

2. Jayson decides to set aside P50 at the end of each month for his child’s college education. If the child were
to be born today, how much will be available for its college education when s/he turns 19 years old? Assume
an interest rate of 5% compounded monthly.

C. LESSON WRAP-UP

Frequently Asked Questions

1) Is a consumer loan the same as a personal loan?

Yes, the difference may be what the loan can be used for, but typically this would be determined
by the specific bank/lender. Both terms refer generally to loans taken out by private individuals.

2) What is the best reason to get a loan?

Consolidate debt to pay off bills. Taking out personal loans to pay bills can make sense if you're
able to secure a low interest rate. If you pay your other debts with the money from a personal
loan, you'll only have one fixed monthly payment, and you might be able to save money on
interest.

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 MAT 152: Mathematics in the Modern World
Module #20 Student Activity Sheet

Name: ________________________________ __ Class number: _______

Section: ____________ Schedule: _______________ Date: ________________

3) Which type of loan is cheapest?

As per the current rates, Citibank, Bank of Baroda offers the lowest interest rate of 10.50%. You
can get best personal loan depending upon the company you are working with, loan amount you
have applied for and your repayment capacity. Higher the loan amount, lower will be the rate of
interest.

4) What are the 4 types of loans?

Unsecured personal loans; Secured personal loans; Fixed-rate loans; Variable-interest loans;
Secured and Unsecured Lines of Credit; Debt consolidation loans.

Thinking about Learning

This time, let’s end the module activities by answering the following questions about your learning experience.

What felt confusing about what you learned today? Why?

What motivated you to finish the lesson today?

Answer Key

PART A.

𝟎.𝟏𝟎
First period interest Principal repayment: (P45, 000)( 𝟏𝟐 ) = P375

PART B
1. To calculate the future value of an annuity due, use the
formula:
(1 + 𝑖)𝑛 − 1
𝐹𝑉 = 𝐶 [ ] (1 + 𝑖)
𝑖
Where: C = Payment/deposit amount
i = interest rate (as a decimal)
n = number of payments
FV = future value

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 MAT 152: Mathematics in the Modern World
Module #20 Student Activity Sheet

Name: ________________________________ __ Class number: _______

Section: ____________ Schedule: _______________ Date: ________________
0.10
C = P300 i= 12 or 0.008333 n=12 x 6 = 72

𝟎.𝟏𝟎 𝟕𝟐
(𝟏+ ) −𝟏 𝟎.𝟏𝟎
𝟏𝟐
𝑭𝑽 = 𝟑𝟎𝟎 [ 𝟎.𝟏𝟎 ] (𝟏 + 𝟏𝟐
) = P29, 678.67
𝟏𝟐

2. First, we assign all the terms:

C= P50
i= 0.05/12 or 0.004166
n= 18 x 12, or 216
Now substituting into our formula, we have:
𝟎.𝟎𝟓 216
(1+𝑖)𝑛 −1 (1+ ) −1
𝐹𝑉 = 𝐶 [ 𝑖
]=[ 𝟏𝟐
𝟎.𝟎𝟓 ] = ₱2, 598, 778.58
𝟏𝟐

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