SENIOR HIGH SCHOOL

Business Mathematics
Quarter 1 Module 7
(Week 9)
Interest

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About the Module

This module was designed and written with you in mind. It is here to help you master
about Ratio, Rate and Proportion. The scope of this module permits it to be used in
many different learning situations. The language used recognizes the diverse
vocabulary levels of students. The lessons are arranged to follow the standard
sequence of the course. But the order in which you read them can be changed to
correspond with the textbook you are now using.

This module is divided into two lessons, namely:

Lesson 1 – Simple Interest
Lesson 2 – Determining Interest as Applied to Mortgage, Amortization,
Services, Utilities and Deposits and Loans

After going through this module, you are expected to:

• explain the basic concepts of interest; and
• illustrate how interest is computed specifically as applied to mortgage, to
amortization, on services/utilities, and on deposits and loans

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 What I Know (Pre-Test)

Instruction: Choose the letter of the correct answer. Write it on a separate

sheet of paper.

1.) _____ is a percentage of an initial amount, added to that principal over a given
period of time.
A. Add on B. Commission C. Interest D. Profit

2.) For the ____, interest is the amount or income he or she earns for lending or
investing his or her money.
A. borrower B. buyer C. collector D. lender

3.) For the ____ viewpoint, interest is the amount he or she has to pay for the use of
money he or she has borrowed or loaned.
A. borrower’s B. buyer’s C. seller’s D. lender’s

4.) ______ is the interest computed based on the principal only.

A. Accumulated B. Complex C. Compound D. Simple

5.) The total amount the borrower has to repay is equal to the sum of the principal
plus the interest.
A. Debt B. Interest C. Maturity value D. Mortgage

6.) A ______ can be defined as an agreement by which a debtor pays the lender for a
certain property over a period of time.
A. collateral B. debt C. interest D. mortgage

7.) The ______ period refers to the length of time, in years, that a borrower chooses
to pay off a mortgage.
A. amortization B. grace period C. natural D. nominal

8.) Christer wants to have an interest income of ₱3,000.00 a year. How much
must he invest for one year at 8%?
A. ₱35,900.00 B. ₱37,500.00 C. ₱41,350.00 D. ₱52,450.00

9.) Thomas owes the bank some money at 4% per year. After half a year, she paid
₱45.00 as interest. How much money does she owe the bank?
A. ₱1,750.00 B. ₱2,150.00 C. ₱2,250.00 D. ₱2,550.00

10.) In September 2019, Roy borrowed an amount of ₱200,000.00 from ECQ

Cooperative at an interest rate of 2% to finance his house renovation. How much
is the interest if his due is September of this year?
A. ₱3,520.00 B. ₱3,999.00 C. ₱4,000.00 D. ₱4,500.00

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11.) If you deposit ₱6,500.00 into an account paying 8% annual interest, how much
money will be in the account after 7 years?
A. ₱8,783.74 B. ₱9,955.85 C. ₱10,140.00 D. ₱11,358.24

12.) Assume you borrow ₱100,000 at 6% for 30 years, to be repaid monthly. What is
the monthly payment? The monthly payment is ₱599.55.
A. ₱499.00 B. ₱599.55 C. ₱699.50 D. ₱799.55

13.) Vivian bought perfume using a credit card at a price of ₱2,400.00 payable in four
months at 15% interest. The principal is also repaid equally each month with four
payments of ₱600.00 each. Compute for the total interest when it is paid equally
over four months.
A. ₱30.00 B. ₱40.00 C. ₱50.00 D. ₱60.00

14.) Assuming you have an outstanding loan amount of ₱500,000.00 and an

interest rate of 5% annual percentage rate, your interest payment for one month
would be?
A. ₱2,083.33 B. ₱3,101.40 C. ₱4,567.25 D. ₱5,001.92

15.) If a house is sold for P3,000,000.00 and the bank requires 20% down payment,
find the amount of the mortgage.
A. ₱1,500,750.00 B. ₱1,967,500.00 C. ₱2,100,500.00 D. ₱2,400,000.00

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Lesson Simple Interest
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What I Need to Know

At the end of this lesson, you are expected to:
• define interest; and
• demonstrate how to calculate simple interest

What’s In
Activity 1.1: GEAR UP
Instruction: Given the data of the first year and solve for the interest and
total amount of the remaining years, use another sheet of paper for your
answers.

Assume the following details of a deposit account:

Principal: ₱100,000.00
Interest: 10% earnings every end of the year
Note: No withdrawals and additional deposits are made.
By the end of the 1st year
Interest ₱100,000.00 x 0.1 = ₱ 10,000.00
Total amount ₱100,000.00 + ₱10,000.00 = ₱110,000.00
By the end of the 2nd year
Interest
Total amount
By the end of the 3rd year
Interest
Total amount

What’s New

People borrow or loan money for various reasons. A person may borrow
money to pay for unexpected expenses like hospital bills, take advantage of a
midnight sale, purchase a new gadget, buy a car, or finance travel expenses. A
business owner may borrow money to meet his or her future business plan

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expansion, pay his or her business current expenses, take advantage of cash
or quantity discounts, and many more (Solano and Alarcon, 2016).
Interest is a percentage of an initial amount, or "principal", added to
that principal over a given period of time. In the case of a loan, that period of
time will be the agreed length of time within which you will repay the loan. With
an investment or savings deposit, it will be over the life of the investment or
while there is money in the savings account (Online Math Learning, 2020).
The charging of interest for the borrowed or loaned money can be
justified from the standpoint of the lender or the investor, as he or she foregoes
the use of his or her money during the time it is borrowed and takes the risk of
lending or investing it. Hence, for the lender, interest is the amount or income
he or she earns for lending or investing his or her money. From the borrower’s
viewpoint, interest is the amount he or she has to pay for the use of money he or
she has borrowed or loaned (Solano and Alarcon, 2016).

What Is It

Simple Interest is the interest computed based on the principal only

(the amount of money borrowed or invested). It is usually used for short-term
loans or investments (Solano and Alarcon, 2016).

Simple interest can be computed using the formula

I = Prt

where,
I = interest after t year
P = Principal
r = rate of interest
t = time in years

The maturity value (F) or the total amount the borrower has to repay is
equal to the sum of the principal plus the interest. It is also referred to as the
future value.

F=P+I

Since I = prt
we get:
F = P + Prt
F = P (I + rt)

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Example 1:

What would be the interest Rene has to pay if he borrowed ₱10,000.00 for 1
year with an interest rate of 6% per annum?

Solution:
I = Prt
= (₱10 000) (0.06) (1) Rene will pay the interest of
= ₱600.00 ₱600.00.

Example 2:

What is the total amount that Rene will pay at the end of 1 year?

Solution:

Use the formula for the maturity or future value.

F=P+I Rene will pay the total amount

= ₱10,000.00 + ₱600.00 of ₱10,600.00 at the end of the
F = ₱10,600.00 year

Example 3:

Compute for the interest on a credit purchase of ₱30,000.00 at 8% for 10 and

15 months.

Solution:
Interest for 10 months

Interest for 15 months

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 What’s More
Activity 1.2: NOW IT’S YOUR TURN!

A. Instruction: Solve the following problems and show your solutions on a

separate sheet of paper.

1. If instead of paying ₱10,600.00 at the end of 1 year, Rene was required

by the lender to pay ₱10,750.00, what is the rate of interest applied on
the loan?
2. How much should a mother deposit in her savings account so that she
will be able to withdraw ₱100,000.00 after 3 years if the bank’s interest
rate is 3%?

What I Need to Remember

KEY POINTS:

• Simple Interest is the simplest form of calculation of interest payable

or receivable on the money advanced in exchange for its use.
• It is calculated by looking at the principal amount borrowed, the rate
of interest, and the time period it will cover.

• It is more advantageous for borrowers than compound interest, as it

keeps overall interest payments lower.

• Car loans, amortized monthly, and retailer installment loans, also

calculated monthly, are examples of simple interest; as the loan
balance dips with each monthly payment, so does the interest.

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 Determining Interest as Applied to
Lesson
Mortgage, Amortization, Services,
2
Utilities, Deposits and Loans

What I Need to Know

At the end of this lesson, you are expected to:
• illustrate how interest is computed and applied on mortgage,
amortization, services, utilities, deposits and loans

What’s In
Activity 2.1: GEAR UP

Instruction: Compute and fill in the box with the correct answers. Use
another sheet of paper for your solutions.

A. P = ₱2,500.00 C. The amount borrowed for

r = 13% per year 6 years is ₱600.00 at a 9%
t = 4 years yearly interest rate

B. ₱750 invested for six years D. You invested 450,500.00

at 10% per year at 25% interest rate for
5 years

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 What’s New

Image 2: What is Mortgage?

For many people, buying a home is the largest single financial investment
they will ever make. Because of the hefty price tag, most people usually need
a mortgage. A mortgage is a type of amortized loan in which the debt is repaid in
regular installments over a period. The amortization period refers to the length of
time, in years, that a borrower chooses to pay off a mortgage (Indeed-Career
Guide, 2019).

What Is It

A mortgage can be defined as an agreement by which a debtor pays the

lender (usually a financial institution like a bank) for a certain property over a
period of time. In most contexts, however, the term “mortgage” can also refer to
the loan itself.
An important consideration in a mortgage is that, unlike in other loans
or debts, an actual physical entity, which is the property itself, serves as the
security or collateral for mortgage loans. If the borrower fails to pay for the loan,
the collateral (which is the property) will be forfeited (Bacani and Soriano, 2017).
To illustrate the concept of mortgage, consider this situation:
Suppose you have saved ₱ 200,000.00 and you are planning to buy a house that
costs ₱ 1,000,000. Since your savings is not enough to fully pay for the house in
cash, you can apply for a mortgage from a bank. Your savings can be used as a
down payment, and then you can pay the remaining balance to the bank using
the house as collateral. The remaining balance, which is the amount loaned from
the bank, is the mortgage. So in this situation, the mortgage (which we denote as
M) is the difference between the cost of the house and the down payment; that is

M = 1,000,000 – 200,000 = 800,000

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 When the bank approves your mortgage loan, you can pay it back to the bank
on a periodic, installment basis. The amount that you need to pay based on the
agreed upon schedule-for example, on a monthly basis-is called the
amortization. Amortization may be thought of as a process of dividing the value
of a loan by paying a certain fixed amount periodically. The payment schedule
and the period during which you have to fully pay the bank in order to acquire
the property are based on the agreement between both parties. The bank earns
by charging an interest on your loan. To determine the periodic payment that a
borrower needs to settle based on the mortgage and payment terms that a bank
applies, we can use the formula that follows.

Let P be the principal amount, r be the interest rate, n be the number of

payments per year, and t be the total number of years.

Observe that when we need to determine the monthly amortization for a

mortgage, we just need to use n=12 in the given formula; hence, the formula will
become:

Also, take note that in this particular case, the interest is assumed to be
compounded monthly. The next example demonstrates how this formula is used.

Example 4: Determining the Monthly Payment for a Mortgage

Suppose you want to buy a house that costs ₱ 1,000,000. You give a
down payment of ₱ 200,000.00, and then you loan the remaining ₱ 800,000.00
from a bank. Your agreement with the bank is that you will pay for the mortgage
on a monthly basis for ten years and that the bank will charge a 3% interest rate,
compounded monthly on your loan. Determine the amount of your monthly
payment.

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 Solution:
The following information were given in the problem: P = ₱800,000.00,
t = 10 years, and r = 3%. Since you will be paying on a monthly basis, we also
have n = 12.

principal amount
interest rate
no. of payments per year
total number of years

Therefore, you need to pay a monthly amortization of ₱ 7,724.86 for 10

years to fully pay the mortgage.

Now let us analyze the situation in example 1 further. In 10 years, you

will have a total of 120 monthly payments; that is, n . t = (12) (10) = 120. We
have determined that the amount of each periodic or monthly payment is ₱ 7,
724.86. So the total amount (which we denote as A) that you need to pay the
bank is the product of the total number of monthly payments (n.t) and the
periodic payment (PM). In symbols,

A = n . t . PM

So the total amount that you will pay the bank is:

A = (12)(10)(7,724.86) = ₱926,983.20

To get the total interest I that the bank charges on your mortgage, simply
subtract the amount of the principal amount P from the total payment A. In
symbols,

I=A–P

Hence, the total interest that you need to pay the bank is

I = ₱926,983.20 – ₱800,000.00 = ₱126,983.20

Example 5: Problem Solving Involving Interest Applied on a Mortgage

Raul wants to purchase a car that costs ₱ 1,300,000. He will give a down
payment of ₱ 300,000.00, and then he will loan the balance from the bank

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 that charges a 7.5% interest rate, compounded monthly. He also agreed to
pay the bank monthly for 5 years.

1. How much is his monthly amortization?

2. How much is the total interest on his loan?

Solutions:

Since the cost of the car is ₱ 1,300,000.00 and Raul will give a down
payment of ₱ 300,00.00, the principal amount P that he will borrow from the
bank is:

P = ₱1,300,000.00 – ₱300,000.00 = ₱1,000,000.00

The following additional information were given in the problem: t=5 years
and r =7.5%. Since he will be paying on a monthly basis, we also have n = 12.

1. We can use the general formula for solving the monthly payment PM , as
shown below.

Therefore, Raul needs to pay the bank a monthly amortization of

₱20,037.95 for 5 years.

2. To determine the total interest on his loan, we need to solve first for the total
amount A of his payments; that is,

A = n . t . PM
= (12) (5) (20,037.95)
= ₱1,202,277.00
Then we solve for the total interest I as follows:
I=A–P
= 1,202,277 – 1,000,000
= ₱202, 277.00
Thus, the total interest on his loan is ₱ 202, 277.00

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 What’s More
Activity 2.1: NOW IT’S YOUR TURN!

Instruction: Solve the problem. Show your solutions on a separate sheet of

paper.

Suppose you are planning to apply for a housing loan; and the lender
offers different interest rates that reflect the differences in terms of the
risks of shorter-term and longer-term loans, the following are the options
that were given to you:

• Option A: The mortgage will be paid on monthly basis for 15 years

at an interest rate of 6.25%, compounded monthly.

• Option B: The mortgage will be paid on monthly basis for 30 years

at an interest rate of 6.75%, compounded monthly.

1. If you plan to borrow ₱2,400,000.00, how much will be monthly

amortization in each option?

What I Need to Remember

The Pros and Cons of a Short-term Mortgage

Pros

• You'll get a lower interest rate and pay less interest over the life of the
loan.
• You'll build equity in your property more quickly.
• Your mortgage is less likely to be underwater if you're forced to sell.
Cons

• Your monthly payments will be higher because you're squeezing all that
principal into a shorter term.
• Making higher mortgage payments might prevent you from saving for
things like retirement or emergencies.
• You'll be at risk of default and foreclosure if life throws you a curveball,
like a job loss, so you can't meet your higher monthly payments.

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What I Can Do

A. Instruction: Solve each problem and show your solutions on a separate

sheet of paper.

1. Pilong invested ₱50,000.00 in an institution that offers an interest

rate of 3% per year. How much will he earn in a year?

2. Gina has to decide if she should deposit his ₱5,000.00 in a savings

account at a simple interest of 5% for 5 years or invest it in her
friend’s business which can potentially earn an interest of 5%
compounded monthly for 5 years. What should be her decision?

3. A car costs ₱1,400,000.00. Suppose a man gives a down payment of

₱400,000.00 for the car, and then he loaned the balance from a bank.
The bank charges a 5% interest rate, compounded monthly, on the
loan, which he will pay monthly for 10 years.

a. How much will be his monthly amortization?

b. How much will be the total interest on this loan?

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 Assessment (Post Test)
Instruction: Choose the letter of the correct answer. Write it on a separate
sheet of paper.

1.) _____ an amount that is paid for the use of another party’s money.
A. Add on B. Commission C. Interest D. Principal

2.) The percentage of a certain amount is called ______ amount.

A. initial B. interest C. main D. principal

3.) For the ____ viewpoint, interest is the amount he or she has to pay for the
use of money he or she has borrowed or loaned.
A. borrower’s B. buyer’s C. seller’s D. lender’s

4.) ______ interest is the interest computed based on the principal only.
A. Accumulated B. Complex C. Compound D. Simple

5.) ______ the total amount the borrower has to repay is equal to the sum of
the principal plus the interest.
A. Debt B. Interest C. Maturity value D. Mortgage

6.) For the ____, interest is the amount or income he or she earns for lending or
investing his or her money.
A. borrower B. buyer C. collector D. lender

7.) The basic formula for determining Interest: If P is the principal amount and
r is the interest rate, then the interest I is computed as ______
A. I = r + P B. I = P + r C. I = r ÷ P D. I = r . P

8.) If the borrower fails to pay for the loan, the ______ (which is the property)
will be forfeited.
A. Collateral B. Debt C. Interest D. Maturity

9.) Defined as an agreement by which a debtor pays the lender for a

certain property over a period of time.
A. Collateral B. Debt C. Interest D. Mortgage

10.) The amount that you need to pay based on the agreed upon schedule-for
example, on a monthly basis-is called the ______.
A. Amortization B. Collateral C. Interest D. Mortgage

11.) Ms. Aimee invested ₱ 8,000.00 in a certain company. When her investment
reached the maturity date, he received a total amount of ₱ 9,000.00 What
was the interest rate?
A.10% B. 11.75% C. 12.5% D. 13.25%

12.) Amy invested in a bank that offers an interest rate of 10% per year. If he
earned an interest of ₱ 13,200.00 after a year, how much was Amy’s
investment?
A.₱ 12,000.00 B. ₱ 13,450.00 C. ₱ 15,325.00 D. ₱17,000.00

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13.) Suppose you invested ₱50,000.00 in a company that gives 15% simple
interest per year, how much will be in your account after 3 years?
A. ₱ 65,000.00 B. ₱ 72,500.00 C. ₱ 81,200.00 D. ₱ 89,575.00

14.) Determine the principal amount that you need to invest at a simple
annual interest of 8% to have a total amount of ₱ 446 400 at the end of 3
years.
A. ₱198,500.00 B. ₱265 745.00 C. ₱ 305,000.00 D. ₱ 360,000.00

15.) Mr. Sion applied and was approved for a salary loan amounting to
₱24,000.00 with a fixed rate of 5.5% per annum. How much will be his
monthly amortization?
A. ₱ 2,058.32 B. ₱ 2,150.45 C. ₱ 2,235.38 D. ₱ 2,515.05

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 Answer Key
Remember: This portion of the module contains all the answers. Your
HONESTY is required.

Activity 1.1

2.) 1.)

Activity 1.2

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 17
Activity 2.2
1.) Option A Option B
2.) Option A Option B
A = n . t . PM A = n . t . PM
= (12) (15) (20 565.07) = (12) (30) (15 518.52)
= 3 701 712.60 = 5 586 667.20
I=A–P I=A–P
= 3 701 712.60 – 2 400 000 = 5 586 667.20 – 2 400 000
= 1 301 712.60 = 3 186 667.20
Activity 2.1
1. ₱ 1,300.00
2. ₱ 324.00
3. ₱ 450.00
4. ₱ 562,500.00
References

Text Book

Solano, I.P. and Alarcon, D.C. Business Math.Makati City, Philippines: Diwa
Learning Systems, Inc., 2016. pp.108-119.

Bacani, J.B. and Soriano, J.M. Business Mathematics for Senior High School.
839 EDSA, South Triangle, Quezon City, Philippines: C & E Publishing, Inc.,
2017. pp.145-172.

Websites

“Simple interest” Indeed-Career Guide: retrieved from https://cutt.ly/ng3SpPy

on October 4, 2020.

“Algebra: Interest Word Problems: Online Math Learning.com: retrieved from

https://cutt.ly/Qg3SnBn on October 4, 2020.

“Mortgage Amortization Strategies: Investopedia: retrieved from

https://cutt.ly/lg3SE8W on October 16, 2020.

“What is a mortgage? Bankrate: retrieved from https://cutt.ly/4g3SI2V on

October 16, 2020.

Images Sources
Image 1 source: istockphoto-897493012-170667astock-market-forex-trading-
graph- graphic-concept (accessed June 15, 2020)

Image 2 source: shorturl.at/quxIY /Mortgage (accessed October 16, 2020)

Congratulations!
You are now ready for the next module. Always remember the following:

1. Make sure every answer sheet has your

▪ Name
▪ Grade and Section
▪ Title of the Activity or Activity No.
2. Follow the date of submission of answer sheets as agreed with your
teacher.
3. Keep the modules with you AND return them at the end of the school year
or whenever face-to-face interaction is permitted.

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