Lesson 1

Consumer vs.
Business Loans
 Objectives

At the end of this lesson, the learner should be able to

• correctly illustrates business and consumer loans;

and

• correctly distinguish consumer loans and business

loans.
 Essential Questions

• How can loans help us in our everyday lives?

• Can loans be a bad thing? Why do you think so?

 Warm Up!

It is important to review the formulas that we have discussed

before we define the terms and definitions under loans. Here
is an online quiz that will refresh you with some formulas for
compound interest and annuities.

(Click on the link to access the quiz.)

McFarland, Thomas. “Compound Interest and Annuities.”

University of Wisconsin Whitewater. Retrieved 05 June 2019
from http://math.uww.edu/~mcfarlat/annuity.htm
 Guide Questions

● Were you able to solve all the problems correctly?

● How can you determine if the problem involves compound

interest?

● How can you determine if the problem involves ordinary

annuities?
 Learn about It!

Loan
1 a debt provided by one entity (an individual or an organization) to another entity
at an agreed interest rate

Example:
Personal loans, mortgages, government bonds, and bank
loans are examples of loans.
 Learn about It!

2 Consumer Loans
loans given to individuals for personal or family purpose

Example:
Educational loans, bank loans for personal purposes such as
gadgets, tuition fee and cars, and housing loans are examples
of consumer loans.
 Learn about It!

3 Business Loans
loans given to individuals or groups of people for business purposes

Example:
Bank loans for starting business, equipment, and expansion
are examples of business loans.
 Try It!

Example 1: Identify if the following scenario shows a

business loan or a consumer loan.

a. Mr. Gamboa’s daughter is entering college. He decided

to apply for a loan so he can use the money to fund his
daughter’s tuition fee.

b. Regine wants to expand her clothing business. She

decided to apply for a loan so she can use the money
for new equipment.
 Try It!

Example 1: Identify if the following scenario shows a

business loan or a consumer loan.
a. Mr. Gamboa’s daughter is entering college. He decided
to apply for a loan so he can use the money to fund his
daughter’s tuition fee.

Solution:
a. Mr. Gamboa should apply for a consumer loan because he
will use the money for personal purposes and not for
business purposes.
 Try It!

Example 1: Identify if the following scenario shows a

business loan or a consumer loan.
b. Regine wants to expand her clothing business. She
decided to apply for a loan so she can use the money
for new equipment.

Solution:
b. Regine should apply for a business loan because she will
use the money for business purposes and not for her
personal use.
 Try It!

Example 2: Chris bought a new laptop. After paying the

down payment, the amount of the loan is ₱30 000 with an
interest rate of 8% compounded quarterly. The term of the
loan is 1 year. How much will be her quarterly payment?
 Try It!

Example 2: Chris bought a new laptop. After paying the down payment, the amount of the
loan is ₱30 000 with an interest rate of 8% compounded quarterly. The term of the loan is 1
year. How much will be her quarterly payment?

Solution:
1. List the given.

The present value 𝑃𝑉 is ₱30 000.

The interest rate 𝑟 is 8% or 0.08.
The compounding period is quarterly, or 𝑚 = 4.
The time 𝑡 is 1 year.
 Try It!

Example 2: Chris bought a new laptop. After paying the down payment, the amount of the
loan is ₱30 000 with an interest rate of 8% compounded quarterly. The term of the loan is 1
year. How much will be her quarterly payment?

Solution:
The periodic rate 𝑖 can be computed as follows.
𝑟
𝑖=
𝑚
0.08
=
4
= 0.02
 Try It!

Example 2: Chris bought a new laptop. After paying the down payment, the amount of the
loan is ₱30 000 with an interest rate of 8% compounded quarterly. The term of the loan is 1
year. How much will be her quarterly payment?

Solution:
The number of compounding periods 𝑛 is computed as
follows.
𝑛 =𝑚⋅𝑡
=4⋅1
=4
 Try It!

Example 2: Chris bought a new laptop. After paying the down payment, the amount of the
loan is ₱30 000 with an interest rate of 8% compounded quarterly. The term of the loan is 1
year. How much will be her quarterly payment?

Solution:
2. Use the formula for the present value of an ordinary
annuity to solve for the quarterly payments.

1 − 1 + 𝑖 −𝑛
𝑃𝑉 = 𝑅
𝑖
−4 1
1 − 1 + 0.02
30 000 = 𝑅
0.02
 Try It!

Example 2: Chris bought a new laptop. After paying the down payment, the amount of the
loan is ₱30 000 with an interest rate of 8% compounded quarterly. The term of the loan is 1
year. How much will be her quarterly payment?

Solution:
30 000
𝑅= −4(1)
1 − 1 + 0.02
0.02
30 000
𝑅≈
3.807728699
𝑅 ≈ 7 878.71
 Try It!

Example 2: Chris bought a new laptop. After paying the down payment, the amount of the
loan is ₱30 000 with an interest rate of 8% compounded quarterly. The term of the loan is 1
year. How much will be her quarterly payment?

Solution:
Therefore, Chris’ quarterly payment is ₱7 878.71.
 Let’s Practice!

Individual Practice:

1. Justin obtained a loan worth ₱30 000. The term of

transaction is 13% simple interest payable after two years.
How much will he pay on the maturity date?

2. Ella loaned ₱10 000 at 9% compounded quarterly. How

much will she pay if she will settle this loan after two
years?
 Let’s Practice!

Group Practice: To be done in groups with 3 members

Jessica wants to buy a new LED TV. A store offered her a TV

that requires a ₱5 000 down payment and a monthly
payment of ₱3 000 with 8.6% interest compounded monthly
for two years. What is the actual price of the TV?
Key Points

Loan
1 a debt provided by one entity (an individual or an organization) to another entity
at an agreed interest rate

2 Consumer Loans
loans given to individuals for personal or family purpose.

3 Business Loans
loans given to individuals or groups of people for business purposes
 Synthesis

• How do you differentiate a business loan from a consumer

loan?

• Is it a good idea to take a personal loan in buying the

things that you want? Why do you think so?

• Have you ever heard the term “Amortization”?

Lesson 2

Regular Payments
 Objectives

At the end of this lesson, the learner should be able to

• accurately illustrate an amortization;

• correctly solve for the regular payments of a loan

annuity; and

• correctly construct the amortization schedule.

 Essential Questions

• How can amortization help you in repaying your loan?

• Which is better, repaying a loan by one-time payment or

by series of regular payment?
 Warm Up!

It is important to know the formula for ordinary annuity since it is used

in some problems involving repayment of loans. You need to know
how to derive some unknown quantities such as the number of terms
and regular payments from the equation. Here is an exercise on
finding the payment size and terms of an annuity.

(Click on the link to access the quiz.)

Jerome, F. “Chapter 11: Ordinary Annuities: Payment size, Term and

Interest rate.” Mcgraw-Hill Ryerson. Retrieved 05 June 2019 from
http://www.mheducation.ca/college/jerome3/olc/3bmj_qq11.html
 Guide Questions

● Have you answered all the questions correctly? What are

the items in the quiz that involves repayment of loans?
How did you answer it?

● How can we derive the formula for the regular payments

using the formula of present value of an annuity?

● How can we derive the formula for the terms of an annuity

using the formula of present value of an annuity?
Learn about It!

Mortgage
1 a business loan or a consumer loan that is secured with a collateral
Learn about It!

2 Regular Payment of an Ordinary Annuity

The regular payment of an ordinary annuity is given by:

𝑃𝑉 ⋅ 𝑖
𝑅=
1 − (1 + 𝑖)−𝑛

where
𝑃𝑉 is the present value of the annuity
𝑖 is the periodic interest rate
𝑛 is the number of compounding periods
 Learn about It!

Example:
A loan worth ₱1 000 is to be repaid using quarterly payment
for one year at 10% interest compounded quarterly. What is
the regular payment?
𝑃𝑉 ⋅ 𝑖
𝑅= −𝑛
1− 1+𝑖
0.10
1 000
4
= −4 1
0.10
1− 1+
4
= 265.82
Learn about It!

Amortization
3 a payment scheme wherein the loan is repaid through regular equal payments
 Learn about It!

Amortization Schedule
4 a complete table of periodic loan payments, showing the amount of principal and
the amount of interest that comprise each payment until the loan is paid off at
the end of its term

For interest payment, use the previous outstanding principal or outstanding

balance and multiply it by the periodic rate.

For principal repayment, deduct the interest payment from that period’s
payment.

For outstanding principal, deduct the principal repayment from the previous
outstanding balance.
 Learn about It!

Amortization Schedule
4 a complete table of periodic loan payments, showing the amount of principal and
the amount of interest that comprise each payment until the loan is paid off at
the end of its term

If the outstanding balance has an excess or missing centavo at the end of the
amortization table, adjustments can be made on the payment and the
principal repayment so that the final outstanding balance becomes ₱0.
 Learn about It!

Example:
A loan worth ₱1 000 is to be amortized for one year at 10% interest
compounded quarterly and quarterly payment of ₱265.82. Construct
an amortization schedule.
Interest Principal Outstanding
Period Payment
Payment repayment Balance
0 ₱1 000
1 ₱265.82 ₱25.00 ₱240.82 ₱759.18
2 ₱265.82 ₱18.98 ₱246.84 ₱512.34
3 ₱265.82 ₱12.81 ₱253.01 ₱259.33
4 ₱265.81 ₱6.48 ₱259.33 ₱0
 Try It!

Example 1: A loan worth ₱50 000 is to be repaid in two years

at 8% compounded monthly. What is the monthly payment?
 Try It!

Example 1: A loan worth ₱50 000 is to be repaid in two years

at 8% compounded monthly. What is the monthly payment?
Solution:
1. List the given.

The present value 𝑃𝑉 is ₱50 000.

The interest rate 𝑟 is 8%, or 0.08.
The compounding period is monthly or 𝑚 = 12.
The time 𝑡 is 2 years.
 Try It!

Example 1: A loan worth ₱50 000 is to be repaid in two years

at 8% compounded monthly. What is the monthly payment?
Solution:
The periodic rate 𝑖 can be computed as follows.
𝑟
𝑖=
𝑚
0.08
=
12
= 0.006
 Try It!

Example 1: A loan worth ₱50 000 is to be repaid in two years

at 8% compounded monthly. What is the monthly payment?
Solution:
The number of compounding periods 𝑛 can be computed as
follows.
𝑛 =𝑚⋅𝑡
= 12 ⋅ 2
= 24
 Try It!

Example 1: A loan worth ₱50 000 is to be repaid in two years

at 8% compounded monthly. What is the monthly payment?
Solution:
2. Use the formula for the regular payment of an ordinary
annuity to solve for the monthly payment.
𝑃𝑉 ⋅ 𝑖
𝑅=
1 − 1 + 𝑖 −𝑛
50 000 0.006
= −24
1 − 1 + 0.006
= 2 261.36
 Try It!

Example 1: A loan worth ₱50 000 is to be repaid in two years

at 8% compounded monthly. What is the monthly payment?
Solution:
Therefore, the regular monthly payment is ₱2 261.36.
 Try It!

Example 2: A mortgage is amortized for two years at an

interest rate of 6% compounded monthly and a monthly
payment of ₱3 000. What is the original value of the
mortgage?
 Try It!

Example 2: A mortgage is amortized for two years at an

interest rate of 6% compounded monthly and a monthly
payment of ₱3 000. What is the original value of the
mortgage?
Solution:
1. List the given.

The regular payment 𝑅 is ₱3 000.

The interest rate 𝑟 is 6%, or 0.06.
The compounding period is monthly or 𝑚 = 12.
The time 𝑡 is 2 years.
 Try It!

Example 2: A mortgage is amortized for two years at an

interest rate of 6% compounded monthly and a monthly
payment of ₱3 000. What is the original value of the
mortgage?
Solution:
The periodic rate 𝑖 can be computed as follows.
𝑟
𝑖=
𝑚
0.06
=
12
= 0.005
 Try It!

Example 2: A mortgage is amortized for two years at an

interest rate of 6% compounded monthly and a monthly
payment of ₱3 000. What is the original value of the
mortgage?
Solution:
The number of compounding periods 𝑛 can be computed as
follows.
𝑛 =𝑚⋅𝑡
= 12 ⋅ 2
= 24
 Try It!

Example 2: A mortgage is amortized for two years at an

interest rate of 6% compounded monthly and a monthly
payment of ₱3 000. What is the original value of the
mortgage?
Solution:
2. Use the formula for the present value of an ordinary
annuity to determine the value of the mortgage.
 Try It!

Example 2: A mortgage is amortized for two years at an

interest rate of 6% compounded monthly and a monthly
payment of ₱3 000. What is the original value of the
mortgage?
Solution:
1 − 1 + 𝑖 −𝑛
𝑃𝑉 = 𝑅
𝑖
−24
1 − 1 + 0.005
= 3 000
0.005
= 67 688.60
 Try It!

Example 2: A mortgage is amortized for two years at an

interest rate of 6% compounded monthly and a monthly
payment of ₱3 000. What is the original value of the
mortgage?
Solution:
Therefore, the original value of the mortgage is ₱67 688.60.
 Let’s Practice!

Individual Practice:

1. James borrowed ₱300 000 from a bank to fund the

equipment for his business. The loan is to be repaid in two
years at 12% compounded semiannually. What is his
semiannual payment?

2. A mortgage is amortized over a year at an interest rate of

10% compounded quarterly and quarterly payments of
₱10 000. What is the value of the mortgage?
 Let’s Practice!

Group Practice: To be done in groups with 3 members

Macky wants to buy a laptop. He is considering a two-year

loan or a three-year loan. The lender offers different interest
rates. For the two-year loan, the annual rate is 8%
compounded monthly. For the three-year loan, the annual
rate is 9% compounded monthly. If he will borrow ₱60 000,
what would his monthly payments be for each loan?
Key Points

Mortgage
1 a business loan or a consumer loan that is secured with a collateral

2 Regular Payment of an Ordinary Annuity

The regular payment of an ordinary annuity is given by:

𝑃𝑉 ⋅ 𝑖
𝑅=
1 − (1 + 𝑖)−𝑛

where
𝑃𝑉 is the present value of the annuity
𝑖 is the periodic interest rate
𝑛 is the number of compounding periods
Key Points

Amortization
3 a payment scheme wherein the loan is repaid through regular equal payments

Amortization Schedule
4 a complete table of periodic loan payments, showing the amount of principal and
the amount of interest that comprise each payment until the loan is paid off at
the end of its term
 Synthesis

● How do we solve for the regular payments of an annuity?

● How can learning about the amortization help you avoid

being scammed by some dishonest lenders?

● Where do you think can we avail consumer loans?

Lesson 3

Solving Problems
Involving Consumer
Loans
 Objectives

At the end of this lesson, the learner should be able to

• correctly solve problems involving consumer loans;

and

• appropriately apply the formulas of simple and

compound interests and annuities in solving
different consumer loan problems.
 Essential Questions

• Why do people decide to make a loan?

• What are the advantages of buying something using a loan

than saving for the amount of something you want?
 Warm Up!

Before we solve problems involving consumer loan or

personal loans, let us listen to a commentary about personal
loans by clicking the link found below.

Cormier, Keder. “Personal Loan – What You Should Know

Before You Get A Personal Loan.’ YouTube video, 6:40. Posted
17 January 2014.
https://www.youtube.com/watch?v=YhrqzeFJiAA (watch until
2:09 only)
 Guide Questions

● What are personal loans?

● Why do people render a loan?

● What is the advise that you obtained from the video? Do

you agree with the person in the video?
 Learn about It!

Consumer loans
1 These are loans given to individuals for personal or family purpose. It can be said
that consumer loans are generally simpler than business loans. This is mainly
because business tends to adjust to more variables such as cash flow, adjustment
of terms, and the variability of amounts.

Example:
Housing loan, gadget loans, and car loans
 Try It!

Example 1: Ara wants to buy a phone that requires ₱3 000

down payment and monthly installments of ₱1 200 for one
year. What is the actual price of the phone if the prevailing
interest rate is 6% compounded monthly?
 Try It!

Example 1: Ara wants to buy a phone that requires ₱3 000 down payment and monthly
installments of ₱1 200 for one year. What is the actual price of the phone if the prevailing
interest rate is 6% compounded monthly?

Solution:
1. List the given.
downpayment = ₱3 000
𝑅 = ₱1 200
r = 6% or 0.06
𝑡=1
𝑚 = 12
𝑟 0.06
𝑖= = = 0.005
𝑚 12
 Try It!

Example 1: Ara wants to buy a phone that requires ₱3 000 down payment and monthly
installments of ₱1 200 for one year. What is the actual price of the phone if the prevailing
interest rate is 6% compounded monthly?

Solution:
2. Use the formula to solve the present value of an ordinary
annuity.
1 − 1 + 𝑖 −𝑛𝑡
𝑃𝑉 = 𝑅
𝑖
1 − 1 + 0.005 −12(1)
𝑃𝑉 = 1 200
0.005
 Try It!

Example 1: Ara wants to buy a phone that requires ₱3 000 down payment and monthly
installments of ₱1 200 for one year. What is the actual price of the phone if the prevailing
interest rate is 6% compounded monthly?

Solution:
2. Use the formula to solve the present value of an ordinary
annuity.

−12
1 − 1.005
𝑃𝑉 = 1 200
0.005
𝑃𝑉 = 13 942.72
 Try It!

Example 1: Ara wants to buy a phone that requires ₱3 000 down payment and monthly
installments of ₱1 200 for one year. What is the actual price of the phone if the prevailing
interest rate is 6% compounded monthly?

Solution:
3. To compute for the actual price of the phone, add the
present value of the ordinary annuity and the down
payment.

Price = Down Payment + Present Value

Price = ₱3 000 + ₱13942.72
Price = ₱16 942.72
 Try It!

Example 1: Ara wants to buy a phone that requires ₱3 000 down payment and monthly
installments of ₱1 200 for one year. What is the actual price of the phone if the prevailing
interest rate is 6% compounded monthly?

Solution:

Thus, the actual price of the phone is ₱16 942.72.

 Try It!

Example 2: Wenzy decided to buy a new laptop that costs

₱36 000. It requires monthly installments of ₱1 400 at 8%
compounded monthly. How long would she make payments
to fully pay her laptop?
 Try It!

Example 2: Wenzy decided to buy a new laptop that costs ₱36 000. It requires monthly
installments of ₱1 400 at 8% compounded monthly. How long would she make payments to
fully pay her laptop?

Solution:
1. List the given.
𝑃𝑉 = 36 000
𝑅 = 1 400
𝑟 = 8% = 0.08
𝑚 = 12
𝑟 .08
𝑖= = = 0.006667
𝑚 12
 Try It!

Example 2: Wenzy decided to buy a new laptop that costs ₱36 000. It requires monthly
installments of ₱1 400 at 8% compounded monthly. How long would she make payments to
fully pay her laptop?

Solution:
2. Use the formula to solve the present value of an ordinary
annuity to solve for the time.
−𝑛𝑡
1− 1+𝑖
𝑃𝑉 = 𝑅
𝑖
 Try It!

Solution:
−𝑛
1− 1+𝑖
𝑃𝑉 = 𝑅
𝑖
.08 −12𝑡
1− 1+
12
36 000 = 1400
.08
12
−12𝑡
1 − 1 + 0.006667
36 000 = 1 400
0.006667
 Try It!

Solution:

36 000 1 − 1.006667 −12𝑡

=
1 400 0.006667
1 − 1.006667 −12𝑡
25.71428571 =
0.006667
0.1714285714 = 1 − 1.006667 −12𝑡
1.006667 −12𝑡 = 1 − 0.1714285714
1.006667 −12𝑡 = 0.8285714286
−12𝑡 log(1.006667) = log(0.8285714286)
 Try It!

Solution:

log 0.8285714286
𝑡 =
−12 log 1.006667
𝑡 = 2.358479726 ≈ 2.4

Thus, Wenzy can pay her laptop in full in 2.4 years.

 Let’s Practice!

Individual Practice:

1. Mark loaned ₱15 000 at 8% compounded semi-annually

last May 15, 2019. How much will he pay if he will settle
this loan on May 15, 2020?

2. Flor wants to buy a new TV that requires ₱8 000 down

payment and monthly installments of ₱2 500 for 12
months. Find the actual price of the TV if the prevailing
interest rate is 8% compounded monthly.
 Let’s Practice!

Group Practice: To be done in groups with 3 members

Jannah decided to loan from a lending program of her

company that costs ₱45 000. It requires monthly installments
of ₱1 200 at 10% compounded monthly. How long would she
make payments to fully pay her loan?
Key Points

Consumer loans
1 These are loans given to individuals for personal or family purpose. It can be said
that consumer loans are generally simpler than business loans. This is mainly
because business tends to adjust to more variables such as cash flow, adjustment
of terms, and the variability of amounts.
 Synthesis

• What are the pieces of information needed in solving

different problems on consumer loans?

• How does consumer loan problems help you in your

everyday life?

• How do we solve problems involving business loans?

Lesson 4

Solving Problems
Involving Business
Loans
 Objectives

At the end of this lesson, the learner should be able to

• correctly solve problems involving business loans;

• appropriately apply the formulas of simple and

compound interests and annuities in solving
different business loan problems; and

• correctly illustrates outstanding balance using

Prospective and Retrospective method.
 Essential Questions

• Why do businessmen decide to render a loan?

• What are the advantages and disadvantages of loaning an

amount to start businesses?
 Warm Up!

One way of repayment of loan is by amortization. If we want

to see where do our payments go, we use the amortization
schedule. In real life, most loans takes years to be fully paid.
This means that there are more number of periodic
payments. We can use MS Excel in creating amortization
schedule. Here is the link on how to create Amortization
schedule using MS Excel.

Link:
https://www.excel-easy.com/examples/loan-amortization-
schedule.html
 Guide Questions

• How can you explain unpaid/remaining balance after the

payment?

• How is amortization related in solving problems involving

loans?

• Is there a way in computing for unpaid balance without

actually creating an amortization schedule?
 Learn about It!

Business loans
1 • These are loans for businesses, company’s expenses and financial needs.
• They require the business owners to sign as guarantors.
• The term of the business loan is generally shorter than the consumer loan and
the interest for the business loan is usually higher than that of the consumer
loan.

Example:
There are banks that offer business loans such as food cart
franchise.
Equipment loans and expansion of business are also
examples of business loans.
 Learn about It!

2 Outstanding Balance
It is the remaining unpaid amount of loan or financial obligation as of particular
date. It can be computed using Prospective Method or Retrospective method.

Example:

Annika borrowed money from a bank to be used for the

expansion of her business amounting to ₱500 000 at 9%
interest compounded semi-annually.
 Learn about It!

2 Outstanding Balance
It is the remaining unpaid amount of loan or financial obligation as of particular
date. It can be computed using Prospective Method or Retrospective method.

Example:

It is to be repaid by equal payments of ₱38 438.07 every 6

months for 10 years. After two years her remaining debt or
her outstanding balance is now ₱431 813.88.
Learn about It!

3 Outstanding Balance under Perspective Method

It is used when all regular payments are equal. It calculates the outstanding
balance as a present value of all future payments to be made. This computes the
present value and is used when 𝑛𝑡 is known.

− 𝑚𝑡−𝑘
𝑅[1 − 1 + 𝑖 ]
𝑂𝐵𝑘 =
𝑖

where
𝑂𝐵𝑘 = the outstanding balance
𝑘 = the number of past payments
𝑚𝑡 − 𝑘 = the number of payments to be made
 Learn about It!

3 Outstanding Balance under Prospective Method

Example:

Annika borrowed money from a bank to be used for the

expansion of her business amounting to ₱500 000 at 9%
interest compounded semi-annually. It is to be repaid by
equal payments of ₱38 438.07 every 6 months for 10 years.
What is the outstanding balance after 2 years?
 Learn about It!

3 Outstanding Balance under Prospective Method

Example:
− 𝑚𝑡−𝑘
𝑅[1 − 1 + 𝑖 ]
𝑂𝐵𝑘 =
𝑖
− 20−4
0.09
38 438.07[1 − 1 + ]
2
=
0.09
2
= 431 813.88
 Learn about It!

3 Outstanding Balance under Prospective Method

Example:
After two years, her remaining debt or her outstanding
balance is now ₱431 813.88.
Learn about It!

4 Interest paid and Repayment of the Principal on

the 𝒌th payment
Interest paid on the 𝑘th payment

−(𝑛−𝑘)
𝐼𝑘 = 𝑅 1 − 1 + 𝑖

Repayment to the Principal of the 𝑘 th payment

𝑃𝑘 = 𝑅 − 𝐼𝑘
 Learn about It!

4 Interest paid and Repayment of the Principal on

the 𝒌th payment

Example:
Annika borrowed money from a bank to be used for the
expansion of her business amounting to ₱500 000 at 9%
interest compounded semi-annually. It is to be repaid by
equal payments of ₱38 438.07 every 6 months for 10 years.
Find the interest paid and repayment to the principal on the
10th payment.
 Learn about It!

4 Interest paid and Repayment of the Principal on

the 𝒌th payment

Example:
Interest paid on the 10th payment:
𝐼𝑘 = 𝑅 1 − 1 + 𝑖 −(𝑛−𝑘)
− 20−10
0.09
𝐼𝑘 = 38 438.07 1 − 1 +
2
𝐼𝑘 = 13 686.73
 Learn about It!

4 Interest paid and Repayment of the Principal on

the 𝒌th payment

Example:
Repayment to the Principal of the 𝑘th payment:
𝑃𝑘 = 𝑅 − 𝐼𝑘
𝑃𝑘 = 38 438.07 − 13686.73
𝑃𝑘 = 24 751.34
 Learn about It!

4 Interest paid and Repayment of the Principal on

the 𝒌th payment

Example:

This means that from her 10th payment of ₱38 438.07,

₱24 751.34 will go to her loan/principal and ₱13 686.73 will
go to the interest of her loan.
Learn about It!

5 Outstanding Balance under Retrospective Method

Retrospective method is used if there is an irregular payment, that is, the final
payment is not equal to the regular payment. It calculates the loan balance as the
accumulated value of the loan at a particular date minus the future value of the
regular payments made at a particular date. This computes the future value and is
used when 𝑛𝑡 is not known.
𝑘
𝑅[ 1 + 𝑖 − 1]
𝑂𝐵𝑘 = 𝑃(1 + 𝑖)𝑘 −
𝑖
 Learn about It!

5 Outstanding Balance under Retrospective Method

Example:
Elisse borrowed money from a bank to be used for the
expansion of her business amounting to ₱500 000 at 9%
interest compounded semi-annually. It is to be repaid by
equal payments of ₱38 438.07 every 6 months. What is the
outstanding balance after 2 years?
 Learn about It!

5 Outstanding Balance under Retrospective Method

Example:
𝑘
𝑘
𝑅[ 1 + 𝑖 − 1]
𝑂𝐵𝑘 = 𝑃(1 + 𝑖) −
𝑖
4
0.09
38 438.07 1+ −1
0.09
4 2
𝑂𝐵𝑘 = 500 000 1 + −
2 0.09
2
𝑂𝐵𝑘 = 431 813.88
 Learn about It!

5 Outstanding Balance under Retrospective Method

Example:
After two years her remaining debt or her outstanding
balance is now ₱431 813.88.
 Try It!

Example 1: Mr. Mondragon made a loan from a bank to be

used for the equipment of his business amounting to
₱300 000 at 9% interest compounded semi-annually. If this is
to be repaid by equal payment every 6 months for four years,
find the semi-annual payments.
 Try It!

Example 1: Mr. Mondragon made a loan from a bank to be used for the equipment of his
business amounting to ₱300 000 at 9% interest compounded semi-annually. If this is to be
repaid by equal payment every 6 months for four years, find the semi-annual payments.

Solution:
1. List the given.

𝑃 = ₱300 000
𝑟 = 9% = 0.09
𝑡=4
𝑚=2
𝑟 .06
𝑖= = = 0.045
𝑚 2
 Try It!

Example 1: Mr. Mondragon made a loan from a bank to be used for the equipment of his
business amounting to ₱300 000 at 9% interest compounded semi-annually. If this is to be
repaid by equal payment every 6 months for four years, find the semi-annual payments.

Solution:
2. Use the formula to solve for the present value of an
ordinary annuity to solve for the regular payment.

1 − 1 + 𝑖 −𝑛
𝑃=𝑅
𝑖
−2(4)
1 − 1 + 0.045
300 000 = 𝑅
0.045
 Try It!

Example 1: Mr. Mondragon made a loan from a bank to be used for the equipment of his
business amounting to ₱300 000 at 9% interest compounded semi-annually. If this is to be
repaid by equal payment every 6 months for four years, find the semi-annual payments.

Solution:
2. Use the formula to solve for the present value of an
ordinary annuity to solve for the regular payment.

1 − 1.0.045 −8
300 000 = 𝑅
0.045
0.045
𝑅 = 300 000 −8
1 − 1.0.045
 Try It!

Example 1: Mr. Mondragon made a loan from a bank to be used for the equipment of his
business amounting to ₱300 000 at 9% interest compounded semi-annually. If this is to be
repaid by equal payment every 6 months for four years, find the semi-annual payments.

Solution:
2. Use the formula to solve for the present value of an
ordinary annuity to solve for the regular payment.

𝑅 = 300 000 0.020276394

𝑅 = 45 482.90

Therefore, Mr. Mondragons’s regular payment is ₱45 482.90.

 Try It!

Example 2: Lou obtains a loan of ₱2 000 000 at 8.5%

compounded quarterly in a bank to finance his new
restaurant. He plans to settle the loan by paying ₱100 000
every end of three months. What is the outstanding principal
after two years?
 Try It!

Example 2: Lou obtains a loan of ₱2 000 000 at 8.5% compounded quarterly in a bank to
finance his new restaurant. He plans to settle the loan by paying ₱100 000 every end of
three months. What is the outstanding principal after two years?

Solution:
1. List the given.

𝑃 = ₱2 000 000
𝑅 = ₱100 000
𝑟 = 8.5% = 0.085
𝑚=4
𝑟 .085
𝑖= = = 0.02125
𝑚 4
 Try It!

Example 2: Lou obtains a loan of ₱2 000 000 at 8.5% compounded quarterly in a bank to
finance his new restaurant. He plans to settle the loan by paying ₱100 000 every end of
three months. What is the outstanding principal after two years?

Solution:
2. Retrospective method will be used because 𝑚𝑡 is not
known. The problem has not provided the time to
complete the paying period. It helps that the original loan
placed was given, thus the certainty of using the following
formula.
𝑘
𝑘
𝑅[ 1 + 𝑖 − 1]
𝑂𝐵𝑘 = 𝑃(1 + 𝑖) −
𝑖
 Try It!

Example 2: Lou obtains a loan of ₱2 000 000 at 8.5% compounded quarterly in a bank to
finance his new restaurant. He plans to settle the loan by paying ₱100 000 every end of
three months. What is the outstanding principal after two years?

Solution:
𝑘
𝑘
𝑅[ 1 + 𝑖 − 1]
𝑂𝐵𝑘 = 𝑃(1 + 𝑖) −
𝑖
8
8
100 000[ 1.02125 − 1]
𝑂𝐵𝑘 = 2 000 000(1.02125) −
0.02125
8
8
100 000 1.02125 −1
𝑂𝐵𝑘 = 2 000 000 1.02125 −
0.02125
 Try It!

Example 2: Lou obtains a loan of ₱2 000 000 at 8.5% compounded quarterly in a bank to
finance his new restaurant. He plans to settle the loan by paying ₱100 000 every end of
three months. What is the outstanding principal after two years?

Solution:
𝑂𝐵𝑘 = 2 000 000 1.183195628 − 100000(8.62097074)
𝑂𝐵𝑘 = 2 366 391.26 − 862 097.07
𝑂𝐵𝑘 = 1 504 294.19

Thus, the outstanding principal after two years is

₱1 504 294.19.
 Let’s Practice!

Individual Practice:
1. Mr. Mendoza obtained a loan from a bank for expansion
of his business. He decided to repay that loan at 8%
compounded quarterly with ₱30 000 regular payments
every end of three months for three years. How much did
Mr. Mendoza borrow from the bank?

2. A ₱600 000 business loan is to be repaid by equal

payments at the end of every six months for seven years
at 9.5% compounded semi-annually. Find the semi-annual
payments and the unpaid balance just after the 6th
payment.
 Let’s Practice!

Group Practice: To be done in groups with 3 members

Mr. Lee obtains a bank loan worth ₱15 000 000 at 8.6%
interest compounded semi-annually to set up a new small
shopping center. If they plan to settle the loan by paying 1
million pesos every 6 months, find the number of regular
payments and the outstanding principal just after all regular
payments have been made.
Key Points

Business loans
11 • These are loans for businesses, company’s expenses and financial needs.
• They require the business owners to sign as guarantors.
• The term of the business loan is generally shorter than the consumer loan and
the interest for the business loan is usually higher than that of the consumer
loan.

23 Outstanding Balance
It is the remaining unpaid amount of loan or financial obligation as of particular
date. It can be computed using Prospective Method or Retrospective method.
Key Points

11
3 Outstanding Balance under Perspective Method
It is used when all regular payments are equal. It calculates the outstanding
balance as a present value of all future payments to be made. This computes the
present value and is used when 𝑛𝑡 is known.

− 𝑚𝑡−𝑘
𝑅[1 − 1 + 𝑖 ]
𝑂𝐵𝑘 =
𝑖

3 where
𝑂𝐵𝑘 = the outstanding balance
𝑘 = the number of past payments
𝑚𝑡 − 𝑘 = the number of payments to be made
Key Points

11
4 Interest paid and Repayment of the Principal on
the 𝒌th payment
Interest paid on the 𝑘th payment

−(𝑛−𝑘)
𝐼𝑘 = 𝑅 1 − 1 + 𝑖

Repayment to the Principal of the 𝑘 th payment

3 𝑃𝑘 = 𝑅 − 𝐼𝑘
Key Points

5 Outstanding balance of Retrospective Method

Retrospective method is used if there is an irregular payment, that is, the final
payment is not equal to the regular payment. It calculates the loan balance as the
accumulated value of the loan at a particular date minus the future value of the
regular payments made at a particular date. This computes the future value and is
used when 𝑛𝑡 is not known.

𝑘
𝑅[ 1 + 𝑖 − 1]
𝑂𝐵𝑘 = 𝑃(1 + 𝑖)𝑘 −
𝑖
 Synthesis

• How do we solve problems involving business loans?

• How does business problems help us in making decisions

about our everyday life?

• What are propositions?