Points to Ponder

There are times that

businessmen want to put a very
high mark-on to the
merchandise. These happen
when the products they are
selling are moving fast and the
level of competition is low.
Do you think this is fair enough?
Share your insights to the class.
 Points to Ponder
Today, more and more retail
stores are popping up like
mushrooms in order to generate
better share in the market.
However, these business activities
are slowly killing the concepts of
little stores like the Sari – Sari
stores.
What do you think?
 Interest
In several business activities, a business entity or an
individual may lend money also to a businessman,
another individual or even an enterprise. Several
examples include the following:
– A government controlled corporation or a bank offering
mortgages on vehicles, and housing.
– A bank lends money to businessmen, the country or a
private individual.
– Micro – lending corporations offer lending series to small
groups of women, men or even sari – sari stores.
– A private individual offers financial lending to workers,
store owners or private employees.
 Interest
• In our study on basic mathematics, we learn
about interest. We had simple interests and the
compound interest.
• In our attempts to define interest in this part of
the book, we will put concentration on the
activities that involve mortgages, amortization of
a loan, payment of services and utilities, and
deposits. But what is interest? How do we
define it from the lender’s and the borrower’s
perspectives?
 Interest
• For the lender’s perspective, interest is an
income from the money lent, while for the
borrowers perspective, interest is the cost
paid for the use of money.
 Mortgage
• Mortgage is a legal agreement that conveys the
conditional right of ownership on an asset or property
by its owner (the mortgagor) to a lender (the
mortgagee) as security for a loan. This means that a
mortgage is an instrument of a debt that is secured by
the collateral of a specified real estate property so that
the borrower can be obliged to pay back with a
predetermined set of payments.

• How do we compute for the interest of a mortgage?

 Mortgage
• Normally, we use the concepts of annuity
(Amortization) in scheduling a payment of a mortgage.
There are several types of annuities: The ordinary
annuity, the annuity due and the deferred annuity.
• The ordinary annuity is a type of annuity that is paid or
received at the end of the time period.
• The annuity due is a type of annuity that is paid or
received at the beginning of the time period.
• The deferred annuity is a type of annuity that is paid or
received at a later time period.

• In our examples, we shall utilize the ordinary annuity.

 1  (1  i )  n 
A R 
 i 
Where:
A = Present Value of the Loan
R = Periodic Payment
r
i = ; r  interest rate;
m
m = the number of computations in a year
n= the number of paying periods (mt)
 • A house and lot loan is made so that a periodic
payment of PHP 48,000.00 per annum is to be made
for 10 years. If the interest of the loan is at 12%
compounded annually, find the present value of the
loan.
Given:
A = ?
R = 48,000.00
r =12% = 0.12; m = 1
0.12
i =  0.12
1
n  10(1)  10
1  (1  0.12) 10 
A  48, 000  
 0.12 
A  271, 210.71
 Outstanding Interest at Periodic Principal
Period Principal 12% Payment Repayments
1 271,210.71 32,545.29 48,000.00 15,454.71
2 255,756.00 30,690.72 48,000.00 17,309.28
3 238,446.71 28,613.61 48,000.00 19,386.39
4 219,060.32 26,287.24 48,000.00 21,712.76
5 197,347.56 23,681.71 48,000.00 24,318.29
6 173,029.27 20,763.51 48,000.00 27,236.49
7 145,792.78 17,495.13 48,000.00 30,504.87
8 115,287.91 13,834.55 48,000.00 34,165.45
9 81,122.46 9,734.70 48,000.00 38,265.30
10 42,857.16 5,142.86 48,000.00 42,857.14
Total 208,789.30 480,000.00 271,210.70
• This means that the payee of the loan will
have to pay PHP 480,000.00 for 10 years, and
the interest of the loan is 208,789.30.
• It is very observable that in doing mortgages
like this one, it is very normal that the first
payment of the mortgage will cover the
interest very highly at first then decreases
gradually, while the principal repayment
starts very lowly then increases gradually.
 • Mr. Realiz loaned PHP 32,000.00 from the SSS
which gives an annual interest rate of 12%
compounded monthly. The loan is payable
monthly within 2 years. How much will Mr. Realiz
pay for the loan every month?
Given:
A = 32,000.00;R = ?;r =12% = 0.12; m = 12
0.12
i=  0.01; n  2(12)  24
12
 i 
R  A n 
 1  (1  i ) 
 0.01 
 32, 000  24 
 1  (1  0.01) 
R  1, 506.35
 Outstanding Interest at Periodic Principal
Period Principal 1% Payment Repayments
1 32,000.00 320.00 1,506.35 1,186.35
2 30,813.65 308.14 1,506.35 1,198.21
3 29,615.44 296.15 1,506.35 1,210.20
4 28,405.24 284.05 1,506.35 1,222.30
5 27,182.94 271.83 1,506.35 1,234.52
6 25,948.42 259.48 1,506.35 1,246.87
7 24,701.56 247.02 1,506.35 1,259.33
8 23,442.22 234.42 1,506.35 1,271.93
9 22,170.29 221.70 1,506.35 1,284.65
10 20,885.65 208.86 1,506.35 1,297.49
11 19,588.15 195.88 1,506.35 1,310.47
12 18,277.69 182.78 1,506.35 1,323.57
 Outstanding Interest at Periodic Principal
Period Principal 1% Payment Repayments
13 16,954.11 169.54 1,506.35 1,336.81
14 15,617.30 156.17 1,506.35 1,350.18
15 14,267.13 142.67 1,506.35 1,363.68
16 12,903.45 129.03 1,506.35 1,377.32
17 11,526.13 115.26 1,506.35 1,391.09
18 10,135.04 101.35 1,506.35 1,405.00
19 8,730.04 87.30 1,506.35 1,419.05
20 7,310.99 73.11 1,506.35 1,433.24
21 5,877.75 58.78 1,506.35 1,447.57
22 4,430.18 44.30 1,506.35 1,462.05
23 2,968.13 29.68 1,506.35 1,476.67
24 1,491.47 14.91 1,506.35 1,491.47
Total 4,152.43 36,152.40 32,000.00
 Interest on Deposits
• When banks want to attract depositors, it
gives interest rates on deposits that are
lucrative but within its capacity. In most cases,
banks compute the interest of savings or
deposits quarterly. In the business activities,
we call this process, the sinking fund. It has
the formula:
  (1  i )  1 
n
S  R 
 i 
Where:
S = Final Amount
R = Periodic Payment
r
i = ; r  interest rate;
m
m = the number of computations in a year
n= the number of paying periods (mt)
 Examples
• Lea wants to become a millionaire in 10 years.
If she will invest in a bank that offers 2.4%
compounded annually, how much will she
save every year. Construct a sinking fund
schedule.
Given:
S = 1,000,000.00
R=?
r =2.4% = 0.0.24; m = 1
0.024
i=  0.024
1
n  10(1)  10
 i 
RS 
 (1  i ) n
 1 
 0.024 
 1, 000, 000  
 (1  0.024) 24
 1 
R  89, 669.14
 Ending
Initial Fund Interest Periodic Fund
No. at 0.024% Deposit
1 0.00 0.00 89,669.14 89,669.14
2 89,669.14 2,152.06 89,669.14 181,490.34
3 181,490.34 4,355.77 89,669.14 275,515.25
4 275,515.25 6,612.37 89,669.14 371,796.75
5 371,796.75 8,923.12 89,669.14 470,389.02
6 470,389.02 11,289.34 89,669.14 571,347.49
7 571,347.49 13,712.34 89,669.14 674,728.97
8 674,728.97 16,193.50 89,669.14 780,591.61
9 780,591.61 18,734.20 89,669.14 888,994.95
10 888,994.95 21,335.88 89,669.14 999,999.97
Total 103,308.56 896,691.40
 What does this sinking fund table tell
us?
• The initial fund at the beginning of the
savings should always start at zero since
the initial deposit should not earn any
interest yet.
• The periodic deposit is the amount that
Lea should save every year.
 What does this sinking fund table tell
us?
• The ending fund is the total amount of
money that is earned with the
corresponding interest. In this case, it is
the sum of the previous amount, the
interest and the periodic deposit. In this
case, say after the second period,
89,669.14 + 2,152.06 + 89,669.14 =
181,490.34.
 What does this sinking fund table tell
us?
• The computation of the interest
commences on the term after the initial
deposit is made. In this case, after a
year.
• There is a rounding error of 0.03.
• As the deposited money earns interest,
the money saved is less than one million
pesos.
 Salaries and Wages
• According to the Oxford Dictionary (2015),
salary is defined to be the amount of money
given to an employee at the end of every
fifteen days or a month. This becomes a
payment for the work done during a particular
duration of time. Government workers, some
teachers, and other professionals are paid
salaries every fifteenth day of work.
 Salaries and Wages
• The term wage is a type of remuneration that is
given to an employee or a worker every hour or
day of work. The amount received depends upon
the hourly rate of the worker that is given by the
employer or equivalent to an employee’s
qualifications. Most construction workers, part-
time teachers and some contractual workers are
paid daily or weekly. In other countries,
employees are paid by the hour, though some
will opt for a salary, but this comes in a rare case.
 Salaries and Wages
• Both the salaries and the wages are
considered the income of employees.
 Benefits of a Wage Earner
Benefits Explanations
Thirteenth This is a mandatory benefit as provided
Month Pay by law. It is the sum of all earnings for
the year divided by 12. Usually given
at the end of the year but more
employers are giving the amount in two
schedules. That is, one – half in June
and the other half in December.
Employer It is an amount that the employer shares
Contributions to his or her employees for SSS
of SSS payments. Usually larger than the
employees share.
 Benefits of a Wage Earner
Benefits Explanations
Employer This is an amount shared by
Contributions employers to boost the savings of
of PAG – employees in PAG – IBIG. More
IBIG employers are also sharing 2% of the
employee’s monthly income.
Employer This is an amount paid by the
Contributions employers to equate the payment of
of PhilHealth the employees in PhilHealth.
 Benefits of a Wage Earner
Benefits Explanations
Optional A type of benefit that is given to
Hospitalization employees in order to aid him or
her in times of hospitalization.
Seniority Pay This is amount given to
employees for serving their
companies for more than 5 years.
Profit Sharing This is a benefit given by
employers as shares in the profit
of the organization.
 Benefits of a Wage Earner
Benefits Explanations
Non – This is a type of benefit that employees
Contributory get when they retire from service to the
Retirement company. The employers give their own
Package rules as to how the retirement package is
given.
Travel Fare This is a benefit that gives employees to
and Allowance travel as a reward for their loyalty to the
company.
Other Benefits The employee benefits that are not
mentioned in this table.
 Gross and Net Earnings
Gross Earnings are the sum of all incomes
during the salary payment period. It
comprises the fixed income and other
earnings like overtime pay, substitution, profit
sharing, incremental proceeds and the like.
Net Earnings on the other hand, is the total
amount received by an employee or a wage
earner after the deductions (mandatory and
non – mandatory) are made.
 Gross and Net Earnings
Formula in determining the net earnings of an
employee
Net Earning = Gross Earning – Total Deductions
Overtime
An employee who is required to work more than the 8-
hour working period is entitled to an overtime pay. The
overtime rates are found below:
Type of Overtime Computations
Work
On rest day or  For the first 8 hours
special public 130% (Hourly Rate)(Number of Hours
holiday of Work )
 In excess of the first 8 hours
169% (Hourly Rate)(Excess of 8 – Hour
Work)
Type of Overtime Work Computations
On a regular day  In excess of 8 hours
125% (Hourly Rate)(Number
of Hours of Overtime)
Type of Overtime Computations
Work
On regular holiday  For the first 8 hours
200% (Hourly
Rate)(Number of Hours
of Work )
 In excess of the first 8
hours
260% (Hourly
Rate)(Excess of 8 –
Hour Work)
Data Presentation - Tabular
Examples

Table 1
Sales and Expenditures of MCG Corporation (2008 – 2012)

Row Head
Table Heading

Year Sales (In Millions) Expenditures (In Millions)

2008 12.0 6.3
2009 14.0 7.2
2010 14.5 8.8
2011 16.0 9.2
2012 17.3 9.1

Stubs

Body
Graphical Presentation
Graphical
Graphical
Graphical
Sales and Expenditures of MCG Corporations (2008 - 2012)

17.3
18
16
16
14.5
14
14
12
Figures in Millions

12

10 9.2 9.1
8.8
Sales (In Millions)
8 7.2
6.3
6
Expenditures (In Millions)
4

0
2008 2009 2010 2011 2012
Year