BUSINESS MATHEMATICS

BUSINESS MATHEMATICS
Refers to the mathematical techniques and tools used
in the business world to solve problems related to
finance, management, accounting, economics, and
decision-making. These concepts help business
professionals make sound financial decisions, manage
investments, handle accounting tasks, and some of the
key areas covered in business mathematics include:

BASIC ARITHMETIC AND ALGEBRA:

Used for calculating profits, losses, percentages, and
cost analysis.
 INTEREST CALCULATIONS:
• Simple Interest:
Calculated as I=P x r x t

Where: I – is the Interest

P- is the Principal
r – rate of interest
t – is time

• Compound Interest :
Calculated as A= P (1 +
Where: A – is the amount
n – is the number of times the interest is compound
per year

ANNUITIES AND LOAN AMORTIZATION:

Understanding how to calculate the payments for
loans or investments over time.
 LINEAR PROGRAMING:
Optimization technique used for decision-making in resource
allocation, often to maximize profits or minimize costs..

STATISTICS:
Used to analyze market trends, customer behavior,
and financial risks
MARKUPS AND DISCOUNTS:
Used in sales to calculate selling prices, profit
margins, and discounts.

BREAK – EVEN ANALYSIS:

Used in international business and trade.
 CURRENCY CONVERSIONS:
Used for accounting and tax purposes to determine
the loss in value of an asset over time
DEPRECIATION:
Used for accounting and tax purposes to determine
the loss in value of an asset over time
INVENTORY AND PRODUCTION CONTROL:
Optimizing resources and managing supply chains
effectively.

Business mathematics is critical for making

informed financial and business decisions and
ensuring profitability and growth
 Three elements play important role in the computation
of interest:
• PRINCIPAL is the base in which interest is computed. If
an amount is loaned or borrowed, this amount is
referred to as principal

• TERM is the unit of time for which the principal is

loaned, or the length of time the principal is borrowed

• INTEREST RATE is the multiplier expressed as percent

of the principal to be paid each term.
Lesson Objectives
At the end of the lesson, the students must be
able to:
• define the simple interest;
• illustrate simple interest;
• compute interest, maturity value and to be
able to identify partial payments in simple
interest environment; and
• solve problems involving simple interest.
Converting Percent to Decimal
To convert a percent to decimal, drop the percent
sign and move the decimal point two places to the
left.

When the number in the percent is a whole number,

the decimal point is understood to be stated at the
right of the last digit. For example, to convert 12% to
decimal, drop the percent sign and move the decimal
point two places to the left to get 0.12.
Simple Interest

General Mathematics
Simple Interest
• Refers to the amount earned for one year
calculated by multiplying the principal by the
rate of interest by the number of payment
periods in a year. is charged only on the loan
amount called the principal. Thus, interest on
the interest previously earned is not included.
 MATURITY VALUE
• The maturity value, or simply the amount, is
the sum of the principal and the interest that
accumulates over the agreed term. This
agreed term is usually expressed in years or a
fraction of a year ( quarterly, semiannually, or
monthly).
• Illustrative examples
A. If the simple interest for a principal in 4
months is P100, the simple interest for the same
principal in 8 months is P200.

B. If the simple interest for a principal at 3% is

P500, the simple interest for the same principal
at 6% is P1000.
Simple Interest Formula
I = Prt
I I I
(a) P  r (b) t 
(c)rt Pt Pr

where I = interest, P = principal, r = rate of interest, and

t = time or term in years or fraction
of a year

To find the maturity value, simply add interest to the

principal.
Maturity Value or (Amount or Balance)
Formula

A=P+I or A = P + Prt or A = P(I + rt)

A = Maturity value P = Principal I = Interest

Sample

Example. An amount of P150,000.00 is invested

for 9 months at 4% Find the:

a. Interest
b. Maturity Value
Sample

A dollar investment of s1,200 is transacted for 5

months at 6%. Find the:
a. Interest
b. Maturity value
Sample
An amount of P1,000,000 is invested in a
financial institution.
a. How long will it take for the amount to reach
P1,001,000 at 2% simple interest?
b. At what interest rate will it can P1000 in 10
months?
Sample
To buy the school supplies for the coming school
year, you get a summer job at a resort. Suppose
you save ₱4 200.00 of your salary and deposit it
into an account that earns simple interest. After
9 months, the balance is ₱4 263.00. What is the
annual interest rate?
Solution to Sample
Use the formula where P= ₱4
200.00, I
r
Pt
t = 9 months or 9 or3 year and,
12 4

I = ₱4 263.00 – ₱4 200.00 = ₱63.00.

r= ____63____=0.02
 3
4200  or 2%
 4

The annual interest rate is 2% or

Partial Payments
1. Calculate interest on principal from date of
loan to date of first payment.
2. Remainder of the payment = Amount paid –
Interest Portion
3. New Balance = Previous Balance – Principals
remainder (portion) of payments
Partial Payments
4. In cases of more than one partial payment,
calculate interest on new balance from date
of previous payment to date of next
payment. Perform steps 2 and 3.
5. At maturity, calculate interest on last partial
payment. Add this to the new balance to
compute the total final payment due.
Sample
A loan of ₱200,000.00 was made from a bank
that charges 9% interest rate and should be
repaid after 90 days. If payment of ₱80,000.00
was made after 20 days and the balance on the
90th day, calculate the amount of interest,
principal paid for each payment, and the total
amount paid.
Solution to Sample
• Payment on Day 20: P = ₱200,000.00, r = 9%,
20
and t = 360
20
I = Prt = ₱200,000.00 × 0.09 x = ₱1,000.00
360
• Principal's Remainder = ₱80,000.00 –
₱1,000.00 = ₱79,000.00
• New Balance = ₱200,000.00 – ₱79,000.00 =
₱121,000.0
Solution to Sample
• Payment on Day 60: P = ₱121 000, r = 9%,
and t= 40 (60 days – 20 days = 40 days)
360 40
I = Prt = ₱121,000.00 × 0.09 x = ₱1,210.00
360
• Total Final Payment Due = ₱1,210.00 + ₱121
000.00 = ₱122 210.00
• Principal's Remainder = ₱122,210 – ₱1,210 = –
₱121,000.00
• New Balance = ₱121,000.00 – ₱121,000.00 =
₱0.00
Note
With partial payment
I = 986.30 + 1,193.30
I = ₱2,179.60
Without partial payment:
I = Prt
= 200,000 ×60
0.09 x
365
I = ₱2,958.90
Exercises a
A. Find the simple interest and the maturity
value.
1. P150,000.00 at 5% for 8 years
2. P240,000.00 at 6% for 5 years
B. How long will the given principal P take to reach
the given maturity value A at the given simple
interest rate r?
3. P= 150000; A = 151000; r = 4%
4. P= 800000; A = 801000; r = 3%
Exercise b
• Ramil deposited ₱20,000.00 at 4% simple
interest for 5 years. At the end of 5 years, his
account contains ₱24,000.00. Give the term
for each value in relation to the problem.
1. ₱20,000.00
2. ₱24,000.00
3. 4%
4. 5 year
Exercise B
Complete the table by finding the maturity
value.
Principal (P) Interest Rate (r) Time (t) Maturity Value (A)
₱ 35,600 6% 9 mo.
₱ 140,350 10% 15 mo.

₱ 75,800 8 ½% 2 yr.
₱ 340,200 11% 6 yr.

₱ 1,400,500 9% 10 yr.
 TERM: ORDINARY TIME AND EXACT TIME

• Ordinary time is based on a 30-day per month

computation. This means that 6-month
transaction covers (6)(30days)= 180 days.
• Exact time is based on the exact number of
inclusive dates of transaction. For instance, a
loan entered on December 24, 2014 and
matured on April 11, 2015 has
7 days- from December 25,2014 to December
31, 2014
31 days- from January 1, 2015 to January 31,
2015
28 days- from February 1, 2015 to February 28,
2015
31 days- from March 1, 2015 to March 31, 2015
11 days- from April 1, 2015 to April 11, 2015

TOTAL = 108 days

 INTEREST: ORDINARY INTEREST AND EXACT INTEREST

Two ways of computing for the term. The two choices for the
advisor for the term result in four ways of computing simple
interest, as shown below

EXACT TIME ORDINARY TIME

Ordinary interest with
exact time Ordinary interest with
360 days ( Bankers' ordinary time
Rule)

Exact interest with exact Exact interest with

365 days time ordinary time
 EXAMPLE
• Find the exact interest and the ordinary
interest given the following values
P5,000 for 120 days at 5%.
a. The exact interest
b. The ordinary interest
 6% - 60- DAY METHOD
The ordinary simple interest I on principal P at
6% for 60 days is
I = P (0.01)

The above method can be used to calculate the

ordinary simple interest using appropriate
multiplication and division.
Example:

Compute for the ordinary interest

where the principal is P180,000 at 5%
for 75 days.
Solution:
Interest at 6% for 60 days = P180000(0.01)=P1800
Interest at 1% for 60 days = P1800 /6 = P300
Interest at 5% for 60 days = P1800 – P300 = P1500
Interest at 5% for 15 days = P1500 / 4 = P375
Interest at 5% for 75 days = P1500 + P375 = P1875
 INSTALLMENT PAYMENTS

Paying on Installment Basis Rule No. 1

Payment received must be deducted first from the

amount with interest due. The balance, the amount
due after deducting the payment, is then subjected to
the agreed interest and is the payment, is then
subjected to the agreed interest and is computed from
the date of the last payment and the balance of the
principal.
 EXAMPLE

Mr. Torres borrowed P200,000 from Manila

Teachers savings and loan Association (MTSLA)
on May 1, 2015 with interest at 6%. On June 15,
2015, he paid P60,000. Determine the amount
Mr. Torres should pay MTSLA on September 5,
2015, the due date agreed by both parties.
 SOLUTION:

The principal = P200,000.00

Interest due from May 1 to June 15
(P200,000)(.06)() = + P1500.00
Balance before June 15 = P201,500.00
Payment made on June 15 - P60,000.00
Balance after payment on June 15 = P141,500.00

Interest on balance from June 15 to September 5

(P141,500.00)(.06)() = P1,933.83
P143,433.83
Paying on Installment Basis Rule No. 2 Known as the
Merchant's Rule

The interest for the entire of the principal amount is

added to the maturity value. If installment payments
are made, these payments plus the interest on each
installment payment from the date that payment is
made to the due date are subtracted from the
computed maturity value to obtain the amount due.
Example;
Refer to the problem in first example. Apply the Merchant’s Rule in
determining the amount Mr. Torres should pay the MTSLA.
Solution;
Given: P=200,000
r = 6% = 0.06
Since there are 127 days from May 1 to September 5, the value of t is (

A = P(1 + rt)
A = P200,000( 1 +(.06)())
A = P204,233.33

Payment on June 15 = P60,000.00

Interest from June 15 – September 5 = +820.00
Total credits = P60,820.00
Therefore, the amount due on September 5 is:
P204,233.33 – P60, 820.00 = P143,413.33