11

Mathematics
Quarter 2 – Module 3 (Week 5 – 6)
Basic Concepts of Stocks and Bonds
Basic Concepts of Loans

Locally Developed Self-Learning Material

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General Mathematics – Grade 11

Locally Developed Self-Learning Material

Quarter 2 – Module 3
Lesson 1: Basic Concepts of Stocks and Bonds
Lesson 2: Basic Concepts of Loans

Development Team of the Module

Key-Teacher Writer: Danica Mae B. Cleopas

Teacher-Writer (Collaborators): Felina A. Ting

Richel R. Quinto
Michaela C. Madamecila

Editors: Ruel D. Emberga

Nestor N. Balois
Yvette H. Roque

Reviewer: Ruel D. Emberga

Corazon B. Dumlao, EdD

Management Team: Leilani S. Cunanan, CESO V

Maylene M. Minimo, EdD, CESE
Ariel C. Lansang
Jose C. Tala, EdD
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TABLE OF CONTENTS

LESSON 1: Basic Concepts of Stocks and Bonds

What I Need to Know …………………………………………………. 4
What I know …………………………………………………. 4
What’s In …………………………………………………. 5
What’s New …………………………………………………. 5
What is It …………………………………………………. 7
What’s More …………………………………………………. 9
What I Have Learned …………………………………………………. 11
What I Can Do …………………………………………………. 12
Additional Activities …………………………………………………. 12

LESSON 2: Basic Concepts of Loans

What I Need to Know …………………………………………………. 13
What I know …………………………………………………. 13
What’s In …………………………………………………. 14
What’s New …………………………………………………. 14
What is It …………………………………………………. 15
What’s More …………………………………………………. 15
What I Have Learned …………………………………………………. 16
What I Can Do …………………………………………………. 17
Assessment …………………………………………………. 17

Answer Key …………………………………………………. 18

References …………………………………………………. 19
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Lesson
Basic Concepts of Stocks and Bonds
1

What I Need to Know

At the end of the lesson, the learners should be able to:

1. Illustrate stocks and bonds;
2. Distinguish between stocks and bonds;
3. Describe different markets for stocks and bonds; and
4. Analyze the different indices for stocks and bonds.

What I Know (Pretest)

Directions: Read each statement carefully. Choose the letter of the correct answer and write it on
a 1 whole sheet of paper.

1.It is a share in the ownership of a company.

a. Stocks b. Bond c. Share d. Stock Market
2. It is a place where stocks can be bought or sold.
a. Stocks b. Bond c. Share d. Stock Market
3. It is an interest- bearing security which promises to pay a stated amount on the maturity and
regular interest payments.
a. Stocks b. Bond c. Share d. Stock Market
4. Investors are guaranteed interest payments and return of their money at the maturity date.
a. Stocks b. Bond c. Share d. Stock Market
5. It is the current price of a stock at which it can be sold.
a. Stock Market b. Bond Market c. Market Value d. Par Value
6. It is the measure of the value of a section of the stock market and is computed from the price
of selected stocks.
a. Stock Market b. Bond Market c. Market Value d. Par Value
7. It is lower risk but lower yield.
a. Stocks b. Bond c. Share d. Stock Market
8. It is the amount payable on the maturity date
a. Stock Market b. Bond Market c. Market Value d. Par Value
9.It is ratio of the annual dividend per share and the market value per share.
a. Stock Market b. Bond Market c. Stock Yield Ratio d. Par Value
10. It is a method of measuring the value of a section of the bond market.
a. Stock Index b. Bond Index c. Stock Yield Ratio d. Bond Yield Ratio
11. A certain corporation declared a 5% dividend on a stock with a par value of ₱900.00. Mrs. L
owns 250 shares of stock with a par value of ₱900.00. How much is the dividend she received?
a. ₱12,150.00 b. ₱11,150.00 c. ₱ 11,250.00 d. ₱12,250.00
12. Mr. Vincent Gomez bought sixty ₱1,500.00 ACTS bonds at 103. What is his total investment in
ACTS bonds?
a. ₱109,270.00 b. ₱97,700.00 c. ₱ 92,200.00 d. ₱92,700.00
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13.It is fixed period of time (in years) at which the bond is redeemable as stated in the bond
certificate; number of years from time of purchase to maturity date.
a. Term b. Rate c. Stock Yield Ratio d. Bond Yield Ratio
14. Mrs. Scarlet owns 65 bonds with a par value of ₱2,000 each and pays 10 % interest. What
annual income does Mrs. Scarlet get from these bonds?
a. ₱ 10,000.00 b. ₱11,000.00 c. ₱12,000.00 d. ₱13,000.00
15. Find the yield on ₱5,000.00, 12% ACTS bond priced at 95 plus ₱20 commission.
a. 11.58% b. 12.58% c. 13.58% d. 14.58%

What’s In

Most Filipinos are engaged in different types of investment. Some investments that are less
explored are stocks and bonds. In this lesson, you will learn the basic concepts of financial
management of stocks and bonds.

What’s New

Stocks
Stock is a share of ownership in a business or company. Some corporations may raise
money for their expansion by issuing stocks. Stocks are shares in the ownership of the company.
Owners of stocks may be considered as part owners of the company.
There are two types of stocks: Common stock and preferred stocks. Both will receive
dividends or share of earnings of the company. Dividends are paid first to preferred shareholders.
Stocks can be bought or sold at its current price called the market value. When a person buys
some shares, the person receives a certificate with the corporation’s name, owners name, number
of shares and par value per share. The stakeholders are the owners of the firm.

Bonds

Bond is a debt of the firm.

A bond is a certificate which proves that a company or corporation borrowed money from
a certain group of individuals or investors for a definite period of time at a fixed rate. Owning a
bond is just like saving money from a bank in which you will earn interest from the amount
borrowed.
A bond can be bought from a company or other people. The bond is said to have a high
value if it earns high interest payment compared to the market interest rate. Otherwise, the bond
is valued low.
Bonds are interest bearing security which promises to pay amount of money on a certain
maturity date as stated in the bond certificate. Unlike stockholders, bondholders are lenders to
the institution which may be a government or private company. Some bond issues are the
national government, government agencies, government owned and controlled corporations,
non-bank corporations, banks and multilateral agencies.
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STOCKS BONDS

A form of equity financing or raising money by

A form of debt financing, or raising money by
allowing investors to be part owners of the
borrowing from investors.
company.

Stock prices vary every day. These prices are Investors are guarantee interest payments
reported in various media (newspaper, TV, and a return of their money the maturity date.
internet, etc.

Uncertainty comes from the ability of the bond

issuer to pay the bondholders. Bonds issued by
Investing in stock involves some uncertainty.
the government pose less risk than whose by
Investors can earn if the stock prices increase, but
companies because the government has
they can lose money if the stock prices decrease
guaranteed funding (taxes) from which it can
or worse, if the company goes bankrupt.
pay its loans.

Higher risk but with possibility of higher returns Lower risk but lower yield.

Can be appropriate for retirees (because of

Can be appropriate if the investment is for the
the guaranteed fixed income) or for those who
long term (10years or more). This can allow
need the money soon (because they cannot
investors to wait for stock prices to increase if ever
afford to take a chance at the stock market)
they go low.

Definition of terms in relation to stocks.

➢ Stocks – share in the ownership of a company
➢ Dividend – share in the company’s profit
➢ Dividend per share – ration of the dividends to the number of shares
➢ Stock Market – a place where stocks can be bought or sold. The stock market in the
Philippines is governed by the Philippine Stock Exchange (PSE)
➢ Market Value – the current price of a stock at which it can be sold
➢ Stock Yield Ratio – ratio of the annual dividend per share and the market value per share.
Also called current stock yield.
➢ Par Value – the per share amount as stated on the company certificate. Unlike market
value, it is determined by the company and remains stable over time

Definition of terms in relation to bonds.

➢ Bond – interest bearing security which promises to pay
(a.) a stated amount of money on the maturity date, and
(b.) regular interest payments called coupons
➢ Coupon – periodic interest payment that the bondholder receives during the time
between purchase date and maturity date; usually received semi-annually
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➢ Coupon Rate – the rate per coupon payment period; denoted by r

➢ Price of a Bond – the price of the bond at a purchase time; denoted by P
➢ Par Value or Face Value – the amount payable on the maturity date; denoted by
F
If P = F , the bond is purchased at par.
If P < F , the bond is purchased at a discount.
If P > F, the bond is purchased at premium.
➢ Term (or Tenor) of a Bond – fixed period of time (in years) at which the bond is
redeemable as stated in the bond certificate; number of years from time of purchase
to maturity date.
➢ Fair Price of a Bond – present value of all cash inflows to the bondholder.

What is It

Examples in Relation to Stocks

1. A certain financial institution declared a Php 30,000,000.00 dividend for the common stocks. If
there are a total of Php 700,000.00 shares of common stock, how much is the dividend per share?
Given: Total Dividend = Php 30,000,000.00
Total Shares = Php 700,000.00
Dividend per Share = ?
Solution:
Total Dividend 30,000,000
𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒 = = = Php 428.57
Total Shares 70,000

Therefore, the dividend per share is Php 428.57

2. A certain corporation declared a 3% dividend on a stock with a par value of Php 500.00. Mrs.
Lingan owns 200 shares of stock with a par value of Php 500.00. How much is the dividend she
received?
Given: Dividend Percentage = 3% Par Value = Php 500.00
Number of Shares = 200 Dividend = ?
Solution:
The dividend per share is Php 500 x 0.03 = Php 15.00. Since there are 200 shares, the total dividend
is Php 15/share x 200 shares = Php 3,000.00. Therefore,
Dividend = Dividend Percentage x Par value x Number of Shares
= 0.03(500)(200) = Php 3,000
Thus, the dividend is Php 3,000.00

3. Corporation A, with a current market value of Php 52.00, a dividend of Php 8.00 per share for its
common stock. Corporation B, with a current market value of Php 95.00, gave a dividend of Php
12.00 per share. Use stock yield ration to measure how much dividends shareholders are getting
in relation to the amount invested.
Corporation A
Given: Dividend per share = Php 8.00
Market Value = Php 52.00
Stock Yield Ratio = ?
Solution:
Dividend per Share 8
Stock Yield Ratio = = = 0.1538 = 15.38%
Market value 52
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Corporation B
Given: Dividend per share = Php 8.00
Market Value = Php 52.00
Stock Yield Ratio = ?
Solution:
Dividend per Share 12
Stock Yield Ratio = = = 0.1263 = 12.63%
Market value 95

Corporation A has a higher stock yield ratio than Corporation B. Thus, each peso would earn you
more if you invest in Corporation A than B. If all things are equal, then it is wiser to invest in
Corporation A. (As Example 3 shows, the stock yield ratio can be used to compare two or more
investments.)

Examples in Relation to Bonds.

Example 1. Determine the amount of the semi-annual coupon for a bond with a face value of
Php 300,000.00 that pays 10%, payable semi-annually for its coupons.
Given: Face Value F = Php 300,000 Coupon Rate r = 10%
Amount of the Semi-annual Coupon = ?
Solution: Annual Coupon Amount = 300,000 ( 0.10) = 30,000
Semi-annual Coupon Amount : 30,000 (1/2) = 15,000
Thus, the amount of the semi-annual coupon is Php 15,000.00

2. Ms. Claire Garcia bought fifty Php 1,000.00 ACTS bonds at 103. What is her total investment in
ACTS bonds?
Solution:
Market Price of 1 bond: 1.03 x Php 1,000 =Php 1, 030.00
Total investment: 1,030 x 50 = Php 51,500.00
Thus, the amount total investment is Php 51,500.00
When bonds are bought and sold through a broker, the broker charges a broker’s
commission or brokerage fee. Hence, the amount investment becomes the market price of the
bonds plus the broker’s commission.

3. Mrs. Go owns 45 bonds with a par value of Php1,000 each and pays 8 ½ % interest. What
annual income does Mrs. Go get from these bonds?
Given: Number of Bonds = 45 Rate r = 8 ½ %
Par Value = 1,000 Annual income= ?
Solution: Par Value of 45 bond: 45 x Php1,000.00 = Php45,000.00
Annual Income = Par Value of Number of bonds x rate x time
= Php 45,000 x 0.085 x 1 = Php 3,825.00
The annual income for one year is Php 3,825.00

4. Find the yield on Php 1,000.00, 9% ACTS bond priced at 94 plus Php 10 commission.
Given: Par Value = 1,000 Rate r = 9 %
Commission = 10 Yield (rate of income)= ?
Solution:
Annual Income: Php 1,000.00 x 0.09 x 1 = 90
Amount Invested : Market Price + Commission
= (0.94 x Php 1,000) + Php 10 = Php 940 + Php 10 = Php 950.00
Annual Income 90
Yield (Rate of Income) = = = 0.0947 = 9.47%
Amount Invested 950
The yield on the investment is 9.47% or ACTS Corporation bond yields at 9.47%.
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What’s More

Market Indices for Stocks and Bonds

1. The Stock Market

A Stock Index or Stock Market Index is the measure of the value of a section of the stock
market and is computed from the price of selected stocks. Investors and financial managers use
this to describe the market and compare the return on specific investment. One example is the
PSE Composite Index or PSEi. It is composed of 30 companies carefully selected to represent the
general movement of market prices. The up and down movement in percent change over time
can indicate how the index is performing.
Other indices are sector indices, each representing sector (e.g., financial institutions,
industrial corporations, holding firms, service corporations, mining/oil, and property)
The stock index can be a standard by which investors can compare the performance of their
stocks. A financial institution may want to compare its performance with those of others. This can
be done by comparing with the “financial” index.

2. Stock Market Table

Stock indices are reported in the business section of magazines or newspapers, as well as
online. The following table shows how a list of index values is typically presented (values are
hypothetical).

Index Val Chg %Chg

PSEi 7,523.93 -14.20 -0.19

Financials 4,037.83 6.58 0.16

Holding Firms 6,513.37 2.42 0.037

Industrial 11,741.55 125.08 1.07

Property 2,973.52 -9.85 -0.33

Services 1,622.73 -16.27 -1.00

In the table above, the terms mean the following:

✓ Val – value of the index

✓ Chg – change of the index value from the previous trading day (i.e., value today minus
value yesterday)
✓ %Chg – ratio of change of the index (Chg) to Val ( i.e., Chg dibided by Val)
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STOCK TABLES

Newspapers or magazine may also report on stock prices of individual companies. The following
table shows how information about stocks can be presented values are hypothetical).

52 – WK 52 – WK
STOCK HI LO DIV VOL (100s) CLOSE NETCHG
HI LO

94 44 AAA 60 35.5 0.70 2050 57.29 0.10

88 25 BBB 45 32.7 0.28 10700 45.70 -0.20

In the table above, the terms mean the following:
✓ 52 – WK HI/LO – highest/ lowest selling price of the stock in the past 52 weeks
✓ HI/LO – highest/lowest selling price of the stock in the last trading day
✓ STOCK – three-letter symbol the company is using for trading
✓ DIV – dividend per share last year
✓ VOL (100s) – number of shares (in hundreds) traded in the last trading day (In this case,
stock 100 AAA sold 2,050 shares of 100 which is equal to 20,500 shares) CLOSE – closing
price on the last trading day.
✓ NETCHG – net change between the two last trading days (in the case of AAA, the net
change is 0.10. The closing price the day before the last trading is Php 57.29 – Php 0.10 =
Php 57.19.)

BUYING OR SELLING STOCKS

To buy or sell stocks, one may go to the Philippine Stock Exchange (PSE) personally.
However, nowadays are done making a phone call to a registered broker or by logging on to a
reputable online trading platform. Those with accounts in online trading platforms may often
encounter a table like the following:

BID ASK/OFFER

SIZE PRICE PRICE SIZE

122 354,100 21.60 21.80 20,000 1

9 81,700 21.55 21.90 183,500 4

42 456,500 21.50 22.15 5,100 1

2 12,500 21.45 22.25 11,800 4

9 14,200 21.40 22.30 23,400 6

In the table above, the terms mean the following:
Bid Size – the number of individual buy orders and the total number of shares that wish to buy
Bid Price – the price these buyers are willing to pay for the stock
Ask Price – the price the sellers of the stock are willing to sell the stock
Ask Size – how many individual sell orders have been placed in the online platform and the total
number of shares these sellers wish to sell.
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For example, the first row under BID means that there are total of 122 traders who wish to buy a
total of 354,100 shares at Php 21.60 per share. On the other hand, the first row under ASK means
that just 1 trader is willing to sell his 20,000 at a price of Php 21.80 per share.

BOND MARKET INDICES

A bond index or bond market index is a method of measuring the value of a section of the bond
market. The main platform for bonds or fixed income securities in the Philippines is the Philippine
Dealing and Exchange Corporation (or PDEx). Unlike stock indices which are associated with
virtually every stock market in the world, bond market indices are far less common. In fact, other
than certain regional bond indices which have subindices covering the Philippines, our bond
market does not typically compute a bond market index. Instead, the market rates produced
from the bond market are interest rates which may be used as benchmarks for other financial
instruments.

What I Have Learned

A. Find the net proceeds of the stocks on the table below. Write your complete solutions and
answers on a 1 whole sheet of paper. Php

Expenses
Selling Price per
Name of Stock Shares Held (Commission, Net Proceeds
Share
taxes and Fees)

1. Food 100
Php 1,040.00 Php 2,640.00
Corporation

2. Property
250 Php 500.00 Php 1,720.00
Holdings

3. Power
80 Php 1,480.00 Php 1,880.00
Corporation

4.Transportation
300 Php 320.00 Php 2,240.00
Corporation

B. Answer the following problems completely. Write your complete solutions and answers on a 1
whole sheet of paper.

1.Tim bought 50 shares of Clarky stock at Php 685.00 per share and paid Php 956.00 commission.
Find Tim’s total investment.
2. A land developer declared a dividend of Php 10,000.00 for its common stock. Suppose there
are 600,000 shares of common stock, how much is the dividend per share?
3. A property holding declared of Php 9 per share for the common stock. If the common stock
closes at Php 76, how large is the stock yield ration on this investment?
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What I Can Do

A. Tell whether the following is a characteristic of stocks and bonds. Write your answers on a 1 whole
sheet of paper.

1. It can be appropriate for retirees (because of the guaranteed fixed income) or for those
who need the money soon.
2. Investors can earn if the security prices increase, but they can lose money if the security
prices decrease od worse, if the company goes bankrupt.
3. A form of equity financing, or raising money by allowing investors to be part of the
company.
4. A form of debt financing, or raising money by borrowing from investors. Investors are
guaranteed interest payments and a return of their money at the maturity date.

B. Answer the following problems completely. Write your complete solutions and answers on a 1
whole sheet of paper.

1. A ₱450,000.00 bond is redeemable at ₱550,000.00 after 5 years. Coupons are given at 5%

convertible semi-annually. Find the amount of the semi-annual coupon.
2. A certain land developer declared a dividend of ₱28 per share for the common stock. If
the common stock is closes at ₱99.00, how large is the stock yield ratio on this investment?
3. A food corporation declared a dividend of ₱25,000,000 for its common stock. Suppose
there are 180,000 shares of common stock, how much is the dividend per share?
4. Determine the amount of a semi-annual coupon paid for a 3% bond with a face value of
₱80,000 which matures after 15 years.
5. A certain financial institution declared ₱57 dividend per share for its common stock. The
market value of the stock is ₱198. Determine the stock yield ratio.

Additional Activities

Activity: Fill in the blanks. Write your answers on a 1 whole sheet of paper.

1.______________ the number of individual buy orders and the total number of shares that wish to
buy.
2._______________ the measure of the value of a section of the stock market and is computed from
the price of selected stocks.
3._______________are reported in the business section of magazines or newspapers, as well as
online.
4. To buy or sell stocks, one may go to the ___________________ personally.
5. A financial institution may want to compare its performance with those of others. This can be
done by comparing with the _____________ index.
6. ____________is a share of ownership in a business or company.
7. The market rates produced from the bond market are ___________ rates which may be used as
benchmarks for other financial instruments.
8. The price these buyers are willing to pay for the stock is called _____________.
9. The share in the company’s profit is called _____________.
10. A ______________ is a method of measuring the value of a section of the bond market.
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Lesson
Basic Concept of Loans
2

What I Need to Know

At the end of the lesson, the learners should be able to:

1. Illustrate business and consumers loans;
2. Distinguish between business and consumer loans; and
3. Solve problems involving business and consumer loans
(amortization and mortgage).

What I Know (Pretest)

Direction: Choose the letter of the correct answer and write the correct letter on the separate
sheet of paper.

1.It is a money lent especially for a business purpose.

a. Business Loan b. Consumer Loan c. Collateral d. Term of the Loan
2.It is a money lent to an individual for personal or family purpose.
a. Business Loan b. Consumer Loan c. Collateral d. Term of the Loan
3. It is a financial obligation of paying someone a certain amount for the use of his/her money
a. Business Loan b. Consumer Loan c. Loan d. Amortization
4. It is gradual extinction of a debt, principal, and interest, by sequence of equal periodic
payments or installment payments due at the ends of equal intervals of time.
a. Business Loan b. Consumer Loan c. Loan d. Amortization
5. It is a business loan or consumer loan that is secured with a collateral.
a. Mortgage b. Collateral c. Loan d. Amortization
6. An asset that can secure a loan.
a. Mortgage b. Collateral c. Loan d. Amortization
7. It is a method of paying a loan (principal and interest) on installment basis, usually of equal
amounts at regular intervals.
a. Mortgage c. Outstanding Balance
b. Collateral d .Amortization Method
8. It is a mortgage on a movable property.
a. Mortgage c. Amortization
b. Chattel Mortgage d. Amortization Method
9. Any remaining debt at a specific time.
a. Outstanding Balance c. Amortization
b. Chattel Mortgage d. Amortization Method
10. It is the time to pay the entire loan.
a. Mortgage c. Amortization
b. Chattel Mortgage d. Term of the Loan
 14

11. It is a mortgage with a fixed interest rate for its entire term.
a. Mortgage c. Fixed-rate mortgage
b. Chattel Mortgage d. Term of the Loan
12. A loan of ₱200,000.00 is to be repaid in full after 3 years. If the interest rate is 8% per annum.
How much should be paid after 3 years?
a.₱251,942.40 b. ₱215,942.40 c. ₱251,492.40 d. ₱215,492.40
13. For a purchase of a house and lot worth ₱3,800,000.00, the bank requires 20% down
payment, find the mortgaged amount.
a. ₱3,400,000.00 b. ₱3,004,000.00 c. ₱3,000,400.00 d. ₱3,040,000.00
14. A car dealer offers a 15% down payment for the purchase of a car. How much is the
mortgaged amount if the cash value of the car is ₱1,500,000.00
a. ₱1,257,000.00 b. ₱1,752,000.00 c. ₱1,275,000.00 d. ₱1,725,000.00
15. If a condominium is purchased for ₱5,700,000.00 and the bank requires 30% down payment,
how much is the mortgaged amount?
a. ₱3,990,000.00 b. ₱3,099,000.00 c.₱3,909,000.00 d. ₱3,009,000.00

What’s In

Business Loan and Consumer Loan

The basic concepts of loans are very familiar to every individual. Through loans, people,
business persons, entrepreneurs, and even family persons receive assistance in addressing
financial needs from different lending corporations. Loan is not just limited to borrowing money in
a bank to finance business expansion, but also covers the use of credit card, amortizing
appliances, and many more. In this module, you will learn how to construct an amortization
schedule of your loan.

What’s New

Definition of Terms

➢ Business Loan - money lent specifically for a business purpose. It may be used to start a
business or to have a business expansion
➢ Consumer Loan - money lent to an individual for personal or family purpose
➢ Collateral - assets used to secure the loan. It may be real-estate or other investments
➢ Term of the Loan - time to pay the entire loan

Consumer loans are loans given to individuals for personal or family purpose while business
loans are loans for businesses. Consumer loans and business loans may require a collateral. The
col- lateral for both loans may be real estate or other investments. For business loans, they can
use equipment, fixtures or furniture as collateral. Consumer loans do not usually require a
guarantor. Business loans require the business owners to sign as guarantors. For consumer loans,
the bank or the lending institution may require a credit report, bank statements, and an income
tax return, and if the lendee is employed, a certificate of employment and employee pay slips.
For business loans, the lendee has to submit a credit report, income tax returns and company's
 15

financial statement. The term of the business loan is generally shorter than the consumer loan. The
interest rate for the business loan is usually higher than that for the consumer loan.

What is It

General Annuity is an annuity where the length of the payment interval is not the same as
the length of the interest compounding period. A General Ordinary Annuity is a general annuity
in which the periodic payment is made at the end of the payment interval.
Illustration:
1. Monthly installment payment of a car, lot, or house with an interest rate that is
compounded annually.
2. Paying a debt semi-annually when the interest is compounded monthly.

What’s More

Definition of terms
➢ Amortization Method - method of paying a loan (principal and interest) on
installment basis, usually of equal amounts at regular intervals
➢ Mortgage - a loan, secured by a collateral, that the borrower is obliged to pay at
specified terms.
➢ Chattel Mortgage - a mortgage on a movable property
➢ Collateral - assets used to secure the loan. It may be a real-estate or other
investments
➢ Outstanding Balance - any remaining debt at a specified time

A mortgage is a business loan or a consumer loan that is secured with a collateral.

Collaterals are assets that can secure a loan. If a borrower cannot pay the loan, the lender has a
right to the collateral. The most common collaterals are real estate property. For business loans,
equipment, furniture and vehicles may also be used as collaterals. Usually, the loan is secured by
the property bought.

Illustration. If a house and lot is purchased, the purchased house and lot will be used as a
mortgaged property or a collateral. During the term of the loan, the mortgagor, the borrower in
a mortgage, still has the right to possess and use the mortgaged property. In the event that the
mortgagor does not make regular payments on the mortgage, the mortgagee or the lender in a
mortgage can repossess the mortgaged property. The most common type of mortgage is the
fixed-rate mortgage wherein the interest remains constant throughout the term of the loan.

Examples.
1. Mr. Garcia borrowed Php 1,000,000.00 for the expansion of his business. The effective rate of
interest is 7%. The loan is to be repaid in full after one year. How much is to be paid after one year?
Given: P = Php 1,000,000 j = 0.07
n=1 F=?
Solution:
F = P(1 + j)n = 1,000,000(1+ 0.07)1 = Php 1,070,000
An amount of ₱1,070,000.00 must be paid after one year.
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2. If a house is sold for Php 3,000,000 and the bank requires 20% down payment, find the amount
of the mortgage.
Solution: Down payment = (down payment rate) x (cash price) = 20 (3,000,000) = Php 600,000
Amount of the Loan = (cash price) – (down payment) = 3,000,0000 – 600,000 = Php 2,400,000
The mortgage amount is ₱2,400,000.00

OUTSTANDING BALANCE
Recall that the outstanding balance of a loan is the amount of the loan at this time. One
method to compute the outstanding balance is to get the present value of all remaining
payments. This method is called the prospective method.
We use the symbol 𝐵𝑘 to denote the outstanding balance after k payments. ( the “P”
stands for “prospective”.

Examples.
1. Mrs. Sy borrowed some money from a bank that offers an interest rate of 12% compounded
monthly. His monthly amortization for 5 years is Php 11, 122.22. How much is the outstanding
balance after the 12th payment?
𝑖 12 0.12
Given: R = Php 11,122.22 𝑖(12) = 0.12 j= = = 0.01
12 12
k = 12 number of payments paid n – k = 48 since 48 payments remain
Find: Present value of 48 future payments (since there are 48 payments left)
11,122.22[1−(1+0.01)−48 ]
Bk = = Php 422,354.73
0.01

2. Mr. and Mrs. Banal purchased a house and lot worth Php 4,000,000. They paid a down payment
of P800,000. They plan to amortize the loan of Php 3,200,000 by paying monthly for 20 years. The
interest rate is 12% convertible monthly.
a. How much is the monthly payment?
b. What is the total interest paid?
Solution:
𝑖 12 0.12
a. Given: P = Php 3,200,00.00 i(12) = 12% or 0.12 j= = = 0.01
12 12
n = mt = (12)(20) = 240 R=?

3,200,000(0.01)
R= = Php 35,324.76
1−(1+0.01)−240

b. Given: P = Php 3,200,000.00 R = Php 35,324.76 n = 240

Find: Total interest Paid

There are 240 payments of Php 35,234.76.

The total payment is 240 × Php 35,234.76 = Php 8,456,342.40.
The principal is only Php 3,200,000.
Interest Amount = (Total Payments) - (Principal) = 8,456,342.40 – 3,200,000
= Php 5,256,342.40

What I Have Learned

Reflection:
I have learned that __________________________________________________________________
_____________________________________________________________________________________________
_____________________________________________________________________________________________.
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What I Can Do

Direction: Answer the following questions. Write your answers in a separate sheet of paper.

A. Identify whether following is a business loan or consumer loan.

1. Mr. Agustin plans to have a barbershop. He wants to borrow some money from the bank in
order for him to buy the equipment and furniture for the barbershop
2. Mr and Mrs. Craig wants to borrow money from the bank to finance the college education of
their son.
3. Mr. Alonzo wants to have some improvements on their 10-year old house. He wants to build a
new room for their 13-year old daughter. He will borrow some money from the bank to finance this
plan.
4. Mr. Samson owns a siomai food cart business. He wants to put another food cart on a new mall
in the other city. He decided to have a loan to establish the new business.
5. Roan has a computer shop. She owns 6 computers. She decided to borrow some money from
the bank to buy 10 more computers.

B. Solve the following problems completely.

1. A business loan of Php 800,000 is to be repaid in full after 2 years. What is the amount to be paid
if the effective rate of interest is 8%?
2. For the purchase of a farm worth Php 2,800,000, the bank requires 30% down payment, find the
mortgaged amount.
3. If a condominium is purchased for Php 1,700,000 and the bank requires 25% down payment,
how much is the mortgaged amount?
4. Mr. Sia got a Php 1,100,000 mortgage. If the monthly payment is Php 33,000 for five years, how
much is the total interest paid?
5. Mr. Yuson obtained a 20-year mortgage for Php 2,200,000. If his monthly payment is Php 18,500,
how much is the total interest?

Assessment

Direction: Answer the following questions. Write your answers in a separate sheet of paper.

A. Identify whether following is a business loan or consumer loan.

1. Mr. Lim wants to have another branch for his cellphone repair shop. He decided to apply for a
loan that he can use to pay for the rentals of the new branch.
2. Trillas runs a trucking business. He wants to buy three more trucks for expansion of his business.
He applied for a loan in a bank.
3. Mrs. Alonzo decided to take her family for a vacation. To cover the expenses, she decided to
apply for a loan.
4. Glenn decided to purchase a condominium unit near his workplace. He got a loan worth Php
2,000,000
5. Mr. Galang purchased renovated her house Php 80,000. This was made possible because of
an approved loan worth Php 75,000.
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B. Solve the following problems completely.

1. A family obtained a Php 1,000,000 mortgage. If the monthly payment is Php 38,000 for four years,
how much is the total interest paid?
2. Mr. Canlapan obtained a 10-year mortgage for Php 4,200,000. If his monthly payment is Php
39,500, how much is the total interest?
3. Mr. Ramos is considering to pay his outstanding balance after 3 years of payment. The original
amount of the loan is Php 100,000 payable annually in 5 years. If the interest rate is 10% per annum
and the regular payment is Php 26,379.75 annually, how much is the outstanding balance after
the 3rd payment?
4. Ms. Saya got a business loan worth Php 900,000. She promised to pay the loan semiannually in
3 years. The semi-annual payment is Php 183,026.37 if money is worth 12% converted semi-
annually. How much is the outstanding balance after the first payment?
5. A consumer loan worth Php 30,000 is to be repaid in 12 months at 9% convertible monthly. How
much is the monthly payment?

Answer Key
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References:

[1] Teaching Guide for Senior High School – General Mathematics

by Commission on Higher Education (2016)
pages 237-251, 253-267

[2] General Mathematics

by Orlando A. Oronce
Rex Book Store (2016)
pages 243-264

[3] General Mathematics Book

by Grace Obias-Aoanan, et.al.
C & E Publishing, Inc.
pages 305-318