Department of Education

SCHOOLS DIVISION OF CITY OF MEYCAUAYAN

Pag-asa St., Malhacan, City of Meycauayan, Bulacan

Senior High School

Activity Sheet 12
in
Business Finance
Quarter 1 – Week 6:
Calculate Future Value and
Present Value of Money
(ABM_BF12-IIIg-h-18)
 CALCULATE FUTURE VALUE AND PRESENT VALUE OF
MONEY

LET US KNOW

Read the story below.

One day, the Master was going on a trip and decided to entrust his wealth to three
of his most trusted servants. The wealth shall be given to each servant based on the
master’s assessment of their talents. To his first servant, he entrusted ₱500,000. To his
second servant, believing that he can make wise choices as well, he also gave an amount of
₱500,000. Finally, he called on his third servant and gave him ₱500,000. The Master then
went on his journey and told the servants he will not be back for a long time. Since the first
servant was a very smart person, he decided to invest the ₱500,000 given to him. He was
very pleased that he was quoted a long-term investment for 5 years at 8% per annum
compounded annually and decided to invest the money in that institution. The second
servant saw what the first servant did and decided to invest the money. However, when
given the choice by the investment firm, he did not understand simple and compound
interest. In the end, he accepted the quote at 8% per annum simple interest. The third
servant saw them and thought that they were being too much of a risk-taker and decided
just to keep the money locked in a vault in his home.
The Master returned after 5 years. He then called on the servants and asked them
what has become of the wealth he had entrusted them. The first servant presented his
₱500,000 plus the interest he earned worth ₱500,000 𝑥 (1.08)5 – 500,000 = ₱234,664.04. The
second servant presented his ₱500,000 along with the interest earned at ₱500,000 𝑥 .08 𝑥 5 =
₱200,000 Lastly the third servant returned his ₱500,000. Which servant will make the
Master most pleased?

Servant 1 Servant 2 Servant 3

Principal 500,000.00 500,000.00 500,000.00
Interest 234,664.04 200,000.00 0.00
Total Returned 734,664.04 700,000.00 500,000.00

LET US REVIEW

Answer the following. Write your answer on a separate sheet of paper.

1. What are the 5C’s of credit? Explain each.
2. What do you think is the most important consideration of banks in approving a
loan?
3. Why is it important for banks to collect all the loan requirements? Which
requirements are meant to be used to evaluate each of the 5C’s of credit?

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 LET US STUDY

Simple Interest – the charging interest rate r based on a principal P over T number of
years.
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 = 𝑃 𝑥 𝑟 𝑥 𝑇
In the story above,
Principal = ₱500,000
Rate = 8%
Time = 5 years

Thus,
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 = 500,000 𝑥 .08 𝑥 5 = ₱200,000

Compound Interest - the interest in the first compounding period is added on the
principal, which will then be the basis for the interest to be computed for the next period.
So, in our earlier example, the interest to be earned on the first year is equal to
500,000 𝑥 .08 = 40,000. The 40,000 interest will be added to the 500,000 principal which will
then be the basis for interest computation for the second year; 540,000 𝑥 .08 = 43,200, and
so on. The formula below shows the summary of the effects of adding on the interest, where
m is the compounding frequency.
(𝑇𝑥𝑚)
𝑟
Interest = (𝑃𝑥 (1 + )) −P
𝑚
or
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 = 𝑃 𝑥 (1 + 𝑟)𝑇 – 𝑃
In the story above,
Principal = ₱500,000
Rate = 8%
Time = 5 years
Compounding frequency = annually

Thus,
(5𝑥1)
0.08
Interest = (500,000𝑥 (1 + )) − 500,000 = ₱234,664.04
1

Compounding Frequency - the number of times interest is computed on a certain

principal in one
year.
• If the investment pays annually, the interest is the same as computed above since
m=1.
• If the investment pays semi-annually, the total interest will be equal to:
(5𝑥2)
0.08
Interest = (500,000𝑥 (1 + )) − 500,000 = ₱240,122.14
2

Future Value - the amount to which an investment will grow after earning interest.
𝐹𝑢𝑡𝑢𝑟𝑒 𝑉𝑎𝑙𝑢𝑒 = 𝑃𝑟𝑒𝑠𝑒𝑛𝑡 𝑉𝑎𝑙𝑢𝑒𝑥(1 + 𝑅)𝑇

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Present Value - the amount you have to invest today if you want to have a certain amount
of cash flow in the future.
𝐹𝑢𝑡𝑢𝑟𝑒 𝑉𝑎𝑙𝑢𝑒
𝑃𝑟𝑒𝑠𝑒𝑛𝑡 𝑉𝑎𝑙𝑢𝑒 =
(1 + 𝑅)𝑇

LET US PRACTICE

Answer the following. Write your answer on a separate sheet of paper.

1. You deposited PHP1,500 in a bank with an interest rate of 5% for 1 year. What is
the future value of your deposit?
2. You need to save up for P1,500 in 1 year. How much should you save now if the
bank offers a rate of 5%? (Find the present value)
3. FNB pays 6% interest compounded semi-annually. SNB pays 6% compounded
monthly. Which bank offers the higher effective annual rate?
4. Compute the present value and future value of PHP100 cash flow for the following
combination of discount rates and times:
a. r = 8%, t = 5 years
b. r = 8%, t = 10years
c. r = 5%, t = 5years
d. r = 5%, t = 10 years
5. You deposit PHP1,000 in your bank account. If the bank pays 4% simple interest,
how much interest will you accumulate in your account after 10 years? What if the
bank pays compound interest?

LET US REMEMBER

Simple Interest – the charging interest rate r based on a principal P over T number of
years.
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 = 𝑃 𝑥 𝑟 𝑥 𝑇

Compound Interest - the interest in the first compounding period is added on the
principal, which will then be the basis for the interest to be computed for the next period.
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 = 𝑃 𝑥 (1 + 𝑟)𝑇 – 𝑃

Future Value - the amount to which an investment will grow after earning interest.
𝐹𝑢𝑡𝑢𝑟𝑒 𝑉𝑎𝑙𝑢𝑒 = 𝑃𝑟𝑒𝑠𝑒𝑛𝑡 𝑉𝑎𝑙𝑢𝑒𝑥(1 + 𝑅)𝑇

Present Value - the amount you have to invest today if you want to have a certain amount
of cash flow in the future.
𝐹𝑢𝑡𝑢𝑟𝑒 𝑉𝑎𝑙𝑢𝑒
𝑃𝑟𝑒𝑠𝑒𝑛𝑡 𝑉𝑎𝑙𝑢𝑒 =
(1 + 𝑅)𝑇

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 LET US APPRECIATE

Answer the given problem. Write your answer on a separate sheet of paper.
Mr. Sotto won ₱10 million in the lottery. He was very excited to collect his winnings and
had several plans for his ₱10 million. He would buy his dream house, car, and a lot more.
However, he was very disappointed when the officers from PCSO said that he will not get his
₱10 million pesos upfront. He, however, has the following options:
• Get 8.1 million upfront
• Receive 1 million every year for 10 years
• Receive 1.8 million every year for 5 years
The current government bonds have a yield of 5% per annum. Which is the best option?

LET US PRACTICE MORE

Answer the following. Write your answer on a separate sheet of paper.

1. What is the present value of the following cash flow stream if the interest is 6%?
Year Cash Flow
1 300
2 400
3 500
2. What is the present value of a 3-year annuity of PHP100 if the discount rate is 6%?
3. What is the present value of a 5-year annuity payment of PHP1,000 with a discount
rate of 5% if the first payment will be made today?
4. You need PHP25,000 to buy a laptop when you enter college 2 years from now. How
much must you invest now if the interest rate is at 6% per annum?
5. Mario will be making a lump sum payment of PHP1.6 million on the condominium
he is buying two years from now. If he wants to set aside funds from now and invest
it that will earn interest of 3%, net of taxes every year and this amount is
compounded annually, how much does he need to invest today? What if the interest
is compounded semi-annually, how much does he need to invest today?

EVALUATION

Compute for the future value and the present value at the end of the term for each
scenario. Write your answer on a separate sheet of paper.

1. Your mother invested ₱18,000 in government securities that yields 6% annually for
two years.
2. Your father obtained a car loan for ₱800,000 with an annual rate of 15% for 5 years.

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3. Your sister placed her graduation gifts amounting to ₱25,000 in a special savings
account that provides an interest of 2% for 8 months. She expects to get ₱25,000 after
8 months.
4. Your brother borrowed from your neighbor to buy a new mobile phone. The neighbor
charged 11%for the borrowed amount payable after three years at a total amount of
₱7,000.
5. You deposited your savings from your daily allowance in a time deposit account with
your savings bank at a rate of 1.5% per annum. This will mature in 6 months and
you expect to get ₱5,000 at the end of the term.

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 All Rights Reserved
2020

ACKNOWLEDGEMENT

CAROLINA S. VIOLETA, EdD

Schools Division Superintendent

CECILIA E. VALDERAMA, PhD

Asst. Schools Division Superintendent

DOMINADOR M. CABRERA, PhD

Chief, Curriculum Implementation Division

EDWARD C. JIMENEZ, PhD

Education Program Supervisor- LR Manager

JOCELYN A. MANALAYSAY, PhD

Education Program Supervisor- Mathematics

REALYN B. TANABE
Developer-ASHCOM