[11/2, 11:32 AM] chimaobim Raymond: Change of subject formula (Our next topic)

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Introduction

The subject of a formula is the variable that is being worked out. It can be recognized as the
letter on its own on one side of the equals sign.

Examples

In the formula for the area of a rectangle A = bh (area = base × height), the subject of the
formula is A.

If x = 2y + 0, x is the subject of the formula.

Given P = 2(a + b), P is the subject of the formula.

[11/2, 11:32 AM] chimaobim Raymond: Solved Problems 2

Example 2

Given the equation

1/f = 1/v + 1/u

1. Make v subject of the formula

2. Make f subject of the formula

Solution

1. 1/f = 1/v + 1/u

Subtract 1/u from both sides

1/f - 1/u = 1/v + 1/u - 1/u

1/v = 1/f - 1/u

Find the LCM of the RHS

1/v = u - f/fu

Cross multiply

fu = v (u - f)

Divide both sides by (u - f)

v(u - f)/u - f = fu/u - f

v = fu/u - f

2. 1/f = 1/v + 1/u

Find the LCM of the RHS

1/f = u + v/vu

Cross multiply

vu = f (u + v)

Divide both sides by (u + v)

vu/u + v = f(u + v)/u + v

f = vu/u + v

[11/2, 11:32 AM] chimaobim Raymond: Solved Problems 1

Example 1

1. Given A = ax + b. Express x in terms of A, a and b.

2. Given T = a + (n-1)d, express a with respect to T, n and d.

Solution

1. A = ax + b

Subtract b from both sides

A – b = ax + b - b

A - b = ax

Divide both sides by a

(A - b)/a = ax/a

(A - b)/a = x

Therefore,

x = (A - b)/a

2. T = a + (n-1)d

Subtract (n-1)d from both sides

T – (n-1)d = a + (n-1)d - (n-1)d

T – (n-1)d = a

Therefore,

a = T – (n-1)d or

a = T - nd + d

[11/2, 11:32 AM] chimaobim Raymond: Simple Interests/ Compound interest: (Next Topic)

[11/2, 11:32 AM] chimaobim Raymond: Simple Interest

Simple interest is a quick and easy method of calculating the interest charge on a loan. In other
words, it is determined by multiplying the daily interest rate by the principal and the number of
days that elapse between payments.

Simple Interest (S.I) is the method of calculating the interest amount for some loan/principal
amount of money.

Mathematically;

Simple Interest = P x R/100 x T

Where:

P = principle

R = interest rate
T = time in years

Examples of Simple Interest

Example 1

Compute the interest if the principal is 2000 naira at a rate of interest of 5% for 4 years.

Solution

I = P × R/100 × T

P = 2000, R = 5%, and T = 4

Interest = 2000 × 5/100 × 4

Interest = 2000 × 0.05 × 4

Interest = 100 × 4 = ₦400

After 4 years, the simple interest on a 2000 naira principal is 400 naira.

Exercise 2

Compute the interest if the principal is 100 dollars at a rate of interest of 2% for 10 years.

Solution

I = P × R/100 × T

P = 100, R = 2%, and T = 10

Interest = 100 × 2/100 × 10

Interest = 100 × 0.02 × 10

Interest = 2 × 10 = ₦20
Compound Interest

Compound interest is the addition of interest to the principal sum of a loan or deposit, or in
other words, interest on interest.

It is the result of reinvesting interest, rather than paying it out, so that interest in the next period
is then earned on the principal sum plus the previously accumulated interest. Compound
interest is standard in finance and economics.

With compound interest, you work out the interest for the first period, add it to the total, and
then calculate the interest for the next period, and so on...

Example: A man borrowed $1,000.00 at the rate of 10%, for 5 years on compound interest. What
will be his loan at the start of the fifth year?

Solution:

Year Loan at Start Interest Loan at End

0 (present) $1,000.00 1,000 x 10/100 = $100.00 $1,000 + $100.00 = $1,100.00

1 $1,100.00 1,100.00 x 10/100 = $110.00 $1,100 + $110.00 = $1,210.00

2 $1,210 1,210 x 10/100 = $121.00 $1,210 + $121.00 = $1,331.00

3 $1,331 1,331 x 10/100 = $133.10 $1,331.00 + $133.10 = $1,464.10

4 $1,464.10 1,464.10 x 10/100 = $146.41 $1,464.10 + $146.41 = $1,610.51

5 $1,610.51
These calculations are done one step at a time:

Step 1: Calculate the interest (Loan at Start × Interest Rate)

Step 2: Add the interest to the "Loan at Start" in order to get the "Loan at End" of the year

Step 3: The "Loan at End" of the year is the "Loan at Start" of the next year

A simple job, with lots of calculations.

But there are quicker ways, using some clever mathematics. This will be discussed later.

Compound Interest General Formula

Mathematically;

FV = PV x (1 + r)n

Where:

FV = future value

PV = present value

r = rate of interest
n = number of periods.

In the example solved previously; A man borrowed $1,000.00 at the rate of 10%, for 5 years on
compound interest. What will be his loan at the start of the fifth year?

We can solve this using this formula;

Where PV = $ 1,000.00 ,FV = ? n = 6 years, r = 10% = 0.1

FV = 1000 x (1 + 0.1)5

FV = 1000 x (1.1)5 = $ 1610.51

This is faster than the method we used

Finding Present Values

You can be given the future value in a question and asked to calculate the present value.

Since you know that; FV = PV x ( 1 + r )n

Make PV subject of the formula; PV = FV/(1 + r)n

Example:

How much do you need to invest now, to get $1610.51 in five years at the rate of 10%?

Solution:

PV =1610.51/(1 + 0.1)5

PV = 1610.51/1.15

PV = $ 1,000.00

Compounding Periods

Compound interest is not always calculated per year; it could be per month, day, etc.

Example

You take out a $1,000 loan for 12 months and it says "1% per month", how much do you pay
back?

Just use the future value formula with "n" being the number of months:

FV = PV × (1+r)n
= $1,000 × (1.01)12

= $1,000 × 1.12683

= $1,126.83 to pay back

Note: It is also possible to have yearly interest but with several compounding within the year,
which is called Periodic Compounding.

Example

6% interest with "monthly compounding" does not mean 6% per month, it means 0.5% per
month (6% divided by 12 months), and is worked out like this:

FV =PV × (1+r/n)n

= $1,000 × (1 + 6%/12)12

= $1,000 × (1 + 0.5%)12

= $1,000 × 1.00512

= $1,000 × 1.06168

= $1,061.68 to pay back

This is equal to a 6.168% ($1,000 grew to $1,061.68) for the whole year.

Interest Rate & Number of Periods

From; FV = PV ( 1 + r )n

We can derive the formula to determine the interest rate and the number of periods if not given.

r = (FV/PV)(1/n) − 1

This is used for finding the interest when given the present value, future value, and the number
of periods.

n = ln (FV/PV) / ln(1 + r)

This is used for finding the number of periods when given the present value, future value, and
interest rate.

Note: "ln" is the logarithm function.

[11/2, 11:32 AM] chimaobim Raymond: Final Topic for tonight's class

Is

SIMPLIFICATION AND SUBSITUTIONS