LENS POLYTECHNIC OFFA
SKILLS, KNOWLEDGE AND ETHICS
SCHOOL OF MANAGEMENT STUDIES
DEPARTMENT OF BUSINESS ADMINISTRATION
MANUAL
BUSINESS MATHEMATICS I
(BAM 112)
ACC & BAM ND 1
PROUDLY LENSPOFFA
COURSE OUTLINE
1. The concepts of simple and compound interest, annuity, present value and discount.
1
,2. Investment appraisal, the necessary test and their application to business
3. Evaluate indices
4. The concepts of equation and inequalities and their appl.in solving business problem.
5. Basic ideal of matrix and its application in management science
6. The construction and interpretation of graphs and their application
7. Vector algebra and its application to business management
THE CONCEPT OF SIMPLE AND COMPOUND INTEREST
Interest
This can be defined as the price paid for borrowing money. When interest is calculated on
the basic sum of money saved or borrowed, and then it is called simple interest. Interest is
denoted by I.
Simple interest
This means interest charged on a principal amount that remains unchanged with time. It
is charged on borrowed money and it is a quick method of calculating the interest
changed on a loan. Therefore, when an investment is made on simple interest basis the
required calculation is a follows:
SI = P X R X T
Where: SI = is the interest amount
P = Principal amount
R = Rate of Interest
T = Time period
Examples
1. Mr. Mark is to invest N100,000 in a bank for a period of 4 years at a simple
interest rate of 10%. What is the interest element at the end of the period?
SI = PXRXT
= N100, 000 x 10% x 4
= N100, 000 x 0.1 x 4
= N40, 000
2. Find the simple interest on N12, 000 for 71/2 year at 6% per annum
T = PRT
100
= N12, 000 x 6% x 71/2
= N12, 000x6x15
100 x 2
2
, = N1, 080,000
200
= N5, 400
3. For how long would it take to invest N1, 600 at 4% per annum and simple interest
to yield an interest of N320?
320 = 1,600 x 4
100
320 = 6400
100
320 = 64
T = 320
64
T = 5 years
BASIC DEFINITIONS
Principal Amount: This is the original amount of money that is lent or invested.
Time: This is the period for which the principal amount lent or interested is to be used. It
is expressed in years.
Rate: This is the proportion of the principal amount that is paid as interest. It is always
expressed as percentage
Accrued Amount: This is the sum of the principal and interest.
COMPOUND INTEREST
This is the addition of interest to the principal sum of a loan or deposit. It is the result of
re-investing interest rather than paying it out, therefore, interest in the next period is then
earned on the principal sum plus previously accumulated interest. However with
compound interest, the interest is added to the principal at the end of each interval. Thus,
the principal increases and so the interest becomes greater for each interval.
In compound interest, when money is borrowed, interest must be paid back as well as the
principal, when a large sum of money is paid back over a time of years, the principal
gradually reduces.
Examples
1. Mr.Ologunebi deposits N150, 000 in a bank account for a period of 5 years at the
following interest rates.
Year 1 2 3 4 5
Rates 10% 10% 12% 15% 15%
What will be the balance in the account at the end of the period?
Principal sum N150, 000
3
, Year 1 Interest at 10% N 15,000
N165, 000
Year 2 Interest at 10% N 16,500
N181, 500
Year 3 Interest at 12% N 21,780
N203, 280
Year 4 Interest at 15% N 304, 92
N 233772
Year 5 Interest at 15% N 35,066
N268, 838
2. Surulere Cooperative Society Interested N18, 000 at 8% p.a. C.I for 4 years and
withdraws N4,600 at the beginning of each year starting from the time of
investment. What will be there finance stand at the end of the fourth year?
Solution N
st
1 Year Investment 18,000
st
1 Year Withdrawal - 4,600
st
1 Year Principal 13,400
st
1 Year Interest (8/100 x 13,400) + 1,072
14,472
nd
2 Year Withdrawal - 4,600
nd
2 Year Principal 9,872
nd
2 Year Interest (8/100x9872) + 789.76
10,661.76
rd
3 Year Withdrawal - 4,600
rd
3 Year Principal 6,061.76
rd
3 Year Interest (8/100 x 606.76) + 484.94
6,546.70
th
4 Year Withdrawal - 4,600s
th
4 Year Principal 1,946.70
th
4 Year Interest (8/100x1946.70) + 155.74
2,102.44
Exercise
1. DayBos invested N3000 in a saving account at 10% p.a C.I and added N1050 at
the beginning of each year starting a year later. What is the total interest earned
just before the third addition is made?
4
SKILLS, KNOWLEDGE AND ETHICS
SCHOOL OF MANAGEMENT STUDIES
DEPARTMENT OF BUSINESS ADMINISTRATION
MANUAL
BUSINESS MATHEMATICS I
(BAM 112)
ACC & BAM ND 1
PROUDLY LENSPOFFA
COURSE OUTLINE
1. The concepts of simple and compound interest, annuity, present value and discount.
1
,2. Investment appraisal, the necessary test and their application to business
3. Evaluate indices
4. The concepts of equation and inequalities and their appl.in solving business problem.
5. Basic ideal of matrix and its application in management science
6. The construction and interpretation of graphs and their application
7. Vector algebra and its application to business management
THE CONCEPT OF SIMPLE AND COMPOUND INTEREST
Interest
This can be defined as the price paid for borrowing money. When interest is calculated on
the basic sum of money saved or borrowed, and then it is called simple interest. Interest is
denoted by I.
Simple interest
This means interest charged on a principal amount that remains unchanged with time. It
is charged on borrowed money and it is a quick method of calculating the interest
changed on a loan. Therefore, when an investment is made on simple interest basis the
required calculation is a follows:
SI = P X R X T
Where: SI = is the interest amount
P = Principal amount
R = Rate of Interest
T = Time period
Examples
1. Mr. Mark is to invest N100,000 in a bank for a period of 4 years at a simple
interest rate of 10%. What is the interest element at the end of the period?
SI = PXRXT
= N100, 000 x 10% x 4
= N100, 000 x 0.1 x 4
= N40, 000
2. Find the simple interest on N12, 000 for 71/2 year at 6% per annum
T = PRT
100
= N12, 000 x 6% x 71/2
= N12, 000x6x15
100 x 2
2
, = N1, 080,000
200
= N5, 400
3. For how long would it take to invest N1, 600 at 4% per annum and simple interest
to yield an interest of N320?
320 = 1,600 x 4
100
320 = 6400
100
320 = 64
T = 320
64
T = 5 years
BASIC DEFINITIONS
Principal Amount: This is the original amount of money that is lent or invested.
Time: This is the period for which the principal amount lent or interested is to be used. It
is expressed in years.
Rate: This is the proportion of the principal amount that is paid as interest. It is always
expressed as percentage
Accrued Amount: This is the sum of the principal and interest.
COMPOUND INTEREST
This is the addition of interest to the principal sum of a loan or deposit. It is the result of
re-investing interest rather than paying it out, therefore, interest in the next period is then
earned on the principal sum plus previously accumulated interest. However with
compound interest, the interest is added to the principal at the end of each interval. Thus,
the principal increases and so the interest becomes greater for each interval.
In compound interest, when money is borrowed, interest must be paid back as well as the
principal, when a large sum of money is paid back over a time of years, the principal
gradually reduces.
Examples
1. Mr.Ologunebi deposits N150, 000 in a bank account for a period of 5 years at the
following interest rates.
Year 1 2 3 4 5
Rates 10% 10% 12% 15% 15%
What will be the balance in the account at the end of the period?
Principal sum N150, 000
3
, Year 1 Interest at 10% N 15,000
N165, 000
Year 2 Interest at 10% N 16,500
N181, 500
Year 3 Interest at 12% N 21,780
N203, 280
Year 4 Interest at 15% N 304, 92
N 233772
Year 5 Interest at 15% N 35,066
N268, 838
2. Surulere Cooperative Society Interested N18, 000 at 8% p.a. C.I for 4 years and
withdraws N4,600 at the beginning of each year starting from the time of
investment. What will be there finance stand at the end of the fourth year?
Solution N
st
1 Year Investment 18,000
st
1 Year Withdrawal - 4,600
st
1 Year Principal 13,400
st
1 Year Interest (8/100 x 13,400) + 1,072
14,472
nd
2 Year Withdrawal - 4,600
nd
2 Year Principal 9,872
nd
2 Year Interest (8/100x9872) + 789.76
10,661.76
rd
3 Year Withdrawal - 4,600
rd
3 Year Principal 6,061.76
rd
3 Year Interest (8/100 x 606.76) + 484.94
6,546.70
th
4 Year Withdrawal - 4,600s
th
4 Year Principal 1,946.70
th
4 Year Interest (8/100x1946.70) + 155.74
2,102.44
Exercise
1. DayBos invested N3000 in a saving account at 10% p.a C.I and added N1050 at
the beginning of each year starting a year later. What is the total interest earned
just before the third addition is made?
4
