SIMPLE INTEREST

MORTGAGES
COMMISSIONS AND OVERRIDES
Lesson Objectives
At the end of this lesson, the students should be able to:
1. explain the role interest plays in a loan transaction;
2. compute the interest due on a loan;
3. find the maturity value on a loan or the future value on invested
capital;
4. differentiate ordinary interest and exact interest, and be able to
compute for the same;
5. compute for actual time and approximate time;
6. use the knowledge in (4) and (5), and compute for the four different
types of simple interest;
7. be conversant with the 60-day 6% method of computing simple
interest; and
8. explain the concept of promissory note.
Lesson Objectives
At the end of this lesson, the students should be able to:
1. comprehend what a mortgage is;
2. compute for the down payment on a mortgage and the amount of the
mortgage loan;
3. determine how payment is applied to interest and principal, and
determine the balance of the loan after each payment;
4. prepare an amortization table;
5. solve problems involving mortgages;
6. differentiate commission from override;
7. compute for commission earned on a particular cash sale;
8. compute for commission earned on an installment sale; and
9. solve for gross earnings involving salary, commission, and override.
 Simple Interest
Simple interest:
I = Prt
where I – interest P – principal
R – rate T – time
Future value:
F=P+I
F = P(1+ rt)
 Simple Interest
Tessa borrowed ₱2,000 at 12% interest for 2 years.
Find the interest (I) and the maturity value (F).
Given: P = ₱2,000 r = 12% t = 2 years

Interest: I = Prt
= ₱2,000 × 12% × 2 = ₱480
Maturity value: F = P + I
= ₱2,000 + ₱480 = ₱2,480
 Actual Time and Approximate Time

Find the actual time between April 22 and August 25.

Actual time: counts the exact number of days

April has 30 days

– 22
Days in April 8
May 31
June 30
July 31
August 25
125 days
 Actual Time and Approximate Time

Find the approximate time between April 22 and August 25.

Approximate time: assumes each month has 30 days

Months Days
8 (Aug) 25 (Aug)
– 4 (April) – 22 (April)
4 months 3 days
× 30 days/mo
120 days

120 days + 3 days = 123 days

Ordinary Interest and Exact Interest

Ordinary Interest – one year is taken as 360 days

D
Io = P × r ×
360

Exact Interest – one year is taken as 365 days

D
Io = P × r ×
365
 Ordinary Interest and Exact Interest

Compute for ordinary interest and exact interest on

₱1,000 at 8% for 90 days.
D
Ordinary Interest: Io = P × r ×
360
90
= ₱1,000 × 8% × = ₱20
360
D
Exact Interest: Io = P × r ×
365
90
= ₱1,000 × 8% × = ₱19.73
365
 Down Payment and Mortgage Loan

Assume that you wish to purchase a secondhand car worth

₱312,500 and the seller requires a 20% down payment.

Down payment = Purchase price × Down payment %

= ₱312,500 × 20%
= ₱62,500

Mortgage loan = Purchase price – Down payment

= ₱312,500 – ₱62,500
= ₱250,000
 Term of the Loan:
Total Number of Payments

Monthly Payment:
i × P × (1 + i)n
A=
(1 + i)n −1
where A – monthly payment
P – loan’s initial amount
i – monthly interest rate
n – total number of payments
 Monthly Payment
Loan amount: ₱250,000 Number of payment: 360
Assume that the bank will charge you 5% annually

i × P × (1 + i)n
A=
(1 + i)n −1
0.00416 ₱250,000 × (1 + 0.00416)360
=
(1 + 0.00416)360 −1
= ₱1,342.05
Amortization Table
 Plain Commission
P = BR
Commission = Sales × Commission rate

Carmen Yambao is a sales agent for the High Ace Realty. She is
given a 2% commission on her sales. For the current month,
her sales was ₱1,035,000. Her commission (which is also her
gross earnings) would be:

Commission = ₱1,035,000 × 2%
= ₱20,700
 Commission and Salary
Gross Earnings = Basic Salary + Commission
Carmen Yambao’s gross earnings assuming a basic
salary of ₱10,000 per month:
Gross Earnings = Basic Salary + Commission
= ₱10,000 + (₱1,035,000 × 2%)
= ₱10,000 + ₱20,907
= ₱30,907
 Commission and Salary
Eugene Tito is a sales representative earning a basic salary of
₱18,000 a month plus 3% commission on his sales exceeding
his quota of ₱15,000. Assume he made a total sales of ₱36,000
for the current month. Find his gross earnings.
Gross Earnings = Basic Salary + Commission
= ₱18,000 + 3% (Sales – Quota)
= ₱18,000 + 3% (₱36,000 – ₱15,000)
= ₱18,000 + 3% (₱21,000)
= ₱18,000 + ₱630
= ₱18,630
 Overrides
M. Coronilia is a product manager with five sales representatives under
him. The company gives him an annual salary of ₱126,000; commission of
5% on his own sales; and an override of 12% on his men’s sales. Find his
gross earnings for the month if his total sales is ₱365,500 with his men
able to sell a total of ₱1,548,263 for the month.

Commission = 5% × his own sales

= 5% × ₱365,500 = ₱18,275
1
Override = % × his men’s sales
2
= 0.005 × ₱1,548,263 = ₱7,741.32
𝐴𝑛𝑛𝑢𝑎𝑙 𝑠𝑎𝑙𝑎𝑟𝑦 ₱126,000
Basic salary = = = ₱10,500
12 12
Gross earnings = ₱36,516.32
 Transportation Allowance /
Representation Allowance

Emmanuel earns a basic salary of ₱12,500 per month. He earns a 3%

commission on his own sales and a 1% override on the sales of his men. In
addition, he is granted a transportation/ representation allowance of
₱1,000 per month. For the current month, his men made a total sales of
₱250,000. He made a total sales of ₱140,000. His gross earnings would be:

Gross earnings = Basic pay + Commission + Override + Allowance

= ₱12,500 + (3%×₱140,000) + (1%×₱250,000) + ₱1,000
= ₱12,500 + ₱4,200 + ₱2,500 + ₱1,000
= ₱20,200
 Commission on Sales in
Installment Basis

Assuming a sale of ₱120,000 paid in monthly

installments of ₱10,000 and the commission paid is
3%.
Monthly Commission = 3% × ₱10,000
= ₱300
Exercises
1. Tom lent ₱5,500 at 12% for 4 months. How much will he
get at the end of the term? How much interest will he earn?
2. Find the actual and appropriate time from May 8 to Nov 25.
3. What is the monthly payment on a mortgage of ₱125,000
with annual interest rate of 6% that runs for 20 years?
4. Lara receives a basic monthly compensation of ₱12,000
and a commission on all sales of 2%. What is her gross
earnings for the month if she sold ₱150,500.