Quarter 2

Learning Activity Sheets 5-6, Quarter 2

For Business Finance Grade 12

BUSINESS FINANCE

LAS_5
The Loan Requirements of the Different Banks
and Nonbank Institutions in the Locality

I. Learning Competency with Code

• Compare and contrast the loan requirements of the different banks and nonbank
institutions and cite these institutions in the locality. (ABM_BF12-IIIe-f-14)

II. Activity Proper

ACTIVITY 1: The Loan Requirements of the Different Banks and Nonbank Institutions
in the Locality

Nicole’s Seafoods and Restaurant offers the best seafoods in town. They operate it
profitably with a working capital of Php5 million, and customers flock to avail the services
they offered, yet the area cannot accommodate them. Customers still asking them to open
a new branch, but it need a lot of money for expansion.

Questions for Discussion:

1. If you were the owner of the said restaurant, are you willing to expand or create
6 a branch of your business?
2. How would debt financing or equity financing help you realize the expansion of
the business?

Let us now discuss the debt and equity financing. Debt financing is the borrowing of
money from lenders (friends, relatives) as well as external capital (banks or venture
capitalists) and not giving up ownership while the equity financing is the method of
raising capital by selling company stock to investors or stockholders in exchange of
ownership interests in the company. Following are the advantages and disadvantages of
debt and equity financing:

Page 1 of 18
 ADVANTAGES AND
DISADVANTAGES OF DEBT FINANCING AND EQUITY FINANCING

Comparison between Advantages and Disadvantages of Debt Financing and Equity

Financing

Let us consider the following situations:

Situation 1. Fabrics Inc. put up a clothing outlet worth Php10 million and funded the
entire amount using a one-year short-term loan. The company’s average annual operating
cash flows for the last three years is Php 1.5 million.

What do you think would happen to the company?

Given the average annual operating cash flows of the company of only Php1.5 million,
there is a very high probability that Fabrics Inc. will not be able to pay the loan within one
year. Given the amount of the loan in relation to operating cash flows, management may
become much stressed thinking about how to settle this loan. This will adversely affect
the executive time they spend in managing the core business of the company.

Situation 2. YKL Inc. is in the business of fireworks production. Its peak season is
usually during the holidays, especially during Christmas and New Year. The company
needs additional Php500,000 to finance their working capital needs during the holiday
season. How this should be financed? Should it be financed using short-term loan, long
term loan, or through equity?

Page 2 of 18
 This should be financed by short-term loan. Long-term loan and equity financing
are not recommended for this temporary financing requirement because of the following
reasons:

(1) The need for financing is limited to the holiday season.

(2) Equity financing is the most expensive, while interest rates on long-term debt is also
generally higher as compared to interest rates on short term debt. Also, if the funds are
needed only for a limited period, 8 there is no need for the company to secure a long-term
source of funds.

Can you think of other scenarios where a mismatch for financing could be a
problem for a business?

In some instances, companies will consider financing a long term investment

through a short-term loan. Let us say, you are a restaurant owner and you are planning
to open another branch which will cost you Php8 million. The returns on this investment
will be realized over a number of years. Therefore, financing it through a short-term loan,
say one year, will give you too much pressure to pay the loan because the new branch
may not have generated enough cash flow within the year to cover the Php8 million.

Long-term and short-term financing

Short term financing is debt scheduled to be paid within a year while long-term
financing is debt to be paid in more than a year.

Liquidity risks and liquidity ratios

Liquidity risk occurs when an individual investor, business, or financial institution

cannot meet its short-term debt obligations. The investor or entity might be unable to
convert an asset into cash without giving up capital and income due to a lack of buyers or
an inefficient market. Ratios such as the current ratio and quick ratio measure the
institution’s liquidity. There should be a balance between liquid funds and investments.
Too high liquidity ratios will have opportunity costs since these funds could have been
invested to yield earnings. Too low liquidity ratios, however, may cause the institution to
default on payments should emergency situations arise. Enough liquid assets should be
available to meet short term obligations.

Sources and uses of short-term funds

Suppliers Credit. An agreement between a supplier and a buyer whereby the

supplier defers payment. That is, supplier credit 9 occurs when the supplier accepts
installment payments for the supplies, he/she sells.

Credit cooperatives provide lending services to its members. Members usually

pay contributions to the cooperative.
Banks provide several loan products catering to different types of needs.
Credit Cards just take note of the high interest rates on this source of funds.

Page 3 of 18
 Lending Companies are companies that are dedicated to lending. They usually
charge higher interest than banks, but their credit requirements are more lenient
compared to banks.

Pawnshops provides funds in exchange for collateral, usually jewelry, or other

items of value.

Informal lending sources (5/6) Interest is usually paid per month or even on
daily basis, monthly interest is (6-5)/5 or 20%. Annual interest is actually 20%*12 or
240%.

Factors to be considered in selecting the source of short-term financing:

1. Cost (Interest). Informal lending sources like 5/6 may be the most expensive.
2. Availability of short-term funds. Informal lending sources like 5/6 is most available
because there are no formal requirements to avail of the facility.
3. Risk. Whatever the source of fund is, if the company defaults, the lenders may
foreclose some of the company’s properties or even the entire business itself to settle the
loan.
4. Flexibility. This pertains to the ability of the company to access funds. For example, a
bank loan may be cheaper, but the bank may reject the loan application of the borrower
because he/she did not pass the credit evaluation process of the bank. This financial
flexibility can be influenced by the nature of the company’s business, leverage ratio and
stability of operating cash flows.
5. Restrictions (Debt covenants). Some lenders like banks may require a minimum
deposit balance with their branch for as long 10 as the loans remain outstanding. The
bank’s approval may also be secured before cash dividends can be declared.

THE SOURCES AND USES OF LONG-TERM FUNDS

Equity investors. These are the individuals/corporations which are issued common
stock. They share in the ownership of the company. There are also equity investors who
do not have voting rights in the company but have a share in dividends, usually a fixed
percentage. These investors are issued preferred stock. Holders of preferred shares are
first to receive dividends than common stockholders.

Internally generated funds. Not all profits are distributed to stockholders. Most of the
profits are re-invested and used by companies to finance their needs.

Banks. They provide long-term loans, depending on the nature of the need. For example,
a 5-year to 10-year loan may be granted if the purpose of the loan is construction of an
office building.

Bonds. These are debt investments where an investor loans money to an entity which
borrows the funds.

Page 4 of 18
Lending companies. They can also provide long-term loans. The company’s capital
structure is a major consideration for deciding which long-term sources of funds to
utilize. The target would be to balance debt and equity and come up with the minimum
cost of capital.

What are the usual loan products from banks have you or your family members
encountered?

Maybe your response is Auto-Loan, Housing Loan, Credit Card loan, Working
Capital Loan, etc.

Let us discuss the importance of Know-Your-Customer (KYC) initiatives. Banks are

required to verify the identity of their customers to ensure that the funds will not be used
for illegal 11 activities such as, but not limited to, money laundering and terrorist
financing.

5C’s of Credit are the institution’s primary consideration in approving loan application.
1. Character is the willingness of the borrower to repay the loan.
2. Capacity refers to customer’s ability to generate cash flows.
3. Collateral defines as security pledged for payment of the loan.
4. Capital means a customer’s financial resources.
5. Condition refers to current economic or business conditions.

DIFFERENT LOAN REQUIREMENTS FOR SMALL BUSINESS LOAN, LOANS TO

CORPORATION, PERSONAL CONSUMPTION LOANS, AND OTHER DESIRED LOAN
PRODUCTS

Steps in Loan Application for secured and unsecured loans.

• Pawnshop
• Lending company

The General Steps on Loan Application

1.Loan applicant inquires with the loan officer to apply for a loan.
2.The loan officer provides the loan applicant a loan application form and interviews the
client.
3. The loan officer then decides what type of loan product the borrower qualifies in, and
then provides them a list of requirements.
4. The applicant then submits the requirements along with the loan application form.
5. If collateral is required, the corresponding mortgage documents are made ready.
6. The loan officer then forwards the documents to the credit evaluation department.
7. The credit evaluation department checks whether the applicant provided the complete
documents.

Page 5 of 18
8. Credit investigation is done, and the credit worthiness of the loan applicant is
evaluated.
9. The credit analyst prepares a recommendation and will present the recommendation
before a loan committee who approves the loan application. The loan committee is
generally composed of top executives from the bank.
10. If the loan is approved, then the post-approval requirements will be sent to the loan
applicant for compliance.

Now, can you enumerate the different requirements for a sole proprietorship,
consumption loans, and loans to corporations, as well as the requirements for nonbank
financial institutions?

Here is a sample of bank requirements for your reference:

List of Bank Requirements for Loan Application for a Corporation (Arthur S.

Cayanan)
Pre-approval Requirements:

• Duly accomplished application form

• Securities and Exchange Commission (SEC) registration
• Articles of incorporation and by-laws
• List of elected officers Board resolution or corporate secretary’s certificate regarding loan
application
• Company profile or business background
• List of major suppliers and customers with contact information
• Audited financial statements (2 to 5 years depending on the bank)
• Bank statements (most banks require bank statements for the past 6 months)

Collateral documents such as the following:

• Copy of transfer certificate of title (TCT) or condominium certificate of title
• (CCT)
• Copy of tax declaration
• Appraisal Fee with official receipt

For construction loan

• Building plan or floor plan
• Bill of materials and labor cost
• Building specifications certified by architect/civil engineer
• Development permit
• Copy of lease contracts (if applicable)

Post-approval Requirements:
• Original owner’s duplicate copy of TCT/CCT
• Original certified true copy of latest tax declaration on land and improvement
• Master deed of declaration (for condominium)
• Electronic-certified true copy of TCT/CCT with original official receipt

Page 6 of 18
• Original certified true copy of tax clearance
• Original real estate tax receipts
• Mortgage redemption insurance
• Fire insurance

III. Exercises

ACTIVITY SHEET 5

The Loan Requirements of the Different Banks and Nonbank Institutions in the Locality

Exercise 9. Directions: Multiple Choice. Choose the letter corresponding to the correct
answer for each of the following questions. Write the answer on your answer sheet.

____1. Which of the following best describes debt financing?

a. It is a money from the pocket of the owner
b. It is a money from stocks.
c. It is a stolen money.
d. It is a raised money for working capital or expenditures.

____2. Equity is defined as ________.

a. money borrowed from a friend.
b. the value of shares issued by a company.
c. a monthly payment of rental of your personal own apartment.
d. needing cash now

_____3. In which financial situation should you use debt financing?

a. When there is an emergency and you need money immediately.
b. When you have time and do not need the money right now.
c. When you want to celebrate your birthday but no available funds to finance it.
d. All of the above

_____4. Equity financing is used when

a. starting a new business.
b. there is an unforeseen expense and you need money now.
c. Both A & B
d. None of the above

_____5. Which of the following statements is TRUE about the debt and equity financing?
a. Debt offers ownership in the company.
b. Equity can be acquired quickly. c. You have to pay back with debt, but not with equity.
d. You have to pay back with equity, but not with debt.

Page 7 of 18
Exercise 10. Directions: Choose the letter corresponding to the correct answer for each of
the questions. Write the answer on your answer sheet.

1. How can a corporation raise equity capital?

a. Issue stocks
b. Issue bonds
c. Issue securities
d. Obtain loans

2. How are raising money through equity and debt similar for a business?
a. Both provide ownership in the company.
b. Investors for each are considered creditors of the company.
c. Investors for each are entitled to a share of the company’s profits.
d. All of the above.

3. What are the disadvantages of equity financing?

a. Costly way of raising fund
b. Profits are shared
c. Both A & B
d. None of the above

4. What are the disadvantages of debt financing?

a. Loan must be repaid
b. Risky if cash flow is inadequate
c. Both A nor B
d. None of the above

5. To finance with, the entrepreneur trades __________________ for the money.

a. his car
b. his house 16
c. a percentage of his retirement savings
d. a percentage of ownership of the business

Page 8 of 18
 Quarter 2
Learning Activity Sheets 5-6, Quarter 2
For Business Finance Grade 12

BUSINESS FINANCE

LAS_6
Future Value and Present Value of Money

I. Learning Competency with Code

• calculate future value and present value of money and compute loan
amortization using mathematical concepts and the present value tables.
(ABM_BF12-IIIg-h-18)

II. Activity Proper

ACTIVITY 1: Future Value and Present Value of Money

Read the story and answer the question 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 Php500,000. To
his second servant, believing that he can make wise choices as well, he also gave an
amount of Php500,000. Finally, he called on his third servant and gave him Php500,000.
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
Php500,000 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 also
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 Php500,000 plus the interest he earned worth Php500,000 x (1.08) 5 –
500,000 = 234,664.04. The second servant presented his Php500,000 along with the
interest earned at 500,000 x .08 x 5 = 200,000 Lastly the third servant returned his
PHP500,000.

Which servant will make the Master most pleased? Why?

Page 9 of 18
 SIMPLE AND COMPOUNDED INTEREST

Simple Interest:

Simple Interest is the charging interest rate (r) based on a principal over T number of
years. The simple interest formula:

Interest = P x r x T
Where:
I = Interest,
P = Principal,
r = rate of interest,
T = Time

Example: Servant 2, invested the amount of 500,000 with an interest rate of 8% per
annum for 5 years.
Solution and answer:
Given: P = 500,000, r = 0.08 or 8%, T = 5 years
I=PxrxT
= 500,000 x 0.08 x 5 years
= 200,000
Total Amount = Principal + Interest
= 500,000 + 200,000
= 700,000

COMPOUND INTEREST
Compound interest (or compounding interest) is the interest on a loan or deposit
calculated based on both the initial principal and the accumulated interest from previous
periods.

Example: Servant 1, invested 500,000 at 8% interest compounded annually for 5 years.

Formula: where: m = is the compounding frequency

Interest = P x (1+r)T-P or

Compound Interest = (P x (1+ )(T x m) – P

Solution and Answer:

Given: P = 500,000, r = 8%, m = 1 (compounded annually) T = 5 years

If we substitute the formula

= 500,000 x – 500,000 = Php234,664.04

Amount = 500,000 + 234,664.04
= 734,664.04

Page 10 of 18
 Compounding Frequency is 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 the one computed above since m=1. If the investment pays semi-
annually, since semi-annual means there are 2 compounding periods in
a year. Thus, compounding quarterly means and compounding monthly
means .

EFFECTIVE ANNUAL RATE (EAR)

It is also important to look at interest rates from the point of view of borrowers.
Both businesses and investors need to make an objective comparison of loan costs or
investment returns over different compounding periods. The effective annual rate
allows this comparison because it is the actual interest actually paid or earned. It
should be distinguished from the nominal rate, or the stated contractual rate which
is the interest charged by a lender or promised by a borrower. It does not reflect the
effect of compounding frequency. The formula for computing the EAR is as follows:
EAR =

where, EAR = Effective Annual Rate, interest rate, and compounding frequency.
The only difference is that EAR only takes into consideration the actual interest for one
year.

Example
Mr. Lopez wishes to find the effective annual rate for his loan in BOD bank with a 5%
nominal annual rate when interest is compounded (1) annually, (2) semi-annually, and (3)
quarterly.

Solution and Answer:

Substitute the formula for Effective Annual Rate
1. EAR =

=
= .05 or 5% annually

2. EAR =
= 0. 0506 or 5.06% semi-annually

3. EAR =
= 0.0509 or 5.09% quarterly

4. EAR =
=0.0512 or 5.12% monthly

Page 11 of 18
5. EAR =
=0.0513 or 5.13% daily

The effective annual rate increases with increasing compounding frequency, up to a limit
that occurs with continuous compounding, which is almost equivalent to daily
compounding. The Truth-in-Lending act for Banks and other financial institutions require
that they disclose the effective interest rates for loan products to borrowers. The effective
rates should reflect the service charges and other deductions from the loan proceeds.
Which is more valuable to receive Php1,000 today or receive Php1,000 five months
from now?

Your response maybe Php1,000 today, because there is uncertainty regarding the
receipt of the Php1,000 five months from now. The student can be indifferent if he will be
compensated by receiving more 5 months from now, which is in the form of interest
income. Recall the following saying: ‘A bird in the hand is worth two in the bush’ – Miguel
de Cervantes

Read the following story. Consider the case of Lola Elnora. When she was 24 years
old, her Papa gave her Php50,000. She was very happy and was immediately planning on
spending the money. However, before she could spend the money, her mama taught her
the importance of saving. Not wanting to disappoint her mama, she invested her money in
a bank time deposit with an interest rate of 5% at that time. Lola Elnora became a
successful career woman, but she somehow forgot that she placed Php50,000 in the
bank. She suddenly remembered and was shocked at what had happened to her money
after 50 years. It is now valued at 50,000 x 1.05)50 = 573,369.99. This example is
something of an exaggeration, of course. Nevertheless, it is important to note that money
grows through time.

FUTURE VALUE AND PRESENT VALUE

Future Value is the amount to which an investment will grow after earning interest. In
our previous examples, it is the principal plus total interest earned over a stated period.
So, the future value of an investment of Php500,000.00 yielding an interest of 8% for a 5-
year period compounded annually is Php734,664.04. Present Value is the amount you
have to invest today if you want to have a certain amount of cash flow in the future. These
definitions can better be illustrated in a timeline.

Growth of Value over 5-year period

The time value of money analysis helps managers and investors compare cash
flows today versus cash flow in the future. It answers questions such as what amount in

Page 12 of 18
the future is equal to Php500,000.00 today or what amount today is equivalent to
Php734,664.04 in the future.
The future value is computed using compounding while the present value is computed
using discounting. In practice, when making investment decisions, investors usually
adopt the present value approach.

THE BASIC PATTERNS OF CASH FLOW

Single Amount (Lump Sum) is a single cash outflow is made and

the total receipts will be at a single future date.

Annuity is a periodic stream of equal cash flow at equal time

intervals (annually, monthly, etc.). For example, payment for a certain item shall be for 12
equal monthly installments of Php1,000.

Mixed Stream is unequal periodic cash flows that reflect no

particular pattern. For example, payments made by a customer are in 3
unequal instalments.

What amount they will receive (what is the future value) if Php150,000 is invested at 6%
per annum compounded semi-annually for 3 years?

Note that the, Future value is simply the principal multiplied by the FV factor.

PRESENT VALUE OF A SINGLE AMOUNT

How much must be invested today to produce a certain amount in the future.
Since future value is calculated by multiplying the present investment by 1 + interest rate
compounded by the number of periods, we shall just reverse the process. This method is
called discounting
FV = PV x (1 + r) T

Page 13 of 18
Example: You need Php25,000.00 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?
PV = 25,000/ (1.06)2 = Php22,249.91

You need to invest Php22,249.91 to have Php25,000.00 by the end of 2 years.

This is an illustration on how to calculate future value and present value of mixed
streams of cash flows.

Future Value: Suppose that you choose to put your savings annually in

MRI bank at 8% per annum. For today, you put Php1,200, on the second year
Php1,400, and Php1,000 for the third year. How much will you have available at the end
of three years?

Sample Computation to Identify Future Value

The FV factor can either be computed or looked up in the FV table. This timeline
illustrates the timing of cash flows:

The Timing of Cash Flow

Present Value: Suppose that you can buy a phone for Php8,000 down payment
with 4,000 for each of the next two years or pay Php15,500 cash today. Given an interest
rate of 8%, which is a cheaper alternative?

Present Value
Php8,000 8,000.00
Php4,000/ (1.08)1 3,703.70
Php4,000/ (1.08)2 3,429.36
Total PV 15,133.06

Page 14 of 18
 It shows that the installment plan is cheaper. The present value of a stream of
future cash flows is the amount you have to invest today to generate the stream.

This is how to compute for present value and future value of annuity payments.
This is to illustrate how the present and future values are used. An annuity is a stream of
equal periodic cash flows over a specified period. First, you have to distinguish between
ordinary annuity and annuity due. Ordinary annuity payments are made at the end of
each period (usually annually), while for annuity due, the cash flow occurs at the
beginning of each period. We shall first illustrate ordinary annuities.

Future Value of an Ordinary Annuity

The formula for computing the future value of an ordinary annuity is as follows:

Or

Cash flow multiplied by the FV factor seen on the table. To use the table provided,
look for the rate of interest at the uppermost row and the number of periods on the left
most column. The intersection will be the factor to be
multiplied to the cash flow.

Example: Mr. Mendoza wishes to determine how much the value of his savings in 5
years will be if he will put Php1,000 per year in a bank which provides 7% interest per
annum.

FV = 1,000 x (FVA factor: 5.7507 period=5, rate=7%)

= Php5,750.70

Present Value of an Ordinary Annuity

The formula for computing the present value of an ordinary annuity is as follows:

Cash flow multiplied by the PV factor seen on the table.

Page 15 of 18
Example: Mr. Yusoph wants to buy a pair of shoes worth Php10,500. He has the option
of paying it today for Php10,500 or buying them in instalment where he has to pay a
down payment of Php4,000 today, and the balance will be paid in two equal payments of
Php4,000 each for the next two years. Given an interest rate of 10%, which is the better
option?

Solution and Answer:

PV = 4,000 + 4000 x (PVA factor: 1.7355 period=2, rate=10%)

= Php10,942.00

for buying on instalment vs. PV Php10,500 for buying today. The 4,000 down payment is
not multiplied by the annuity factor because it is paid today. Since buying on instalment
would be more expensive, Mr. Yusoph should buy the pair of shoes today.

III. Exercises

ACTIVITY SHEET 6
Future Value and Present Value of Money

Exercise 11. Directions: Multiple Choice. Choose the letter corresponding to the correct
answer for each of the following questions. Write the answer on your answer sheet.

____1. The simple interest formula is I=PrT. What does the T represent?
a. Principle c. Interest
b. Time d. Percent Rate

____2. Time value of money asserts that:

a. A unit of money obtained today is worth more than a unit of money obtained in
future.
b. A unit of money obtained today is worth less than a unit of money obtained in
future.
c. There is no difference in the value of money obtained today and tomorrow.
d. None of the above.

____3. Earning interest on the interest is called:

a. Compound interest
b. Extra interest
c. Simple interest
d. None of the above

____4. Melissa wants to save the amount of Php5,000. There are four (4) different banks
that offer four (4) different compounding methods for interest. If you were Melissa,
which method would you choose to maximize your Php5,000?
a. Compounded daily
b. Compounded quarterly
c. Compounded semi-annually
d. Compounded annually

Page 16 of 18
____5. The concepts of present and future value are:
a. directly related to each other
b. not related to each other
c. proportionately related to each other
d. inversely related to each other

Exercise 12. Directions: MATCHING TYPE. Match column A to Column B. Write the
letter of the correct answer on your answer sheet.
Column A Column B

1. It is the amount invested to a. Annuity

produce certain amount in b. Future Value
the future. c. Lumpsum
2. It is the amount to which an d. Mixed Stream
investment will grow after e. Present Value
earning interest. f. Simple
3. It is known as a single cash Interest
outflow.
4. It is a periodic stream of
equal cash
flow at equal time intervals.
5. It is known as unequal
periodic cash flows that
reflect no particular pattern.

Exercise 13. Directions: Multiple Choice. Choose the correct answer. Write the answer
on your answer sheet.

6. Liezle invested Php200,000 at 8% interest compounded quarterly for a period of 5

years. What is the future value of her investment?
a. 298,718.94 c. 297,189.48
b. 220,861.61 d. 220,816.16

7. Sam’s goal is to have an investment of Php500,000 after four year. The amount to be
invested will earn an interest of 12% compounded quarterly. Determine the present value
he is to invest.
a. 311,583.47 c. 311,600.00
b. 444,243.52 d. 444,200.00

Exercise 14. Directions: Short Problem. Write the answer on your answer sheet.

1. What is the effective annual interest rate in each situation?

a. A savings account with 4% annual interest rate compounded daily (assume a year
consists of 365 days)?
b. A savings account with 4% annual interest rate compounded monthly?

2. You deposited PHP1,500 in a bank with an interest rate of 5% for 1 year. What is the
future value of your deposit?

Page 17 of 18
3. 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)

4. FNB pays 6% interest compounded semi-annually. SNB pays 6% compounded

monthly. Which bank offers the higher effective annual rate?

5. Compute the present value and future value of P100 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

Good work!

Prepared by: Noted by:

NECCA T. PALCAT-BERIN LOURENE J. GUANZON

Subject Teacher ABM Group Head
Approved by:

SALVADOR J. SEMBRAN, PhD

Asst. Principal II - SHS

Page 18 of 18