Chapter 1

Commercial Mathematics

 Interest is the extra money paid by institutions such as banks or post offices on money deposited
with them.
It is also paid by people when they borrow money from these institutions.
Principal Rate Time
Simple Interest
100
Amount = Principal + Interest

The interest calculated on the amount of the previous year is known as compound interest.
n
r
a) Amount (A) when interest is compounded annually is A P 1
100
Where, P = Principal, R = Rate of interest, n = Time period

2n
r
b) Amount when interest is compounded half yearly is given by, A P 1
200
r
Where, = Half-yearly rate and 2n = Number of half years
2

 When a quantity is appreciated constantly at the rate of r% per annum, the quantity V after n
n
r
years is V V0 1
100
V0 is the present value.

 When a quantity is depreciated constantly at the rate of r% per annum, then

n
r
V V0 1
100
V0 is the value n years ago and V is the present value.

 Sales tax is charged on the sale of an item within the state. It is paid by the customer to the state
government and is added to the bill amount.
Sales Tax = Tax % of bill amount
For example, if the tax charged on an item of Rs 4000 is 10%,
10
Then, sales tax = 4000 Rs 400
100
Therefore, amount paid on buying the item = Rs 4000 + Rs 400 = Rs 4400
 When discount is given, firstly we deduct it from the marked price, then we calculate the sales
tax.

 Additional expenses made after buying an article are included in the cost price and are known as
overhead expenses. These may include expenses such as amount spent on repairs, labour
charges, transportation, etc.
These expenses are added to the cost price (C.P.) to obtain the real C.P. of an article.
C.P. = Buying price + Overhead expenses

 Value added tax is the new method of realising the sales tax. It is also collected by the state
government. In this method the tax is collected in stages.

For example: Suppose a retailer purchases an article from the wholesaler for Rs 100 and sells it
for Rs 120. The rate of sales tax is 5%.
Tax paid by the retailer on the purchase = 5% of Rs 100 = Rs 5
Tax recovered by the retailer on the sale = 5% of Rs 120 = Rs 6
VAT = Tax recovered on the sale – tax paid on the purchase = Rs 6 – Rs 5 = Re 1
So, VAT is the sales tax on the value added by the retailer.

 Banks provide four different types of accounts.

(1) Savings Bank Account
(2) Current Bank Account
(3) Fixed Deposit Account
(4) Recurring Deposit Account

 The rates of interest in a Savings bank Account differ from time to time. The interest on a
Savings Bank Account is calculated under the following steps:
(i) Interest for the month is calculated on the minimum balance between the 10th day and the
last day of the month.
(ii) The minimum balance should be in the multiples of 10. E.g., the minimum balance
between Rs 30 to Rs 35 is taken as Rs 30 and the minimum balance between Rs 35.01 to Rs
40 is taken as Rs 40.
(iii) Then we add all the minimum balances and calculate the simple interest for one month at
the given rate. The rate is given in every problem.
(iv) No interest is paid for the month in which the account is closed. So, we do not take the
minimum balance for that month in the sum.
(v) If the interest is less then Re 1, then we neglect it.

 Recurring Deposit Account is the scheme under which an investor deposits a fixed amount
every month for a fixed time period. This fixed time period is known as the maturity period.
After completing the maturity period, he gets the amount deposited together with the interest.
 The amount received by the investor on the expiry of maturity period is known as maturity
value.
If an investor deposits amount P for n months and the rate of interest is r% p.a. simple interest,
then the simple interest is given by the formula
n n 1 r
S.I. = P
2 12 100
And maturity value = nP + S.I.

 The money required to start a business (or company) is divided into small parts and each small
part is called the share of the company. Each person who purchases one or more share is
known as the shareholder of the company.
Some terms related to shares are as follows:
(i) Nominal value is the original value of a share. It is also called as the face value or
printed value.
(ii) Market value is the price of share at any time. It changes from time to time.
(iii) When the market value of a share is equal to its nominal value, then it is called share at
par.
(iv) When the market value of a share is more than its nominal value, then it is called share
above par or at premium.
(v) When the market value of a share is less than its nominal value, then it is called share
below par or at discount.

The profit which a shareholder gets is known as the dividend. It is always expressed as a
percentage of the nominal value of a share.
“8% Rs 10 shares at Rs 15” means that
Nominal value = Rs 10
Market value = Rs 15
Dividend = 8% of Rs 10 = Rs 0.8
Income from one share for one year = Rs 0.8

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