Compounding More Than Once A Year
Compounding More Than Once A Year
MORE THAN
ONCE A YEAR
Rizel A. Bonghanoy
SHS-Teacher
Definition of Terms:
Conversion or interest period- time between
Where:
F=maturity (future) value
P= principal
𝑖(𝑚),= nominal rate of interest (annual rate) m=frequency
of conversion
T=term/time in years
NOTE: To be the same round off your final answer only
into
two decimals use a calculator to compute your answer.
EXAMPLE:
1.
SOLUTION:
Given: P= 15, 000 𝑖𝑚 = 0.09
EXAMPLE:
1.
t= 3 years m=1
EXAMPLE:
1.
SOLUTION: 𝑖𝑚 0 .0 9
Given: P= 15, 000 𝑚
𝑖 = 0.09 𝑗= 𝑚
= 2
= 0.045
t= 3 years m=2
EXAMPLE:
1.
t= 5years m=4
EXAMPLE:
2. Find the maturity value and interest if P10,000 is deposited in a bank at
2% compounded monthly for 5 years.
SOLUTION:
Given: P= 10, 000
t= 5years m=12
2. Find the maturity value and interest if P10,000 is deposited in a bank at
2% compounded daily for 5 years.
SOLUTION:
Given: P= 10, 000 .
t= 5years m=365
Where:
years
EXAMPLE:
1. Find the present value of P50,000 due in 4 years if money is invested at
12% compounded semi-annually.
𝑖𝑚
SOLUTION: 𝑖 𝑚
= 0 .1 2 𝑗= 𝑚
=
0 .1 2
2
= 0 . 06
Given: F= 50, 000
t= 4 years m=2
EXAMPLE:
1. What is the present value of P25,000 due in 2 years if money is worth 10%
compounded quarterly?
SOLUTION:
Given: F= 25, 000
t= 2 years m=4
CONTINUOUS COMPOUNDING
Continuous Compound Interest
(b)How much should Kaye set aside and invest in a fund earning 2%
compounded quarterly if she needs P75,000 in 15 months?
QUIZ#____