GENERAL MATHEMATICS

COMPOUND
INTEREST
To start, let us define first the different
terms that we need to know in solving
word problems involving compound
interest.
Principal (P) – is the base
amount in which interest is
computed. If an amount is
loaned or borrowed, invested,
deposited, this amount is
referred to as principal.
Interest (𝐼𝑐 ) – is the amount paid
for the use of another amount of
money, and is computed based
on the principal and on the
accumulated interests
Compound amount/ maturity
value (F) – the accumulated
amount of a given principal and
the interest at the end of a given
time interval.
Term (t) – the length of time for
which the compound interest is
to be calculated.

Interest rate (r) – the multiplier

expressed as percent of the
principal to be paid each term.
The time intervals (m) when
applied, may have the interests
compounded annually (once a year),
semi-annually (twice a year),
quarterly (four times a year), and
monthly (twelve times a year).
 LETS HAVE A

P PRINCIPAL AMOUNT
F FUTURE/ MATURITY VALUE
r INTEREST RATE
t TERM/TIME
m TIME INTERVAL

compounded annually 1 compounded quarterly 4

compounded semi-annually
2 compounded monthly
12
 SOLVING FOR
FUTURE VALUE AND
COMPOUND INTEREST
FORMULA: 𝑚𝑡
𝑟
𝐹 =𝑃 1+
𝑚
WHERE:
𝐹 = 𝑎𝑚𝑜𝑢𝑛𝑡 𝑎𝑓𝑡𝑒𝑟 𝑡 𝑦𝑒𝑎𝑟𝑠
𝑃 = 𝑝𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙 𝑎𝑚𝑜𝑢𝑛𝑡 𝑡 = 𝑡𝑒𝑟𝑚 (𝑙𝑒𝑛𝑔𝑡ℎ 𝑜𝑓 𝑡𝑖𝑚𝑒)
(𝑒𝑥𝑝𝑟𝑒𝑠𝑠𝑒𝑑 𝑖𝑛 𝑦𝑒𝑎𝑟𝑠)
𝑟 = 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑟𝑎𝑡𝑒 𝑚 = 𝑡𝑖𝑚𝑒 𝑖𝑛𝑡𝑒𝑟𝑣𝑎𝑙
(𝑒𝑥𝑝𝑟𝑒𝑠𝑠𝑒𝑑 𝑖𝑛 𝑑𝑒𝑐𝑖𝑚𝑎𝑙)
(𝑛𝑜. 𝑜𝑓 𝑡𝑖𝑚𝑒𝑠 𝑡ℎ𝑒 𝑎𝑚𝑜𝑢𝑛𝑡 𝑖𝑠 𝑐𝑜𝑚𝑝𝑜𝑢𝑛𝑑𝑒𝑑 𝑎 𝑦𝑒𝑎𝑟)
EXAMPLE NO. 1

Immanuel deposits P10, 000 in a

bank that pays 3% compound
interest semi-annually. How
much money will he have after
11 years without withdrawal?

Immanuel will have P13, 875.64

in his bank account after 11 years
without withdrawal.
EXAMPLE NO. 2

Rachelle deposited an amount of

P150, 000 in a bank that pays 4%
annual interest compounded
quarterly. How much money will he
have in the bank after 3 years?

Rachelle will have P169, 023.75

in her bank account after 3 years.
EXAMPLE NO. 3

What is the interest of a

P125, 000 invested at 4%
compounded quarterly for 7
years?

The interest is
P40, 161.37
EXAMPLE NO. 4
James invested P130, 000 in a
bank that gives 9% interest
compounded annually. How
much will he have after 5
years?

James will have P200,021.11

after 5 years.
EXAMPLE NO. 5

If P250, 000 is invested at

10% compounded quarterly,
how much will it be after 8
years

James will have P550, 939.23

after 5 years.
EXAMPLE NO. 6

Raphael’s father secretly gifted him a

certain amount through a bank deposit
on his 21st birthday. The initial amount
deposited was P 250, 000 at 3.3%
compounded monthly. How much
money will Raphael get on his 40th
birthday?

Raphael will have P467, 593.99

on his 40th birthday.
 SOLVING FOR
THE PRINCIPAL
(PRESENT VALUE)
FORMULA:
𝐹
𝑃= 𝑚𝑡
𝑟
1+
WHERE: 𝑚
𝐹 = 𝑎𝑚𝑜𝑢𝑛𝑡 𝑎𝑓𝑡𝑒𝑟 𝑡 𝑦𝑒𝑎𝑟𝑠
𝑃 = 𝑝𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙 𝑎𝑚𝑜𝑢𝑛𝑡 𝑡 = 𝑡𝑒𝑟𝑚 (𝑙𝑒𝑛𝑔𝑡ℎ 𝑜𝑓 𝑡𝑖𝑚𝑒)
(𝑒𝑥𝑝𝑟𝑒𝑠𝑠𝑒𝑑 𝑖𝑛 𝑦𝑒𝑎𝑟𝑠)
𝑟 = 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑟𝑎𝑡𝑒 𝑚 = 𝑡𝑖𝑚𝑒 𝑖𝑛𝑡𝑒𝑟𝑣𝑎𝑙
(𝑒𝑥𝑝𝑟𝑒𝑠𝑠𝑒𝑑 𝑖𝑛 𝑑𝑒𝑐𝑖𝑚𝑎𝑙)
(𝑛𝑜. 𝑜𝑓 𝑡𝑖𝑚𝑒𝑠 𝑡ℎ𝑒 𝑎𝑚𝑜𝑢𝑛𝑡 𝑖𝑠 𝑐𝑜𝑚𝑝𝑜𝑢𝑛𝑑𝑒𝑑 𝑎 𝑦𝑒𝑎𝑟)
EXAMPLE NO. 1

Find the present value of

P50,000 due in 4 years if money
is invested at 12% compounded
semi-annually.

The present value which is due

in 4 years is P31,370.62
EXAMPLE NO. 2

What is the present value of

P25,000 due in 2 years and 6
months if money is worth 10%
compounded quarterly?

The present value which is due

in 2 years and 6 month is
P19,529.96
EXAMPLE NO. 3

How much should you set aside

and invest in a fund earning 9%
compounded quarterly if you
want to accumulate P300,000 in
3 years and 3 months?

You need to set aside

P224,645.71 to accumulate
P300,000 in 3 years and 3
months.
EXAMPLE NO. 4

James aims to accumulate 1 million pesos in

12 years. Which investment will require the
smallest present value?

a. 8% compounded annually
b. 8% compounded semi-annually
c. 8% compounded quarterly
d. 8% compounded monthly
EXAMPLE NO. 5

In order to have P300,000 in 7

years, compounded quarterly,
how much should you invest if
the interest is 3.95%?
You need to invest P227,681.02
to accumulate P300,000 in 7
years.
EXAMPLE NO. 6
How much money should a
student place in a time deposit in
a bank that pays 2.05%
compounded semi-annually so
that he will have P450,000 after
5 years?
A student needs to place
P406,171.07 in a time deposit to
have P450,000 after 5 years.
EXAMPLE NO. 7
Norrie received the matured
amount of P290,000 from an
account paying 7.35% annual
interest compounded monthly.
How much did he deposit in the
account 10 years ago?

Norrie deposited P139,784.85 in

his account three years ago.
EXAMPLE NO. 8
Adel’s parents would like to have
P1,000,000 when they retire in 15
years. How much should they
invest today, at an interest of
4.25% compounded annually?
Adel’s parents need to invest
P535,622.79 to have P1,000,000
during their retirement.
 SOLVING FOR
THE TIME/TERM
FORMULA: 𝐹
𝑙𝑜𝑔( )
𝑡= 𝑃
𝑟
WHERE: 𝑚 𝑙𝑜𝑔 1 +
𝑚
𝐹 = 𝑎𝑚𝑜𝑢𝑛𝑡 𝑎𝑓𝑡𝑒𝑟 𝑡 𝑦𝑒𝑎𝑟𝑠
𝑃 = 𝑝𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙 𝑎𝑚𝑜𝑢𝑛𝑡 𝑡 = 𝑡𝑒𝑟𝑚 (𝑙𝑒𝑛𝑔𝑡ℎ 𝑜𝑓 𝑡𝑖𝑚𝑒)
(𝑒𝑥𝑝𝑟𝑒𝑠𝑠𝑒𝑑 𝑖𝑛 𝑦𝑒𝑎𝑟𝑠)
𝑟 = 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑟𝑎𝑡𝑒 𝑚 = 𝑡𝑖𝑚𝑒 𝑖𝑛𝑡𝑒𝑟𝑣𝑎𝑙
(𝑒𝑥𝑝𝑟𝑒𝑠𝑠𝑒𝑑 𝑖𝑛 𝑑𝑒𝑐𝑖𝑚𝑎𝑙)
(𝑛𝑜. 𝑜𝑓 𝑡𝑖𝑚𝑒𝑠 𝑡ℎ𝑒 𝑎𝑚𝑜𝑢𝑛𝑡 𝑖𝑠 𝑐𝑜𝑚𝑝𝑜𝑢𝑛𝑑𝑒𝑑 𝑎 𝑦𝑒𝑎𝑟)
EXAMPLE NO. 1

How many years will it take for

an investment of P100,000 to
become P1,000,000 if it will be
compounded quarterly at 8%?

It will take 29.07 years for

P100,000 to accumulate
P1,000,000 in an invested
compounded quarterly.

GENERAL MATHEMATICS
EXAMPLE NO. 2
A company loaned P60,000 to be used
for constructing the new comfort
rooms in their offices. The bank
charges 3% interest compounded
monthly. If the company paid a total of
P69,697.01, how long did they pay the
loan?

The company paid the loan for

5 years.

GENERAL MATHEMATICS
EXAMPLE NO. 3
Arianne Kate invest P68,809.18 in a
bank and plans to withdraw it once it
accumulate to P100,000. If the bank
pays him 2.5% compounded
quarterly, how long should the money
stays at the bank?

The money should stay at the

bank in 15 years.

GENERAL MATHEMATICS
EXAMPLE NO. 4
If you deposit P5,000 into an
account paying 6% annual
interest compounded monthly,
how long until there is P8,000 in
the account?
It will take 7.85 years for
P5,000 to accumulate to
P8,000.

GENERAL MATHEMATICS
EXAMPLE NO. 5
Ms. Enriquez invested an amount
of P400,000 at 5% compounded
quarterly. How long should she
let the investment stay if she
wants to earn P50,000.

The money should stay at the

bank in 2.37 years.

GENERAL MATHEMATICS
SOLVING FOR THE
RATE
FORMULA:
𝒎𝒕 𝑭
𝒓=𝒎 −𝟏
𝑷
WHERE:
𝐹 = 𝑎𝑚𝑜𝑢𝑛𝑡 𝑎𝑓𝑡𝑒𝑟 𝑡 𝑦𝑒𝑎𝑟𝑠
𝑃 = 𝑝𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙 𝑎𝑚𝑜𝑢𝑛𝑡 𝑡 = 𝑡𝑒𝑟𝑚 (𝑙𝑒𝑛𝑔𝑡ℎ 𝑜𝑓 𝑡𝑖𝑚𝑒)
(𝑒𝑥𝑝𝑟𝑒𝑠𝑠𝑒𝑑 𝑖𝑛 𝑦𝑒𝑎𝑟𝑠)
𝑟 = 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑟𝑎𝑡𝑒 𝑚 = 𝑡𝑖𝑚𝑒 𝑖𝑛𝑡𝑒𝑟𝑣𝑎𝑙
(𝑒𝑥𝑝𝑟𝑒𝑠𝑠𝑒𝑑 𝑖𝑛 𝑑𝑒𝑐𝑖𝑚𝑎𝑙)
(𝑛𝑜. 𝑜𝑓 𝑡𝑖𝑚𝑒𝑠 𝑡ℎ𝑒 𝑎𝑚𝑜𝑢𝑛𝑡 𝑖𝑠 𝑐𝑜𝑚𝑝𝑜𝑢𝑛𝑑𝑒𝑑 𝑎 𝑦𝑒𝑎𝑟)
EXAMPLE NO. 1
Find the required annual interest
rate, to the nearest hundredth of a
percent, for P1,100 to grow to
P1,400 if interest is compounded
monthly for 7 years.

The interest rate is 3.45%

GENERAL MATHEMATICS
EXAMPLE NO. 2
Mr. A borrowed an initial amount of
P15,000 from his friend then paid
P16,500 after 1 year. If the interest
was compounded monthly, the rate of
interest is?

The rate of interest is 9.57%

GENERAL MATHEMATICS
EXAMPLE NO. 3
Suppose P5,000 is deposited in an
account that earns compound
interest annually. If there is P6,272 in
the account after 2 years, what is the
annual interest rate?

The annual interest rate is

12%.

GENERAL MATHEMATICS
EXAMPLE NO. 4
Determine the interest rate for
P1,000,000 investment compounded
semi-annually if the value of the
investment after 5 years is
P1,300,000?

The annual interest rate is

5.32%.

GENERAL MATHEMATICS
EXAMPLE NO. 5
Janno won P1,600,000 in a
lottery. He invested 25% of it in a
bank. At what interest rate
compounded semi annually will
give him a future value of
P700,000 in 7 years?

The interest rate is

8.16%.

GENERAL MATHEMATICS