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Compound Interest: Compounded Mo Re Than Once A Yea R

Here are the steps to solve the problems: 1) Given: P = ₱5,000, r = 12%, t = 4 years 5/12 years, m = 4 Find: F 2) Given: P = ₱4,000, r = 12%, t = 4 years 10/12 years, m = 2 Find: F Please show your work to get the final answers for F. Let me know if you need help with any of the calculations.

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Cristine Cañete
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81 views

Compound Interest: Compounded Mo Re Than Once A Yea R

Here are the steps to solve the problems: 1) Given: P = ₱5,000, r = 12%, t = 4 years 5/12 years, m = 4 Find: F 2) Given: P = ₱4,000, r = 12%, t = 4 years 10/12 years, m = 2 Find: F Please show your work to get the final answers for F. Let me know if you need help with any of the calculations.

Uploaded by

Cristine Cañete
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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COMPOUND

INTEREST m o re
Compoun de d
c e a y ea r
than on
Objectives:
• Define compound interest

• Compute interest, maturity value, and present value


in compound interest environment,

• Solve problems involving compound interest.

• Solve problem involving interest rate and time in


compound interest.
W ha t i s i t ?
What is it?
1. A man barrowed an amount of for 3 years at 8% interest rate
per year. Find the amount of simple interest.

𝑎.𝐼=𝑃𝑟𝑡 𝑏.𝐹=𝑃(1+𝑟 ) 𝑐
𝑐.𝐼 =𝐹−𝑃 𝑡 𝐹
𝑑.𝑃= 𝑡
(1+𝑟 )
What is it?
2. Find the maturity value if ₱10,000 is compounded annually at
an interest rate of 2 % in 5 years.

𝑎.𝐼=𝑃𝑟𝑡 𝑏.𝐹=𝑃(1+𝑟 ) 𝑐
𝑐.𝐼 =𝐹−𝑃 𝑡 𝐹
𝑑.𝑃= 𝑡
(1+𝑟 )
What is it?
3. What is the present value of ₱50, 000 due in 7 years if money
is worth 10 % compounded annually?

𝑎.𝐼=𝑃𝑟𝑡 𝑏.𝐹=𝑃(1+𝑟 ) 𝑐
𝑐.𝐼 =𝐹−𝑃 𝑡 𝐹
𝑑.𝑃= 𝑡
(1+𝑟 )
What is it?
4. How much would be the compound interest if we have
₱44,944 maturity value and ₱40,000 present value?

𝑎.𝐼=𝑃𝑟𝑡 𝑏.𝐹=𝑃(1+𝑟 ) 𝑐
𝑐.𝐼 =𝐹−𝑃
𝑡 𝐹
𝑑.𝑃= 𝑡
(1+𝑟 )
What is it?
5. Jin deposits ₱10,000 in a saving account which pays 5%
compounded annually. The money is left for 3 years. Find the
account balance at the end of 3 years.

𝑎.𝐼=𝑃𝑟𝑡 𝑏.𝐹=𝑃(1+𝑟 ) 𝑐
𝑐.𝐼 =𝐹−𝑃 𝑡 𝐹
𝑑.𝑃= 𝑡
(1+𝑟 )
Fill in the table
Frequency of
Interest Period conversion No. of months

Annually 1 12
Semi-annually 2 6
Quarterly 4 3
Every 2 months 6 2
Monthly 12 1
Daily 360 0
Things to know!
Conversion/ Interest Period (𝒕) – time between successive
conversions of interest in years.
Frequency of conversion – number of conversion periods in one
year.
Nominal rate – annual rate of interest.
Rate of interest for each conversion period
𝑟 𝑎𝑛𝑛𝑢𝑎𝑙 𝑟𝑎𝑡𝑒 𝑜𝑓 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡
𝑖= =
𝑚 𝑓𝑟𝑒𝑞𝑢𝑒𝑛𝑐𝑦 𝑜𝑓 𝑐𝑜𝑛𝑣𝑒𝑟𝑠𝑖𝑜𝑛
Things to know!
Total number of conversion period
𝑛  =  𝑚𝑡
Maturity Value Compounding m times a year

( )
𝑛
𝑟
𝐹 =𝑃 1+
𝑚
Present value at Compound Interest
𝐹 𝐹
𝑃= 𝑜𝑟 𝑃 =
( )
𝑛
𝑟 ( 1 +𝑖 )𝑛
Where:
1+
𝑚
= Maturity Value or Future Value
= Present Value or Principal
= Nominal rate of interest
= Frequency of conversion
The nominal rate is the annual interest rate, unless
otherwise stated. The frequency of conversion tells the
number of times the interest is added to the principal in one
year. That is,

1 Annually
2 Semi-annually
4 Quarterly
6 Every 2 months
12 Monthly
360 Daily
Example 1.
Find the maturity value and interest if ₱10,000 is deposited in a bank
at 2% compounded monthly for 5 years?

Given: Maturity value Compound Interest


𝑃 = ₱10,000
= 2% or 0. 02
𝑡 = 5 𝑦𝑒𝑎𝑟𝑠 Given:
𝑚 = 12 F=
P = ₱10,000
Example 2.
Find the present value of ₱50,000 due in 4 years if money is invested
at 12 % compounded semi-annually.

Given: Present Value


F = ₱50,000
r = 12% or 0.12
t = 4 years
m= 2
Example 3.
If ₱25, 000 is invested at 8.2% compounded monthly, how much is the
future value and the compound interest after two years?

Given: Maturity value Compound Interest


𝑃 = ₱25,000
= 8.2% or 0. 082
𝑡 = 2 𝑦𝑒𝑎𝑟𝑠 Given:
𝑚 = 12 F=
P = ₱25,000
Example 4.
An amount is discounted to ₱18, 200 at 2% converted semi-annually
for 30 months. Find the compound discount.

Given: Present Value


F = ₱18,200
r = 2% or 0.02
t = 30 months or years
m= 2

Compound Discount
Finding the Interest rate (),
per conversion period.
Formula:

( )
1
𝐹
𝑖= 𝑛
−1
𝑃
Where:
= Maturity Value or Future Value
= Present Value or Principal
= rate
= total number of conversion period
Example 5.
At what nominal rate compounded semi-annually will accumulate to
in 10 years?

Given: Solve for . Solve for .


P = = 10,000
𝐹 = ₱15,000
= years
=2
= ==
Example 6.
If 7, 000 has accumulated to 20, 000 for 20 months, how much is the
nominal rate compounded every three months?

Given: Solve for . Solve for .


P = ,000
𝐹 = ₱20,000
= months
or = years
=4
= ==
Finding the Number of Periods (),
for Compound Interest.
Formula:
𝐹
log
𝑃
𝑛=
log ( 1 + 𝑖 )
Where:
= Maturity Value or Future Value
= Present Value or Principal
= rate
= total number of conversion period
Example 5.
How long will it take to accumulate to in a bank savings account at
0.25% compounded monthly?

Given: Solve for . Solve for .


= 3,000
𝐹 = ₱3,500
= 0.0025
=
= 12
Example 5.
How long will it take to earn if the interest is 12% compounded
semi-annually.

Given: Solve for . Solve for .


= ,000
𝐹 = ₱1,300
= 0.12
=
=2
Practice:
I. DIRECTION: Complete the table below by computing the interest rate per period
and total number of conversion period.

Nominal Rate Interest Frequency of Interest rate per


Compounded Conversion conversion period
12% Semi-annually 1)______________ 2)______________
16% Quarterly 3)______________ 4)______________
9% Monthly 5)______________ 6)______________
7)_____________ Daily 8)______________ 0.0003%
Practice:
II. Word Problem
1. Harlene deposited ₱5,000 in bank paying 12% compounded quarterly. After 4
years and 5 months, Harlene decided to close her account. How much money
would she be able to get from the bank?
2. Accumulate ₱4,000 at 12% compounded semi-annually for 4 years and 10
months.

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