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Compound Interest Updated 2

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Hannah Marie Ilagan
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9 views

Compound Interest Updated 2

Uploaded by

Hannah Marie Ilagan
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

What is Compound Interest?


● If you walk into a bank and open up a savings account you will
earn interest on the money you deposit in the bank. If the
interest is calculated once a year then the interest is called
“simple interest”. If the interest is calculated more than once
per year, then it is called “compound interest”.

● Compound interest is earned on the principal amount


plus the interest already earned.
01
Compound Amount
and Present Value
COMPOUND AMOUNT

F = P (1 + i) 2

F = final value (the value after given years)


i = compound interest
P = Principal
n = number of periods
To find the compound interest

j = nominal rate
i=
m = conversion period

To find the number of period

t = time in years
n = tm
m = conversion period
COMPOUND AMOUNT
1. Simon deposits ₱ 400 in an account that pays 3% interest
compounded annually. What is the balance of Simon’s account at the
end of 2 years?

P = ₱ 400
t = 2 yrs
F = P (1 + i) 2
j = 3% or 0.03
m=1
COMPOUND AMOUNT
2. How much money will you have at age 18yrs. if your parents invest
$12,000 at 10% compounded annually for 2 years?
3. If you invest $1,000 at 8% interest compounded semi-annually how
much will you have after 1 year?
4. Jamie invests $3155 in a CD with an annual interest rate of 4%
compounded quarterly. What is the account balance after 5 years?
PRESENT VALUE
1. Ned's savings account has a current balance of $6000. If Ned opened
the account 5 years ago and received an annual interest of 1.8%
compounded monthly, what was the opening balance of the account?
2. William wants to have a total of $4000 in two years so that he can put
a hot tub on his deck. He finds an account that pays 5% interest
compounded monthly. How much should William put into this account
so that he’ll have $4000 at the end of two years?

P = F (1+i) -n
What is Continuous compounding?

Interest can also be compounded very frequently;


weekly, daily or hourly. It means that the number of
conversions is equal to 365 days or 366 days.
CONTINUOUS COMPOUNDING
1. To what amount will $1500 grow if compounded daily at 6.75%
interest for 10 years?

P = $1500
t = 10 yrs
j = 6.75%
F = Pe jt

P = Fe -jt
CONTINUOUS COMPOUNDING
2. An amount of 50,000.00 is deposited in a bank paying an annual
interest rate of 3.1%, compounded continuously. Find the balance
after 4 years.
3. Tim invested $3000 in a bank that pays an annual interest rate of 7%
compounded continuously. What is the amount she can get after 5
years from the bank?
4. How much did a business man invest in a savings bank deposit if at
the end of 5 years he would like to have $ 30500 from now on a 12%
note compounded frequently?
FINDING THE TIME
1. ABC Bank is offering to double your money! They say that if you
invest with them at 6% interest compounded quarterly they will double
your money. If you invest $1500 in the account, how long will it take to
double your money.
P = $1500 n=
F = $ 3000
j = 6% or 0.06
m=4
t=
FINDING THE TIME
2. Someone invests $5000 in an account that compound interest
monthly. The yearly interest rate is 7.25%. How long will it take to
double their money, have $10,000 in the account?
3. How long will it take for $5,000 to grow to $15,000 if the money is
invested at 8.5% compounded quarterly?
FINDING THE NOMINAL RATE
1. I invested $ 15,000 in a public mutual fund that earned k%
compounded semi-annually. After 4 years, the accumulated
amount was $ 18,635.71.

i=

j = im
TEST YOUR KNOWLEDGE
1. How much did Mark invest if he recieved $450000 in his account
within 15 years on a 7% compounded interest frequently?
2. At what rate compounded bi-monthly will $35,540 amount to
$110,480 in 10 years?
3. How long will it take $1.4 million to become $2 million if invested at
13% compoounded annualy?
4. Max borrows $5500 for a new car. The loan has 6.7% interest that
will be compounded - annually, semi-annually, quarterly, and monthly.
How much money will he owe after 36 months?
5. Find the amount of $10,800 at the end of 4 years if the money is
worth at a rate of 11% compounded continuously.

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