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Compound Interest

1.4 Compound Interest


Compound interest a type of interest which
results from the periodic addition of simple
interest to the principal
This type of interest often applies to savings
accounts, loans, and credit cards.
Compound amount the amount at the end
of the term (after several compounding)
It is the sum of the original principal and its
compound interest.

1.4 Compound Interest


Formula for the compound amount F:

F P(1 i) n

P - original principal
j - rate of interest per year

m - frequency of conversion
j
i - interest rate per priod; i m

t - length of term in years


n - total number of conversion periods;n tm

1.4 Compound Interest


Example. Find the compound amount at the end
of 12 periods if the principal is Php25,000 and
the interest per period is 10%.

F P(1 i) n
25,000(1 .10) 12

F Php78,460.71

1.4 Compound Interest


Example. What is the maturity value of a
75,000-peso, three-year investment earning
5% compounded monthly?

F P(1 i) n

75,0001
36
.05
12

F Php87,110.42

Do this if i is not exact.

1.4 Compound Interest


Example. Find the compound amount after 5
years and 9 months if the principal is
Php150,000 and the rate is 7% compounded
annually.

F P(1 i) n

9
5 12 1
150,000(1.07)
Php221,333.92


1.4 Compound Interest
More Formulas:

P F(1 i) n

1

F
j m 1

n

logFP
n
log(1 i)

1.4 Compound Interest


1. Given P = Php25,200, i = 3%, n = 16, find F.

F P(1 i) n
25,200(1.03)16
Php40,438.60

1.4 Compound Interest


3. Given P = Php1.8M, j = 11%, t = 7.5 years,
m = 2, find F.

F P(1 i) n
1,800,000(1.055)15
Php4,018,457.69

1.4 Compound Interest


5. Given F = Php46,000, j = 12%, t = 6.25 years,
m = 12, find P.

n
P F(1 i)
75
46,000(1.01)
Php21,809.96

1.4 Compound Interest


7. Given F = Php56,471.27, P = Php25,000,
t = 8 years 3 months, m = 4, find j.

1
1

F 56,471.27
j m 1
1
n 33
4
P 25,000

10%


1.4 Compound Interest
11. Given F = Php34,500, P = Php30,000,
j = 15%, m = 12, find n.

log FP log30 , 000


34, 500
n 11.25 periods
log(1 i) log(1.0125)

1.4 Compound Interest


13. Given F = Php72,157.25, P = Php48,200,
j = 9%, m = 12, find n.

logFP log72,157.25
48,200
n 54 periods
log(1 i) log(1.0075)

1.4 Compound Interest


23. Find the compound amount due in 6 years
and 2 months if Php350,000 is invested at 12%
compounded monthly.

F P(1 i) n
350,000(1.01)74
Php730,886.10

1.4 Compound Interest


27. How much must Ella deposit in a bank that
pays 11% compounded quarterly so that she
will have Php400,000 after 4 years?
n
P F(1 i)
400,000(1.0275)16
Php259,149.70

1.4 Compound Interest


28. A personal computer was bought on
installments Php5,000 downpayment and
the balance of Php22,000 in 2 years. What
was the cash price if the interest rate was 20%
compounded quarterly?

P F(1 i) n 22,000(1.05)8 Php14,890.47

CP DP P 5,00014,890.47 Php19,890.47

1.4 Compound Interest


30. On April 15, 2011, Justin borrowed Php1.4M.
He agreed to pay the principal and the interest
at 8% compounded semi-annually on July 15,
2016. How much will he pay then?

F P(1 i) n
10 12
1,400,000(1.04)
Php2,113,382.46

1.4 Compound Interest


33. At what rate converted quarterly will
Php30,000 become Php40,000 in 7 years?

1
1

F 40,000
j m 1
1
n 28
4
P 30,000

4.13%


1.4 Compound Interest
37. If Php80,000 is invested at the rate of 6 %
compounded annually, when will it earn
interest of Php15,000?

logFP log95,000
80,000
t 2.73 years
m log(1 i) log(1.065)

1.4 Compound Interest


Equation of values a mathematical statement
which says that the dated values of two sets of
amounts are equal when brought to a particular
point in time (the comparison date)
In the context of borrowing, the equation of
values says that
obligations = payments
These sums are obtained by either accumulating
or discounting the debts incurred or the
payments made toward the comparison date.

1.4 Compound Interest


45. What single payment at the end of 6 years would
replace the following debts?
a) Php29,000 due in 1 year without interest
b) Php690,000 due in 8 years at 14% compounded
quarterly
Money is worth 8.5% effective.

29,000 690,000(1.035)32
Obligation(s)
Payment(s) 1 6 8
x

1.4 Compound Interest


29,000 690,000(1.035)32
Obligation(s)
Payment(s) 1 6 8
x

=

29,000(1.085)5 690,000(1.035)32 (1.085)2 x
x Php1,805,909.97


1.4 Compound Interest
47. For an amount borrowed from a credit cooperative,
Janice needs to pay Php100,000 in 5 years. After 2
years , she made a Php50,000 payment. If money is
worth 8% compounded semi-annually, how much
would she have to pay on the 5th year to fully settle
the loan?

100,000

Obligation(s)
Payment(s) 2.5 5

50,000 x

1.4 Compound Interest



100,000

Obligation(s)
Payment(s) 2.5 5

50,000 x

=

50,000(1.04) 5
x
100,000
x Php39,167.35



1.4 Compound Interest
49. If money is worth 8% effective, what single
payment in 5 years will repay the following two
debts:
a) Php125,000 due at once
b) Php500,000 due in 8 years
125,000 500,000

Obligation(s)
Payment(s) 1 5 8
x

1.4 Compound Interest


125,000 500,000

Obligation(s)
Payment(s) 1 5 8
x
=
125,000(1.08) 5 500,000(1.08)3 x

x Php580,582.13



1.4 Compound Interest
51. As payments for debts of Php300,000 due at the
end of 4 years and Php485,000 at the end of 8 years,
Jane agrees to pay Php50,000 at once and
Php250,000 at the end of 5 years. She will make a
third and final payment at the end of 10 years. How
much would it be if money is worth 14%
compounded semi-annually.

300,000 485,000

Obligation(s)
Payment(s) 1 4 5 8 10

50,000
250,000 x
1.4 Compound Interest
300,000 485,000

Obligation(s)
Payment(s) 1 4 5 8 10

50,000
250,000 x

=
4
12

300,000(1.07) 485,000(1.07)
50,000(1.07)20 250,000(1.07)10 x
x Php626,121.48

1.4 Compound Interest

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