MAELEC 5

Theory of Interest

of problems in interest

Compound Interest
Approximate Accumulation Method
Examples
Present Value and Compound Interest
Examples

Compound Interest

Examples

Find the compound interest on

Php1 000 at the end of 8 at 8

compounded quarterly.

 Find the compound amount and

interest if Php15 000 is invested

at an interest rate of 9%
compounded annually for 3
years.

Approximate Accumulation Method

It is used if the n is a fraction or not

exact number of periods

Steps:
1. Find the compound amount at the end of
the largest period
2. Accumulate the result obtained in step 1
for the remaining time at simple interest at
the given nominal rate.

Examples
Accumulate Php18 000 for 7 years

and 4 months at 8.2%

compounded quarterly

 Find the compound amount if

Php5 000 is invested for 3 years

and 9 months at 12%
compounded semi annually.

Present value

to get the present value or

how much you need to put in
the bank now to have a
specified amount in the
future.

Present Value

Compound discount
the difference between
the nominal amount of a
particular sum in the future
and its present discounted
value.

Examples
Find the present value and compound

discount of Php5 000 due in 4 years if

money is worth 8% compounded semi
annually.

 Suppose you are depositing an amount

today in an account that earns 5% interest,

compounded annually. If your goal is to
have Php50 000 in the account at the end
of six years, how much must you deposit in
the account today? What is the compound
discount?

 Find the present value of

Php10 000 due in 3 years and

4 months at 11% compounded
quarterly.