BUSANA1 Chapter2 - Compound Interest

Compound Interest
Christopher F. Santos
BUSANA1 Chapter 2
De La Salle University
2nd Term 2015-16
Compound Interest
DLSU BUSANA1 Chapter 2
1 / 52
Compound Interest
For simple interest, the interest earned is constant

every year throughout the term of the investment.
For compound interest, the interest earned is added
to the principal at regular time intervals and the sum
becomes the new principal, in which case we say that
the interest is compounded or converted into the
principal.
Compound Interest
2 / 52
Conversion Period and Frequency of Conversion
Interest may be compounded/converted into the

principal more than once in a year.
The length of time between two successive
conversion is called the conversion period or
interest period.
The number of interest periods in one year is called
the frequency of conversion m (assumed to be an
integer).
Compound Interest
3 / 52
Conversion Period and Frequency of Conversion
Conversion Period Frequency (m)

annually
1 year = 12 months
1
semiannually
6 months
2
quarterly
3 months
4
monthly
1 month
12
every 4 months
4 months
3
every 2 months
2 months
6
Compound Interest
4 / 52
Total Number of Conversion
If t is the term of investment, the total number of

conversion for the entire term is computed as
n = tm
where m is the frequency of conversion.
Compound Interest
5 / 52
Example
Frequency of Term Number of

Conv (m)
Conv (n)
annually
1
1
1
semiannually
2
3
6
quarterly
4
2
8
monthly
12
5
60
every 4 months
3
6
18
every 2 months
6
4 21
27
Compound Interest
6 / 52
The Nominal Rate and Interest Rate Per Period i

Example: Find the compound amount and interest if
100PhP is invested at 10% compounded
semiannually for 3 years.
The stated annual rate of interest is called the
nominal rate j and the interest rate per period is
computed as
i=
nominal rate
j
=
frequency of conv m
Compound Interest
7 / 52
The Nominal Rate and Interest Rate Per Period i

Example: Find the compound amount and interest if
100PhP is invested at 10% compounded
semiannually for 3 years.
The stated annual rate of interest is called the
nominal rate j and the interest rate per period is
computed as
i=
nominal rate
j
=
frequency of conv m
Compound Interest
7 / 52
Compound Amount and Interest Formula

P = original principal
i = interest rate per period
n = number of interest periods
F = compound amount
F = P(1 + i)n
I =F P
I = P(1 + i)n P
I = P[(1 + i)n 1]
Compound Interest
8 / 52
Examples
1. Find the compound amount and interest if 100PhP
is invested at 10% compounded semiannually for
3 years.
ANS. F = 134.01PhP, I = 34.01PhP
2. If 80,000PhP is deposited at 12 13 % for 6 years,
what will be the compound amount and interest if
interest is compounded
a. semiannually
ANS. F = 164, 039.40PhP, I = 84, 039.40PhP
b. monthly
ANS. F = 167, 042.74PhP, I = 87, 042.74PhP
Compound Interest
9 / 52
Examples
3 years.
ANS. F = 134.01PhP, I = 34.01PhP
a. semiannually
ANS. F = 164, 039.40PhP, I = 84, 039.40PhP
b. monthly
ANS. F = 167, 042.74PhP, I = 87, 042.74PhP
Compound Interest
9 / 52
Examples
3 years.
ANS. F = 134.01PhP, I = 34.01PhP
a. semiannually
ANS. F = 164, 039.40PhP, I = 84, 039.40PhP
b. monthly
ANS. F = 167, 042.74PhP, I = 87, 042.74PhP
Compound Interest
9 / 52
Examples
3 years.
ANS. F = 134.01PhP, I = 34.01PhP
a. semiannually
ANS. F = 164, 039.40PhP, I = 84, 039.40PhP
b. monthly
ANS. F = 167, 042.74PhP, I = 87, 042.74PhP
Compound Interest
9 / 52
Examples
3 years.
ANS. F = 134.01PhP, I = 34.01PhP
a. semiannually
ANS. F = 164, 039.40PhP, I = 84, 039.40PhP
b. monthly
ANS. F = 167, 042.74PhP, I = 87, 042.74PhP
Compound Interest
9 / 52
Examples
3. On May 6, 2009, Dianne borrowed 6,000PhP and

promised to pay the principal and interest at 16%
compounded quarterly on August 6, 2016. How
much will she repay then?
ANS. 18,711.91PhP
Compound Interest
10 / 52
Examples
3. On May 6, 2009, Dianne borrowed 6,000PhP and

promised to pay the principal and interest at 16%
compounded quarterly on August 6, 2016. How
much will she repay then?
ANS. 18,711.91PhP
Compound Interest
10 / 52
Present Value at Compound Interest

The present value of an amount F due in n periods is
the value P(principal) which is invested now at a
given rate.
F = P(1 + i)n
P=
F
(1 + i)n
P = F (1 + i)n
Compound Interest
11 / 52
Present Value at Compound Interest
To discount F due in n periods means to find its

present value P at n periods before F is due.
P is the discounted value of F at n periods before it is
due.
The factor (1 + i)n is called the discount factor.
Compound Interest
12 / 52
Examples
1. Discount 5,500PhP for 7 years at 8%
compounded annually.
ANS. 3,209.20PhP
2. A man needs 400,000PhP in 3 years to start a
small business. How much money should he
place in a savings account that gives 4.02%
compounded semiannually so he can start the
business by then?
ANS. 354,979.69PhP
Compound Interest
13 / 52
Examples
ANS. 3,209.20PhP
business by then?
ANS. 354,979.69PhP
Compound Interest
13 / 52
Examples
ANS. 3,209.20PhP
business by then?
ANS. 354,979.69PhP
Compound Interest
13 / 52
Examples
ANS. 3,209.20PhP
business by then?
ANS. 354,979.69PhP
Compound Interest
13 / 52
Examples
3. A laptop computer was bought on installment

basis: 10,000PhP downpayment and the balance
of 60,000PhP to be paid in two years. What is its
cash value if interest rate is 20% compounded
quarterly?
ANS. 50,610.36PhP
Compound Interest
14 / 52
Examples
3. A laptop computer was bought on installment

basis: 10,000PhP downpayment and the balance
of 60,000PhP to be paid in two years. What is its
cash value if interest rate is 20% compounded
quarterly?
ANS. 50,610.36PhP
Compound Interest
14 / 52
Assignment
1
Accumulate 5,000PhP for 7 14 years at 15%

compounded quarterly.
If 13,000PhP is due on December 2, 2013, find its
present value on June 2, 2010 if money was
invested at 10% compounded semiannually.
The buyer of an automobile pays a 150,000PhP
down payment and the balance of 500,000PhP to
be paid two years later. What is the cash price of
the automobile if money is worth 12% converted
annually?
Compound Interest
15 / 52
Finding the Nominal Interest Rate

F = P(1 + i)n
F
P
= (1 + i)n
F
P
j
=
m
n1
=1+i
n1
F
1
i=
P
" 1
#
n
F
j = mi = m
1
P
Compound Interest
16 / 52
Examples
1. If 25,000PhP earned an interest of 3,000PhP after

2 years, at what rate compounded annually was
the money invested?
ANS. 5.83%
2. At what rate compounded quarterly will 3,000PhP
grow to 18,000PhP after 108 months?
ANS. 20.41%
Compound Interest
17 / 52
Examples

the money invested?
ANS. 5.83%
ANS. 20.41%
Compound Interest
17 / 52
Examples

the money invested?
ANS. 5.83%
ANS. 20.41%
Compound Interest
17 / 52
Examples

the money invested?
ANS. 5.83%
ANS. 20.41%
Compound Interest
17 / 52
Examples
3. At what rate converted semiannually will a given

principal triple its value in 10 years?
ANS. 11.29%
Compound Interest
18 / 52
Examples
3. At what rate converted semiannually will a given

principal triple its value in 10 years?
ANS. 11.29%
Compound Interest
18 / 52
Logarithm and Its Properties
bx = N logb N = x
Ex. 23 = 8
log2 8 = 3
Ex. 3x = 81 x = log3 81 = 4
Ex. 2x = 6 x = log2 6 = ??
Compound Interest
19 / 52
bx = N logb N = x
1
common logarithm: 10x = N log N = x

natural logarithm: ex = N ln N = x
Ex. 102 = 100
Ex. e1 = e
Compound Interest
log 100 = 2
ln e = 1
20 / 52
Properties:
1
logb (MN) = logb M + logb N

logb M
N = logb M logb N
logb N r = r logb N
logB N
log N
ln N
logb N =
=
=
logB b
log b
ln b
Ex. 2x = 6 x = log2 6 =
Compound Interest
log 6 ln 6
=
= 2.58
log 2 ln 2
21 / 52
Properties:
1

logb M
N = logb M logb N
logb N r = r logb N
logB N
log N
ln N
logb N =
=
=
logB b
log b
ln b
Ex. 2x = 6 x = log2 6 =
Compound Interest
log 6 ln 6
=
= 2.58
log 2 ln 2
21 / 52
Properties:
1

logb M
N = logb M logb N
logb N r = r logb N
logB N
log N
ln N
logb N =
=
=
logB b
log b
ln b
Ex. 2x = 6 x = log2 6 =
Compound Interest
log 6 ln 6
=
= 2.58
log 2 ln 2
21 / 52
Finding Time
F = P(1 + i)n
F
P
= (1 + i)n
n = log(1+i) PF
tm =

log PF
n=
log (1 + i)

log PF
n
t=
=
m
m log (1 + i)
Compound Interest
22 / 52
Examples
1. How long will it take 5,000PhP to accumulate to
20,000PhP at 12% compounded semiannually?
ANS. 11.90 years
2. On March 15, 2009, a man invested 50,000PhP in
a bank that gives 15% converted every 4 months.
If he decides to withdraw his money once it
accumulates to 60,000PhP, when should he make
his withdrawal?
ANS. June 15, 2010
Compound Interest
23 / 52
Examples
ANS. 11.90 years
his withdrawal?
ANS. June 15, 2010
Compound Interest
23 / 52
Examples
ANS. 11.90 years
his withdrawal?
ANS. June 15, 2010
Compound Interest
23 / 52
Examples
ANS. 11.90 years
his withdrawal?
ANS. June 15, 2010
Compound Interest
23 / 52
Equivalent Rates
Two annual rates of interest with different conversion

periods are said to be equivalent rates if a given
principal produces the same amount at each of these
rates for the same period of time.
Ex. 12% compounded semiannually is equivalent to
12.36% compounded annually.
Here, 12% is the nominal rate while 12.36% is called
the effective rate.
Compound Interest
24 / 52
Equivalent Rates

the effective rate.
Compound Interest
24 / 52
Equivalent Rates

the effective rate.
Compound Interest
24 / 52
Effective Rate
The effective rate u is the annual rate that, when
compounded annually, is equivalent to the nominal
rate j compounded m times a year. Hence,

m
j
P(1 + u) = P 1 + m

(1 + u) = 1 +

u = 1+
j
m
m
Compound Interest
j
m
m
25 / 52
Effective Rate
Solving for j, we get

(1 + u) = 1 +
j
m
m
(1 + u) m = 1 +
j
m
j
m
(1 + u) m 1 =
1
j = m[(1 + u) m 1]
Compound Interest
26 / 52
Examples
1. Find the effective rate that is equivalent to 10%

compounded
a.
b.
c.
d.
annually
semiannually
quarterly
monthly
ANS. 10%
ANS. 10.25%
ANS. 10.38%
ANS. 10.47%
2. The effective rate of 10% is equivalent to what

nominal rate compounded
a. quarterly
b. monthly
ANS. 9.65%
ANS. 9.57%
Compound Interest
27 / 52
Examples

compounded
a.
b.
c.
d.
ANS. 10%
ANS. 10.25%
ANS. 10.38%
ANS. 10.47%
annually
semiannually
quarterly
monthly

a. quarterly
b. monthly
ANS. 9.65%
ANS. 9.57%
Compound Interest
27 / 52
Examples

compounded
a.
b.
c.
d.
ANS. 10%
ANS. 10.25%
ANS. 10.38%
ANS. 10.47%
annually
semiannually
quarterly
monthly

a. quarterly
b. monthly
ANS. 9.65%
ANS. 9.57%
Compound Interest
27 / 52
Examples

compounded
a.
b.
c.
d.
ANS. 10%
ANS. 10.25%
ANS. 10.38%
ANS. 10.47%
annually
semiannually
quarterly
monthly

a. quarterly
b. monthly
ANS. 9.65%
ANS. 9.57%
Compound Interest
27 / 52
Examples

compounded
a.
b.
c.
d.
ANS. 10%
ANS. 10.25%
ANS. 10.38%
ANS. 10.47%
annually
semiannually
quarterly
monthly

a. quarterly
b. monthly
ANS. 9.65%
ANS. 9.57%
Compound Interest
27 / 52
Examples

compounded
a.
b.
c.
d.
ANS. 10%
ANS. 10.25%
ANS. 10.38%
ANS. 10.47%
annually
semiannually
quarterly
monthly

a. quarterly
b. monthly
ANS. 9.65%
ANS. 9.57%
Compound Interest
27 / 52
Examples

compounded
a.
b.
c.
d.
ANS. 10%
ANS. 10.25%
ANS. 10.38%
ANS. 10.47%
annually
semiannually
quarterly
monthly

ANS. 9.65%
ANS. 9.57%
a. quarterly
b. monthly
Compound Interest
27 / 52
Examples

compounded
a.
b.
c.
d.
ANS. 10%
ANS. 10.25%
ANS. 10.38%
ANS. 10.47%
annually
semiannually
quarterly
monthly

ANS. 9.65%
ANS. 9.57%
a. quarterly
b. monthly
Compound Interest
27 / 52
Other Equivalence of Rates
A. Two Nominal Rates

n1
n2
j1
j2
1+
= 1+
m1
m2
B. Nominal Rate and Simple Interest Rate
n

j
1+
= 1 + rt
m
Compound Interest
28 / 52
Other Equivalence of Rates
C. Nominal Rate and Discount Interest Rate

n
j
1
1+
=
m
1 dt
D. Simple Interest Rate and Discount Interest Rate
1 + rt =
1
1 dt
Compound Interest
29 / 52
Examples
1. If a debtor pays interest to his creditor at 16%
compounded semiannually, at what rate
compounded monthly could he just as well borrow
money?
ANS. 15.49%
2. John Paul borrows 50,000PhP with agreement to
pay the principal and simple interest at the rate of
8% at the end of 4 years. At what nominal rate
compounded monthly could he just as well pay the
interest?
ANS. 6.96%
Compound Interest
30 / 52
Examples
money?
ANS. 15.49%
interest?
ANS. 6.96%
Compound Interest
30 / 52
Examples
money?
ANS. 15.49%
interest?
ANS. 6.96%
Compound Interest
30 / 52
Examples
money?
ANS. 15.49%
interest?
ANS. 6.96%
Compound Interest
30 / 52
Examples
3. What simple discount rate is equivalent to 15%

compounded every 4 months in a 1-year term of
investment?
ANS. 13.62%
4. Find the simple interest rate that is equivalent to
6% simple discount rate in a 3-month transaction.
ANS. 6.09%
Compound Interest
31 / 52
Examples

investment?
ANS. 13.62%
ANS. 6.09%
Compound Interest
31 / 52
Examples

investment?
ANS. 13.62%
ANS. 6.09%
Compound Interest
31 / 52
Examples

investment?
ANS. 13.62%
ANS. 6.09%
Compound Interest
31 / 52
Assignment
1
At what rate converted semiannually will an

investment of 40,000PhP earn interest of
12,000PhP in 5 12 years?
Elaine borrowed 100,000PhP with interest at 12%
compounded quarterly and agreed to pay
305,000PhP to settle this debt. For how long was
the money borrowed?
What effective rate is equivalent to 13%
compounded quarterly?
Find the simple discount rate equivalent to 8.6%
converted quarterly in an 8-year transaction.
Compound Interest
32 / 52
Quiz 1
The coverage of Quiz 1 ends here.
Compound Interest
33 / 52
Values of Obligation
Ex. A 4,000PhP obligation due in 18 months bears
interest of 15% compounded semiannually. If money
is worth 12% compounded monthly, find the value of
this obligation
a. at the end of 2 years
ANS. 5,274.89PhP
b. now
ANS. 4,154.33PhP
To find the value of an obligation at any date, we first

compute its maturity value on the due date before we
accumulate/discount it to the desired date.
Compound Interest
34 / 52
this obligation
ANS. 5,274.89PhP
b. now
ANS. 4,154.33PhP

Compound Interest
34 / 52
this obligation
ANS. 5,274.89PhP
b. now
ANS. 4,154.33PhP

Compound Interest
34 / 52
this obligation
ANS. 5,274.89PhP
b. now
ANS. 4,154.33PhP

Compound Interest
34 / 52
Comparison of Values
Ex. Which of the following two amounts of money is

more valuable?
A. 15,000PhP due at the end of 3 years
B. 19,000PhP due at the end of 6 years
Assume that money is worth 8% compounded
quarterly.
Compound Interest
35 / 52
Note that we CANNOT compare the values of two

amounts of money which are due on different dates,
UNLESS both amounts are brought on the same date
by either accumulating/discounting. This date is
called the comparison date.
Compound Interest
36 / 52
In the previous example, suppose we set the

comparison date to be at the end of 5 years.
(a) Accumulate 15,000PhP to CD by 2 years:
F = 17,574.89PhP
(b) Discount 19,000PhP to CD by 1 year:
P = 17, 553.06
Hence, 15,000PhP due in 3 years is more valuable
than 19,000PhP due in 6 years.
Compound Interest
37 / 52
NOTE:
1
Even if a different CD were used, the conclusion
will still be the same.
2
If we are free to choose the CD, then we use any
of the given due dates to make comparisons
faster.
Compound Interest
38 / 52
In the previous example, if we set the CD to be at the

end of 6 years, then we only need to accumulate
15,000PhP by 3 years before comparing the resulting
amount (19,023.63PhP) to 19,000PhP.
Hence, we arrive the same conclusion.
Compound Interest
39 / 52
Comparison of Values of Obligations

Ex. Which obligation is more valuable?
A. 27,000PhP due in 4 years with interest at 5%
compounded quarterly
B. 26,000PhP due in 3 years with interest at 6%
compounded semiannually
Money is worth 7 21 % compounded annually. Use the
end of 5 years as comparison date.
ANS. At CD = 5yrs, OA = 35,407.29PhP while OB =
35,876.79PhP. Hence, obligation B is more valuable
than obligation A.
Compound Interest
40 / 52
Comparison of Values of Obligations

Ex. Which obligation is more valuable?
A. 27,000PhP due in 4 years with interest at 5%
compounded quarterly
B. 26,000PhP due in 3 years with interest at 6%
compounded semiannually
Money is worth 7 21 % compounded annually. Use the
end of 5 years as comparison date.
ANS. At CD = 5yrs, OA = 35,407.29PhP while OB =
35,876.79PhP. Hence, obligation B is more valuable
than obligation A.
Compound Interest
40 / 52
Equation of Values
An equation of values is an equation that shows that

one set of values is equal to another set on the same
comparison date.
Payment/s =
Compound Interest
Obligation/s
41 / 52
Examples
1. Ricky owes Janet 10,000PhP due in 4 12 years. On

the third year, he pays 3,000PhP. How much
would he have to pay on the sixth year to
discharge the rest of his obligation if money is
worth 9% compounded semiannually?
ANS. 7,504.88PhP
Compound Interest
42 / 52
Examples
1. Ricky owes Janet 10,000PhP due in 4 12 years. On

the third year, he pays 3,000PhP. How much
would he have to pay on the sixth year to
discharge the rest of his obligation if money is
ANS. 7,504.88PhP
Compound Interest
42 / 52
Examples
2. Mark owes Michelle the following debts:
A. 5,000PhP due in 1 year
B. 7,000PhP due in 9 months with accumulated simple interest from
today at 9%
C. 4,000PhP due in 18 months with accumulated interest from today
at 15%, m = 2
Mark wishes to replace these debts with two equal

payments at the end of 10 months and 2 years,
respectively. Find the amount of each payment if
money is worth 12% compounded monthly.
ANS. 9,111.23PhP
Compound Interest
43 / 52
Examples
2. Mark owes Michelle the following debts:
A. 5,000PhP due in 1 year
B. 7,000PhP due in 9 months with accumulated simple interest from
today at 9%
C. 4,000PhP due in 18 months with accumulated interest from today
at 15%, m = 2
Mark wishes to replace these debts with two equal

payments at the end of 10 months and 2 years,
respectively. Find the amount of each payment if
money is worth 12% compounded monthly.
ANS. 9,111.23PhP
Compound Interest
43 / 52
Examples
3. What payment at the end of 5 years and 6

months, in addition to 12,000PhP at the end of 3
years, will discharge the following obligations:
A. 9,500PhP due now
B. 25,000PhP due at the end of 4 12 years with accumulated interest
from today at 10% compounded semiannually
if money is worth 12% compounded

semiannually? Use the end of 5 12 years as
comparison date.
ANS. 45,551.94PhP
Compound Interest
44 / 52
Examples
3. What payment at the end of 5 years and 6

months, in addition to 12,000PhP at the end of 3
years, will discharge the following obligations:
A. 9,500PhP due now
B. 25,000PhP due at the end of 4 12 years with accumulated interest
from today at 10% compounded semiannually
if money is worth 12% compounded

semiannually? Use the end of 5 12 years as
comparison date.
ANS. 45,551.94PhP
Compound Interest
44 / 52
Assignment
1
Joey owes 2,000PhP due in 2 years and

6,000PhP due in 5 years. What single payment on
the 4th year will settle these debts if money is
A man owes 12,000PhP due in 3 years and
18,000PhP due in 7 years with accumulated
interest from today at 10%, m = 4. He decides to
pay by making a payment of 8,000PhP at the end
of 1 year, 5,000PhP at the end of 5 years, and
another payment at the end of 9 years. If money is
worth 14%, m = 2, find the size of the payment at
the end of 9 years.
Compound Interest
45 / 52
Varying Interest Rates
If the interest rate changes during the investment

term, the amount at the previous rate is computed
first before applying the new rate.
Compound Interest
46 / 52
Examples
1. Tin Tin invested 120,000PhP in a fund that pays

interest at 9%, m = 4, for the first 6 years; 8%,
m = 4 for the next 8 years; and 7%, m = 12
thereafter. If the money is invested for 20 years,
how much will it be then in the fund?
ANS. 586,381.25PhP
Compound Interest
47 / 52
Examples
1. Tin Tin invested 120,000PhP in a fund that pays

interest at 9%, m = 4, for the first 6 years; 8%,
m = 4 for the next 8 years; and 7%, m = 12
thereafter. If the money is invested for 20 years,
how much will it be then in the fund?
ANS. 586,381.25PhP
Compound Interest
47 / 52
Examples
2. On June 21, 2006, Dylan invested 40,000PhP in a

fund. How much money will he have on
September 21, 2015 if the rate of interest is 9%
compounded every 4 months until June 21, 2011,
and then change to 10% compounded every 3
months in the remaining years?
ANS. 94, 825.27PhP
Compound Interest
48 / 52
Examples
2. On June 21, 2006, Dylan invested 40,000PhP in a

fund. How much money will he have on
September 21, 2015 if the rate of interest is 9%
compounded every 4 months until June 21, 2011,
and then change to 10% compounded every 3
months in the remaining years?
ANS. 94, 825.27PhP
Compound Interest
48 / 52
Continuous Compounding
- interest are compounded very frequently
The amount when principal P is invested for t years at
the nominal rate j compounded continuously is
F = Pejt
and, consequently, we can compute the present value
by using the formula
P = Fejt
Compound Interest
49 / 52
Examples
1. Find the amount in 4 years if 6,900PhP is invested

at 7 21 % compounded continuously.
ANS. 9,314.03PhP
2. How much should be invested now in order to
have 50,000PhP in 3 41 years if it is invested at 6 23 %
compounded continuously?
ANS. 40,259.92PhP
Compound Interest
50 / 52
Examples

ANS. 9,314.03PhP
ANS. 40,259.92PhP
Compound Interest
50 / 52
Examples

ANS. 9,314.03PhP
ANS. 40,259.92PhP
Compound Interest
50 / 52
Examples

ANS. 9,314.03PhP
ANS. 40,259.92PhP
Compound Interest
50 / 52
Examples
3. Find the effective rate of interest that is equivalent

to 11% converted continuously.
ANS. 11.63%
4. Find the amount due at the end of 8 years if
35,000PhP is invested at 12% converted
continuously for the first 4 years and 14%
converted quarterly for the last 4 years.
ANS. 98,078.77PhP
Compound Interest
51 / 52
Examples

ANS. 11.63%
ANS. 98,078.77PhP
Compound Interest
51 / 52
Examples

ANS. 11.63%
ANS. 98,078.77PhP
Compound Interest
51 / 52
Examples

ANS. 11.63%
ANS. 98,078.77PhP
Compound Interest
51 / 52
Assignment
1
A certain amount P was invested in a fund at a

rate of 7.5% simple interest for the first 5 years, at
18% compounded monthly for the next 5 years,
and at 14% compounded semiannually for the
remaining years. If the total amount in the fund
after 13 years is 89,560PhP, find the initial amount
P invested in the fund.
Find the amount due if 8,000PhP is invested for 6
years at 8% converted (a) monthly (b)
continuously.
Find the rate compounded continuously that is
equivalent to 8% compounded quarterly.
Compound Interest
52 / 52

BUSANA1 Chapter2 - Compound Interest

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

BUSANA1 Chapter2 - Compound Interest

Uploaded by

Copyright:

Available Formats

Compound Interest

DLSU BUSANA1 Chapter 2

For simple interest, the interest earned is constant

DLSU BUSANA1 Chapter 2

Conversion Period and Frequency of Conversion

Interest may be compounded/converted into the

DLSU BUSANA1 Chapter 2

Conversion Period and Frequency of Conversion

Conversion Period Frequency (m)

DLSU BUSANA1 Chapter 2

Total Number of Conversion

If t is the term of investment, the total number of

DLSU BUSANA1 Chapter 2

Frequency of Term Number of

DLSU BUSANA1 Chapter 2

The Nominal Rate and Interest Rate Per Period i

DLSU BUSANA1 Chapter 2

The Nominal Rate and Interest Rate Per Period i

DLSU BUSANA1 Chapter 2

Compound Amount and Interest Formula

DLSU BUSANA1 Chapter 2

DLSU BUSANA1 Chapter 2

DLSU BUSANA1 Chapter 2

DLSU BUSANA1 Chapter 2

DLSU BUSANA1 Chapter 2

DLSU BUSANA1 Chapter 2

3. On May 6, 2009, Dianne borrowed 6,000PhP and

DLSU BUSANA1 Chapter 2

3. On May 6, 2009, Dianne borrowed 6,000PhP and

DLSU BUSANA1 Chapter 2

Present Value at Compound Interest

DLSU BUSANA1 Chapter 2

Present Value at Compound Interest

To discount F due in n periods means to find its

DLSU BUSANA1 Chapter 2

DLSU BUSANA1 Chapter 2

DLSU BUSANA1 Chapter 2

DLSU BUSANA1 Chapter 2

DLSU BUSANA1 Chapter 2

3. A laptop computer was bought on installment

DLSU BUSANA1 Chapter 2

3. A laptop computer was bought on installment

DLSU BUSANA1 Chapter 2

Accumulate 5,000PhP for 7 14 years at 15%

DLSU BUSANA1 Chapter 2

Finding the Nominal Interest Rate

DLSU BUSANA1 Chapter 2

1. If 25,000PhP earned an interest of 3,000PhP after

DLSU BUSANA1 Chapter 2

1. If 25,000PhP earned an interest of 3,000PhP after

DLSU BUSANA1 Chapter 2

1. If 25,000PhP earned an interest of 3,000PhP after

DLSU BUSANA1 Chapter 2

1. If 25,000PhP earned an interest of 3,000PhP after

DLSU BUSANA1 Chapter 2

3. At what rate converted semiannually will a given

DLSU BUSANA1 Chapter 2

3. At what rate converted semiannually will a given

DLSU BUSANA1 Chapter 2

Logarithm and Its Properties

DLSU BUSANA1 Chapter 2

Logarithm and Its Properties

common logarithm: 10x = N log N = x