Compound 8-1

8
Interest

Equation
Equation of value is a
mathematical statement
showing that two sets of
values on a common point are
equal.

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 Compound 8-2

8 Example
Interest

Mr. Tolentino owes a financial institution ₱20,000.00, including interest,

at the end of 2 years and ₱100,000.00, including interest, at the end of 5
years. If he has an option to settle these obligations on the 3rd year, how
much will be the amount of single payment if money is worth 8%
compounded semi-annually?

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 Compound 8-3

8 Example
Interest

How much single payment at the end of the 6th year will replace the
following obligations, if the interest rate changed to 8% effective at the
respective maturity date?
• ₱25,000.00 borrowed for 3 years at 7% compounded quarterly
• ₱60,000.00 borrowed for 5 years at 7% compounded semi-annually

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 Compound 8-4

8 Example
Interest

How much single payment will replace the following obligations if

there is an option of paying the debts at the 4th year, with a condition
that the interest rate will be changed into 5.5% compounded quarterly at
their respective maturity dates?
• ₱355,000.00 borrowed for 3 years and 6 months at 4.5%
compounded quarterly
• ₱1,000,000.00 borrowed for 6 years at 3% compounded annually

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 Compound 8-5

8 Example
Interest

How much single payment will replace the following obligations if

there is an option of paying the debts at the 7th year, with a condition
that the interest rate will be changed into 4% compounded quarterly at
their respective maturity dates?
• ₱525,000.00 borrowed for 4 years at 2% compounded quarterly
• ₱1,000,000.00 borrowed for 6 years at 2.5% effective
• ₱2,000,000.00 borrowed for 10 years at 3.5% compounded semi-
annually

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 Compound 8-6

8 Exercise (Notebook)
Interest

1. Robin borrowed ₱17,000.00 due in 2 years and ₱34,000.00 due in 4

years. Form an equation of value to know how much single payment
on 3rd year will settle his debts if money is worth 5.5% compounded
quarterly but changes to 6% effective by the maturity date.

2. You borrowed from the bank the following: (a) $15,000.00 due in 4
years with 5% interest compounded monthly; (b) $18,000.00,
including interest, due in 7 years with 8% compounded quarterly; and
(c) $25,570.00, including interest, due in 10 years with 6.5%
compounded semi-annually. How much would you have to pay the
bank if you wish to pay everything in the 6th year and the interest
rate changes to 7.5% compounded monthly at the maturity dates?

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