STRATEGIC INTERVENTION MATERIALS (SIM)

GENERAL MATHEMATICS 11
2ND QUARTER

SOLVING PROBLEMS INVOLVING COMPOUND INTEREST

TITLE CARD
Least Mastered Competency:
Solve problems involving compound interest. (M11GM-IIb-2)
Objectives:
1. Solve problems that compute the Future Value.
2. Solve problems that compute the Present Value.
3. Solve problems that compute the Interest.

GUIDE CARD
Compound interest is the procedure in which interest is periodically
calculated and added to the principal.
Conversion period (compounding period or interval period) is the time
interval between succeeding interest calculations.
The interest earned during a period is converted to principal at the end of
the period because the principal and the interest combined and treated as the new
principal for the succeeding period. The effect of converting interest to principal is
that the interest earned in a period will also earn interest in all succeeding periods.
The compound frequency (or conversion frequency) is the number of
compounding that takes place in a year.

Compounding Frequencies and Periods (Table 1.1)

Compounding or No. of compounding or Compounding or
conversion frequency conversion per year conversion periods
Annual 1 1 year
Semiannual 2 6 months
Quarterly 4 3 months
Bimonthly 6 2 months
Monthly 12 1 month

The normal interest is stated annual interest rate on which the compound
interest calculation is based.
The periodic interest rate is the interest earned in one conversion period.
F = Maturity value of the loan or investment
P = Principal amount of the loan or investment
I = amount of interest paid or received
J = Nomianal interest rate
m = number of conversions per year
t = time period (term) of the loan or investment
i = periodic interest rate
n = number of conversions in a loan

The periodic interest rate is computed using the formula,

i = j/m
The number of conversions of the loan is computed using the formula
n = tm
Formula:
F = P(1 + i)n Finding the future value
P = F / (1 + i)n Finding the Principal or the Present Value
I=F–P Finding the interest

Example:

1. Esther deposited P25,000 in a savings bank on January 13, 2013. At that

time, the bank was paying 4% interest compounded quarterly. On July 13,
2015, the bank announced that it would start paying 4.5% interest,
compounded quarterly. How much did Esther have to her credits on July 13,
2017?

Solution:

We have to compute for two separate compound amounts. We need to deal

first with the first condition that the interest is at 4% compounded quarterly that
will run from January 13, 2013 to July 13, 2015.

F1 P1 j1 m1 t1 i1 n1
1 ½ years
= 1.5
P25,000 4 years i = j/m
4% = n = tm
as of (Quarterly (from i = 0.04 /
? 0.04 in n = 1.5(4)
January ) refer to January 4
decimal n=6
13, 2013 table 1.1 13, 2013 i = 0.01
to July
13, 2015)

Using the formula

F1 = P(1 + n)n
F1 = 25,000(1 + 0.01)6
F1 = 25,000(1.01)6
F1 = 25,000(1.061520150)
F1 = 26, 538

We can now compute the compound amount at 4.5% interest compounded

quarterly from July 13, 2015 to July 13, 2017.

F2 P2 J2 M2 T2 I2 N2
2 years =
2 years I = j/m
4
26,538 4.5% = (from I= N = tm
(Quarterly)
? as of July 0.045 in July 13, 0.045/4 N = 2(4)
refer to
13, 2015 decimal 2015 to I= N=8
table 1.1
July 13, 0.01125
2017)

Using the formula

F2 = P(1 + i)n
F2 = 26,538(1 + 0.01125)8
F2 = 26,538(1.01125)8
F2 = 26,538(1.093624616)
 F2 = 29,022.61
Therefore, Esther have P29,022.61 to her credit on July 13, 2017.
2. Howard wants to provide P200,000 graduation gift for her daughter
Magdalene who is now 16 years old. She would like the fund to be available
by the time her daughter is 20. She decides on an investment that pays 10%
compounded quarterly. How much large must the deposit be?

Solution:
Given

F P J M T I N
10% = 4 4 years I = j/m N = tm
0.1 in (quarterly) (20y/o – I = 0.1/4 N = 4(4)
200,000 ?
decimal refer to 16y/o I = 0.025 N = 16
table 1.1 now)

Using the formula:

P = F / (1 + i)n
P = 200,000(1 + 0.025)16
P = 200,000(1.025)16
P = 200,000/1.4845
P = 134,725.50
Howard should deposit P134,725.50 in order to grow as much as P200,000 by the
time her daughter is 20 years old.

3. Salome paid P8,600 on a loan made 2 years before 6% compounded

Bimonthly. Find the interest generated.

Solution:
Given

F P J M t I N
6 I = j/m
6% = N = tm
(Bimonthly) I=
8,600 ? 0.06 in 2 years N = 2(6)
refer to 0.06/6
decimal N = 12
table 1.1 I = 0.01

We will begin by solving the value of P using formula

P = F / (1 +i)n
P = 8,600/ (1 + 0.01)12
P = 8,600/(1.01)12
P = 8,600/1.1268
P = 7,632.23
After obtaining thee value of P = P7,623.23 and given the value of F = 8, 600, we
can now compute I using the formula,
I=F–P
I = 8,600 – 7,632.23
I = 967.77
Salome’s loan earned an interest of P967.77.
ACTIVIY CARD 1
Complete he table for each given problem.
1. To what sum of money will P10,000 accumulate in 3 years and 6 months at
5 % compounded quarterly?

Complete the table.

F P J M T I N
I = j/m N = tm

2. An obligation of P27,300 is due on March 16, 2017. What is the value of this
obligation on November 16, 2014 at 18% compounded Bimonthly.
Complete the table
F P J M T I N
I = j/m N = tm

3. Find the interest charged on a loan of P10,900 for 3 years at 7%

compounded Seniannually.
Complete the table
F P J M T I N
I = j/m N = tm

ASSESSEMENT CARD

Read and analyze the problem below. Identify what is being asked in the
given problem and put a check mark to its corresponding column.

Present
Future
Problem Value/Principa Interest
Value
l
1. If money is worth 10% converted
quarterly, find the interest of
P33,000 due at the end of 4
years.
2. Hannah bought a component
from a friend and paid P10,000
cash and agreed to pay P9,000
two years later. At 9%
compounded monthly, find the
cash value of the component.
3. Andrew inherited P1,500 on the
day he became 35 years old.
Under the specifications of the
will, the money was placed in a
trust fund that earned interest at
12.8% compounded quarterly.
What amount was in the fund on
Andrew’s fortieth birthday?
 4. On March 15, 2013, a man
borrowed P36,000 and promised
to pay the principal and interest
at 11% compounded quarterly
on September 15, 2016. How
much will he pay?
5. In his will a San Sebastian
Alumnus appointed a trust
company to handle his estates.
The company was instructed to
set aside a sum in a separate
account sufficient to pay his
alma mater P10,000 at the end
of 30 years. What sum should
the company deposit in the
separate account if it earns 7.5%
converted semiannually?

ENRICHMENT CARD

Solve the given problem. Complete the table and fill in the blanks.
To what sum of money will P10,000 accumulate in 3 years and 6 months at
5% compounded quarterly?

F P J M T I N
I = j/m N = tm

Using the formula,

F = P(1 + i)n

REFERENCE CARD

General Mathematics for Senior High School

A Comprehensive Approach K to 12 Curriculum Compliant
Winston S. Sirug, Ph.D. pp 126 - 156