COMPOUND INTEREST

Instructions: Answer the following questions. Show your solution and round off your final
answer into 2 decimal places. 5 points per item.
1. Alexander borrows ₱47,400 with interest at 18% compounded quarterly. How
much should he pay to the creditor after 3 years to pay off his debt?
2. James has just been notified that the combined principal and the interest on an
amount that he borrowed 30 months ago at 14% compounded semiannually, is
now ₱75,160.
3. How much of this amount is principal? Find the compound interest on ₱13, 680
at 9% for 4 years compounded yearly.
4. Esther deposited ₱25,000 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 credit on July 13, 2017.

1. Given: P = 47,400; j = 18% or 0.18; m = 4; t = 3 years

Solution: i = 0.18/4 = 0.045
n = (3)(4) = 12
F = P (1 + i)n
F = 47,000 (1 + 0.45)12
F = 47,000 (1.045)12
F = 79,706.43  Alexander should pay ₱79,706.43 to the creditor after 3 years
to pay off his debt.

2. Given: F = 78,160; t = 30 months; j = 14% or 0.14; m = 2

Solution: i = 0.14/2 = 0.07
n = (30/12)(2) = (2.5/2) = 5
P = F (1 + i)-n
P = 78,160 (1 + 0.07) -5
P = 78,160 (1.07) -5
P = 53,588.04  James borrows ₱53,588.04, 30 months ago.

3. Given: F = ₱13,680; j = 9% or 0.09; m = 1; t = 4 years

Solution: i = 0.09/1 = 0.09
n = (4)(1) = 4
P = F (1 + i)-n
Ic = F - P
P = 13,680 (1 + 0.09)-4
P = 13,680 (1.09)-4
P = 9,691.26
Ic = 13,680 - 9,691.26
 Ic = 4,058.74 The Principal is ₱9,691.26 with a compound interest of ₱4,058.74

4. Given: P = 25,000; j = 4% or 0.04; m = 4; t = 2 years

Solution: i = 0.04/4 = 0.01
n = (2)(4)+2 = 10  I added 2 because of the additional 2 quarters
F = P (1 + i)n
F = 25,000 (1 + 0.01)10
F = 25,000 (1.01)10
F = 27,615.55  Esther have a ₱27,615.55 on her credit in July 13, 2015.
P = 27,615.55; j = 4.5% or 0.045; m = 4; t = 2 years
Solution: i = 0.045/4 = 0.01125
n = (2)(4) = 8
F = P (1 + i)n
F = 27,615.55 (1 + 0.01125)8
F = 27,615.55 (1.01125)8
F = 30,201.05  On July 13, 2017, Esther have ₱30,201.05 on her credit.