Read each problem and answer the question.

Reflect your solution

1. Benny estimates he will need P250,000 to set up law office in 7 years, when he
graduates from law school. (a) how much must Benny invest now at 12% interest
compounded quarterly in order to achieve his goal? (b) How much compound
interest will he earn on the investment?

(a) Formula: PV = A

(1 + I)n

Given:

A = ₱250,000 i = r/m n =txm

t = 7 years = 12% / 4 =7x4

r = 8% = 3% = 28

Solution:

PV = ₱250,000

(1 + .03)28

= ₱250,000

2.287927676

PV = ₱109,269.19

(b) I = A – PV

= ₱250,000 - ₱109,269.19

I = ₱140,730.81

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 2. Find the present value of P140,000 due at the end of nine years if money is
worth (a) 5% compounded quarterly and (b) 7% compounded semi-annually. How
much is the compound interest in each case?

Formula: PV = A

(1 + I)n

Solution: (a)

A = ₱140,000 i = r/m n =txm

t = 9 years = 7% / 4 =9x4

r = 7% = 1.75% = 36

PV = ₱140,000 I=A-P

(1 + .0175)36 = ₱140,000 - ₱74,970.26

= ₱140,000 I = ₱65,029.74

1.867407266

PV = ₱74,970.26

Solution: (b)

A = ₱140,000 i = r/m n =txm

t = 9 years = 7% / 2 =9x2

r = 7% = 3.5% = 18

PV = ₱140,000 I=A-P

(1 + .035)18 = ₱140,000 - ₱73,370.56

= ₱140,000 I = ₱66,629.44

1.857489196

PV = ₱73,370.56

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 3. Amethyst has P100,000 at the end of three years in her savings account. The
interest rate is 24% compounded monthly . How much did she deposit in the
account 3 years ago?

Formula: PV = A

(1 + I)n

Given:

A = ₱100,000 i = r/m n =txm

t = 3 years = 24% / 12 = 3 x 12

r = 24% = 2% = 36

Solution:

PV = ₱100,000

(1 + .02)36

= ₱100,000

2.039887344

PV = ₱49,022.32

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 4. If P360,000 is due seven years from now and money is worth 5% compounded
annually, find the present value and the compound interest.

Formula: PV = A

(1 + I)n

Given:

A = ₱360,000 i = r/m n =txm

t = 7 years = 5% / 1 =7x1

r = 5% = 5% =7

Solution:

PV = ₱360,000

(1 + .05)7

= ₱360,000

1.407100423

PV = ₱255,845.28

I=A–P

= ₱360,000 - ₱255,845.28

I = ₱104,154.72

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 5. What principal will accumulate to P320,000 in four years at 4% compounded
quarterly?

Formula: PV = A

(1 + I)n

Given:

A = ₱320,000 i = r/m n =txm

t = 4 years = 4% / 4 =4x4

r = 4% = 1% = 16

Solution:

PV = ₱320,000

(1 + .01)16

= ₱320,000

1.172578645

PV = ₱279,902.80

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 6. Arthur paid a two-year debt with P16,907.40. The interest charged was at 6%
compounded monthly. What is the principal?

Formula: PV = A

(1 + I)n

Given:

A = ₱16,907.40 i = r/m n =txm

t = 2 years = 6% / 12 = 2 x 12

r = 6% = 0.5% = 24

Solution:

PV = ₱16,907.40

(1 + .005)24

= ₱16,907.40

1.127159776

PV = ₱15,000

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