COMPOUND

INTEREST
 MATURITY (FUTURE) VALUE AND COMPOUND
INTEREST
F = P(1 + r)t
where:
P = principal or present value
F = maturity (future) value at the end of the term
r = interest rate
t = term/time in years

The compound interest Ic is given by

Ic = F - P
EXAMPLES:
1. Find the maturity value and the compound interest if Php10,000 is
compounded annually at an interest rate of 2% in 5 years.
Solution:
P = 10,000 r = 2% or 0.02 t = 5 years
Maturity Value
F = P(1 + r)t
= (10,000)(1 + 0.02)5
F = 11,040.081
Compound Interest
Ic = F – P
= 11,040.81 – 10,000
Ic = 1, 040.81
2. Find the maturity value and interest if Php50,000 is
invested at 5% compounded annually for 8 years.
3. Suppose your father deposited in your bank account
Php10,000 at an annual interest rate of 0.5% compounded
yearly when you graduated from kindergarten and did not
get the amount until you finish Grade 12. How much will
you have in your account after 12 years?

Answers:
2. F = 73,872.77 Ic = 23, 872.77
3. F = 10, 616.78
 PRESENT VALUE P AT COMPOUND
INTEREST
𝑭
P=
𝟏+𝒓 𝒕

where:
P = principal or present value
F = maturity (future) value at the end of the term
r = interest rate
t = term/time in years
EXAMPLES:
1. What is the present value of Php50,000 due in 7
years if money is worth 10% compounded annually?
Solution:
F = 50,000 r = 10% or 0.1 t = 7 years
Solution:
𝑭
P=
𝟏 + 𝒓 𝒕
𝟓𝟎, 𝟎𝟎𝟎
P=
𝟏 + 𝟎. 𝟏 𝟕
P = 25, 657.91
YOU TRY!
How much money should a student place in a
time deposit in a bank that pays 1.1%
compounded annually so that he will have
Php200,000 after 6 years?

Answer:
P = 187, 293.65
WORKSHEET #6:
B. Solve the following problems.
1. What is the amount of interest and maturity value of a loan for
Php150,000 at 6.5 % simple interest for 3 years?
2. At what simple interest rate per annum will Php25,000 accumulate to
Php33,000 in 5 years?
3. Mr. Ocampo invested Php150,000 at 10% compounded annually. He plans
to get this amount after 6 years for his son’s college education. How much
will he get?
4. What is the interest of Php25,000 if invested at 4.5% compounded
annually in 3 years and 2 months?
5. Mr. Bautista aims to have his investment grow to Php500,000 in 4 years.
How much should he invest in an account that pays 5% compounded
annually?
THANK YOU!