“What are some

ways to take care of

hard-earned money?”
COMPOUND INTEREST
 LESSON OBJECTIVES

1. Illustrates compound interests.

2. Distinguishes between simple and
compound interests.
3. Computes interest, maturity value,
future value, and present value in
compound interest environment.
Compound Interest

 Is the procedure in
which interest is
periodically calculated
and added to the
principal.
Compound frequency/m

 Or conversion
frequency, the number
of compounding that
take place in a year
Conversion period

 Time interval between

succeeding interest
calculations.
 Compound period or
interval period
 Compounding Frequency
and Periods

Compounding or No. of compounding or Compounding or

conversion frequency conversions per year conversion periods
Annual 1 1 year
Semiannual 2 6 months
Quarterly 4 3 months
Bimonthly 6 2 months
Monthly 12 1 month
Nominal interest/j

 Is the stated annual

interest rate on which
the compound interest
calculation is based.
Periodic Interest Rate/i

 Is the rate of interest

earned in one
conversion period.
Variables

A = future value of the loan or investment

P = Principal amount of the loan or investment
I = amount of interest paid or received
j = nominal interest rate
m = number of conversion per year
t = time period or term of the loan or investment
i = periodic interest rate
n = number of conversion of the loan
Formulas:

 
i= n = tm

P = or P = A

A= I=A-P
Example:

 What will be the maturity

value of Php12,000
invested for 4 years at
15% compounded
quarterly?
Example:

 Find the interest earned at

the end of 4 years if
Php36,700 is invested at
12% compounded bi
monthly.
Example:

 Andrei wants to have

Php1,500,000 in 5 years and 2
months. If the banks interest is
12% compounded quarterly, how
much should he deposit in the
bank now?
Example:

 Sarge paid Php8,600 on a

loan made 2 years before
at 6% compounded bi-
monthly. Find the interest
generated.
Example:

 What amount must be invested

 

now in savings account

earning 9% compounded
quarterly to accumulate a total
of Php21,000 after 4 years?
Example:

 Determine the maturity

 

value of Php 3,000

invested at 9.5%
compounded semiannually
for 3 years.
Exercise:

Magdalene wants to provide a

Php200,000 graduation gift for her
daughter Martha 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 large must the deposit?
Exercise:

Find the compound interest

if Php50,000 is invested at
8% compounded quarterly
for 4 years.
Exercise:

Hannah makes it a practice to save a

part of her allowance. She deposited
her savings to the bank. Her savings
amounted to Php10,500. how much
would she have in 3 years if the banks
interest is 4.5% compounded daily?
Exercise:

Ferdinand wants to have

Php85,000 in his account by the
end of 3 years. How much should
be invest today in a bank that
pays 9% compounded monthly?
Exercise:

Accumulate Php12,000 at
9% compounded semi
annually for 2 years.